2nd Chance Properties

[CityFarmer]

It seems there were discrepancies on our numbers. Let's me verify mine.

I refer to the latest full year result, the FY2013. I refer to page 16 of the report, which stated segmental profit. The sum of all segments exclude property was $9.85 mil. Bear in mind that it was the profit before interest, tax and unallocated expenses.

Ref: http://infopub.sgx.com/FileOpen/SCPL_Ful...eID=261827

The business of gold is not scalable, so unlikely the contributor for future growth. The only hope is the apparel business, which might has room to grow in M'sia, and may be to Indonesia. The apparel business is a very profitable business, with ROE of over 50% in FY2013.

(not vested)

@ Cityfarmer:
The 9.85mil profit is excluding the ENTIRE property segment.
This particular property deal doesnt include selling off ALL of 2nd chance's property portfolio, although a substantial portion.

The recent announcement:
http://infopub.sgx.com/FileOpen/SCPL_Ann...eID=273640

Page5, point "b":
Profit due to properties in this transaction is 9.4% of the full yr net profit.

Also, just to note the 14.2mil profit excluding non core earnings, I am referring to excluding the fair value gains on properties. It STILL includes the rental income from the property.
This is a fairer way to assess as at that point in time, the company still owns the properties and has visibility in terms of earnings as the properties are leased. So rental income is considered core.
Fair value gains are unpredictable and cannot be considered as core earnings.
So the 14.2mil still includes property income, which is why it is higher than the 9.85mil indicated as net profit without property at all

OK, that is where the discrepancies come from. Thanks.

[ashparagon]

I wonder why the price is so resilient knowing that future yield will be bad. Is the company paying any special dividend or capital reduction from the proceeds?

market not efficient one coz 99% dont read annual reports or corp anncs.
(fund mgrs included)

Pardon my ignorance as I am new to this, but why should the price fall even if everyone else knows about the news?

Looking at it,

1. Prior to this, there were concerns about the property market cooling off and the properties will not appreciate further. Thus finding opportunity to sell the properties when the time and price is right seems like a sensible move.

2. The disposal is valued at S$175,376,412, while the book value is only S$134,773,500. That's 30% above valuation. That seems like a really good price. If the sale does go through, doesn't this actually increases the NAV of the company?

3. Since the company has great business sense and is making good decisions shouldn't we buy more instead of selling?

4. Another point to note is that this is an option agreement, the proposed disposal will only go through if CM exercise the call option or 2nd chance exercise the put option, by 29 Aug 2014. So nothing is finalised yet.

Am I missing something here?

[piggo]

I wonder why the price is so resilient knowing that future yield will be bad. Is the company paying any special dividend or capital reduction from the proceeds?

market not efficient one coz 99% dont read annual reports or corp anncs.
(fund mgrs included)

Pardon my ignorance as I am new to this, but why should the price fall even if everyone else knows about the news?

Looking at it,

1. Prior to this, there were concerns about the property market cooling off and the properties will not appreciate further. Thus finding opportunity to sell the properties when the time and price is right seems like a sensible move.

2. The disposal is valued at S$175,376,412, while the book value is only S$134,773,500. That's 30% above valuation. That seems like a really good price. If the sale does go through, doesn't this actually increases the NAV of the company?

3. Since the company has great business sense and is making good decisions shouldn't we buy more instead of selling?

4. Another point to note is that this is an option agreement, the proposed disposal will only go through if CM exercise the call option or 2nd chance exercise the put option, by 29 Aug 2014. So nothing is finalised yet.

Am I missing something here?

The last I checked, which was a long time ago, 2nd Chance's retail arm wasn't doing great. Clothing segment margins are thin, and meanwhile gold prices (which was heralded as a great hedge against inflation) aren't as high as before. With other retail stocks like FJ (though targeting different segment of the population) languishing due to terrible results, odds doesn't seem to be in their favor

Their attraction lies in their properties with most of the "profits" coming from revaluation of their properties and a steady stream of rental income. Now that the properties are going to be disposed, and most of the money going into the "retail" expansion... it kind of feels like they are throwing away good money to chase bad money. Also, previously it was mentioned that they plan to expand and IPO their retail arm i.e keeping the good stuff and disposing the bad. Now this seems like quite a deviation from their original plan which I think is not a good thing.

[CityFarmer]

The last I checked, which was a long time ago, 2nd Chance's retail arm wasn't doing great. Clothing segment margins are thin, and meanwhile gold prices (which was heralded as a great hedge against inflation) aren't as high as before. With other retail stocks like FJ (though targeting different segment of the population) languishing due to terrible results, odds doesn't seem to be in their favor

Their attraction lies in their properties with most of the "profits" coming from revaluation of their properties and a steady stream of rental income. Now that the properties are going to be disposed, and most of the money going into the "retail" expansion... it kind of feels like they are throwing away good money to chase bad money. Also, previously it was mentioned that they plan to expand and IPO their retail arm i.e keeping the good stuff and disposing the bad. Now this seems like quite a deviation from their original plan which I think is not a good thing.

Since the check was long time ago, let's do a review now.

Let's look at the last 3 years segmental data, the margin of apparel segment (before unallocated expenses and tax) was around 20%, which is good. I will not consider that a "bad money".

Property revenue was good and mainly from fair value gain. Fair value gain isn't sustainable, and that was one of the key reasons I divested recently. I am glad Mr. Salleh has decided to divest it with a good price.

As rightful pointed out by other buddy, it is only a partial divestment of properties. Out of the investment property book value of $202 mil (as in FY13 result), $135 mil of investment property will be sold, which is 2/3.

The vision statement of the company is "To be a billion dollar company in market capitalisation by 2022 by focusing on real estate activities". It might need a review, and will the target still valid?

(not vested)

[Belg]

The last I checked, which was a long time ago, 2nd Chance's retail arm wasn't doing great. Clothing segment margins are thin, and meanwhile gold prices (which was heralded as a great hedge against inflation) aren't as high as before. With other retail stocks like FJ (though targeting different segment of the population) languishing due to terrible results, odds doesn't seem to be in their favor

Their attraction lies in their properties with most of the "profits" coming from revaluation of their properties and a steady stream of rental income. Now that the properties are going to be disposed, and most of the money going into the "retail" expansion... it kind of feels like they are throwing away good money to chase bad money. Also, previously it was mentioned that they plan to expand and IPO their retail arm i.e keeping the good stuff and disposing the bad. Now this seems like quite a deviation from their original plan which I think is not a good thing.

Since the check was long time ago, let's do a review now.

Let's look at the last 3 years segmental data, the margin of apparel segment (before unallocated expenses and tax) was around 20%, which is good. I will not consider that a "bad money".

Property revenue was good and mainly from fair value gain. Fair value gain isn't sustainable, and that was one of the key reasons I divested recently. I am glad Mr. Salleh has decided to divest it with a good price.

As rightful pointed out by other buddy, it is only a partial divestment of properties. Out of the investment property book value of $202 mil (as in FY13 result), $135 mil of investment property will be sold, which is 2/3.

The vision statement of the company is "To be a billion dollar company in market capitalisation by 2022 by focusing on real estate activities". It might need a review, and will the target still valid?

(not vested)

Dear all,

As we have a look at their motto to achieve that 2020 target. If that goal is still intact, I must say Mr. Salleh is a very shrewd businessman to actually sell the properties at the top of the bubble and readily picking up good bargains when prices are at the bottom.

I will be raring to see if that is what 2nd chance is all about. Divestment and change based on the situation and environment change.

[Nick]

The Company did recently acquire a property in Malaysia for RM 46.5 million - http://infopub.sgx.com/FileOpen/SCPL_Ann...eID=239977 - so perhaps they intend to continue building the property investment division in the years to come by reinvesting the proceeds in regional countries or waiting for property prices to correct etc.

(Not Vested)

[merxantia]

Have also noticed in recent filings CEO Mohd Salleh has been buying back shares to support the share price.

[zquan]

Why would the price drop ?
With the post-divestment of the properties,
-the company would be in a net cash position(debt-free)
-i believe some are holding in anticipation of the special dividend of abt 0.0166.
-It still has a portfolio of about 20 properties.
-The company would have about 98 million for future business expansion( approx 0.1546).

Reading through the AR, i think the company is in 4 lines of business (Apparel, Gold , Properties and Securities), not sure why most of the postings in VBs did not take mention about the securities business ?

FY 2013
Revenue
Apparel 21.28
Gold 18.87
Properties 9.82
Securities 3.95

NPAT
Apparel 4.25
Gold 2.25
Properties 51.55-42.95 = 8.6
Securities 3.35

[greengiraffe]

Buying a property based co at book value is quite a big risks to take. 2nd Chance is also a small cap property company. Apart from Fragrance and Aspial Groups that trades on PER rather than against book value, I can think of other comparisons. Even securities portfolio is volatile and should not deserve high PE ratings otherwise closed-end trusts would not be trading at discount for the longest time.

Personally, I would buy property companies that trades on discount to book value as a margin of safety. From these perspective, there are plenty of other choices available on the mkt.

Moreover, currently it is just a proposal to sell the portfolio of properties on condition that the REIT will be listed - this point to me is more important since who would commit money for such a mickey mouse REIT?

Vested (Odd Lots)
GG

[CityFarmer]

Reading through the AR, i think the company is in 4 lines of business (Apparel, Gold , Properties and Securities), not sure why most of the postings in VBs did not take mention about the securities business ?

Among the 4 lines of business, only Apparel and Properties are the key businesses. The Gold business is good, but it is unscalable i.e. no prospect for growth. The Securities business is mainly bond investments, which primary function is for capital preservation of cash reserve.

(not vested)