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27-02-2014, 08:20 AM
HOCK LOCK SIEW
More property privatisations to come?
BYCAI HAOXIANG HAOXIANG@SPH.COM.SG PRINT |EMAIL THIS ARTICLE
THE proposed privatisation of Singapore Land by parent United Industrial Corporation throws the spotlight on the depressed residential property development segment. While residential prices here have not corrected by that much, many developers have been steadily sold down in the past year, in anticipation of a market downturn.
As SingLand gets taken private at an 11 per cent premium to its last traded share price on Feb 19 (inclusive of dividends), investors may very well ask which company comes next. A number of property development companies are trading at sizeable discounts to their stated values, but only a few may have upside catalysts by being privatisation candidates.
Developer profits tend to be lumpy, so a key metric to examine is either the net asset value (NAV) of a company, or its revised net asset value (RNAV) - essentially an analyst's estimate of the company's worth after taking into account properties held at cost that should be revalued to market prices - and the present value of future development profits, with liabilities subtracted.
The SingLand bid comes at a roughly 30 per cent discount to average RNAVs, a discount level to which analysts usually set target prices. RNAVs are usually higher than NAVs due to adjustments made for market prices and future profits. This implies that profitable, long-established counters trading at a sufficiently wide discount to their NAVs or RNAVs - say 50 per cent or more - could be perceived as severely undervalued by their owners, who might then see value in taking their companies private.
The owner of a private company has more leeway to reshuffle management, dispose of unprofitable assets or even liquidate the company to unlock value - away from the glare of the public eye and free from the costs and constraints of quarterly reporting.
Companies that are likely to go private are typically smaller and owned mostly by wealthy families, making them easier to take over. There are some interesting possibilities on the market among less-covered counters.
Tuan Sing Holdings is trading near a one-year low of 27 cents a share, at a 56 per cent discount to its last reported net asset value of 64 cents a share. It is controlled by Indonesia's Liem (Lim) family through their investment vehicle Nuri Holdings, which owns a 46.6 per cent stake.
Chief executive William Liem's father, Lim Tek Siong, controls another 4.72 per cent. The company is currently valued by the market at $330 million.
Tuan Sing bought freehold property Robinson Point last year for $350 million. It is also redeveloping Robinson Towers, the site which had a fair value of $344 million at end-2013.
The company also owns other businesses, including hotels in Australia and printed circuit board manufacturer Gul Tech, which it delisted last year. In all, it has about $1.8 billion in assets on its book, and $1 billion of debt and payables.
NRA Capital Research had a fair value of 74 cents a share for the company last May, excluding future potential sales of residential projects Seletar Park Residence and Sennett Residence. The company looks a tad underpriced, even after one takes a 50 per cent discount from that.
Residential developer Wing Tai Holdings is another marquee name that stands out, having traded below half its book value at the beginning of the month. It is now trading at slightly above half its NAVs and RNAVs. The company is considerably bigger than Tuan Sing and widely owned, so going private might not be in its interest yet. Public listings do give prominence and access to capital, and it is difficult to convince a more diverse shareholder base to part with their stakes at a reasonable price.
DBS Group Research recommends a "buy" on the counter with a price target of $2.22 pegged at a 45 per cent discount to RNAV, as it cautioned that there are no near-term catalysts.
There is small-cap residential developer Sing Holdings, which is now looking abroad for development opportunities, given the challenging state of the local market. Sing Holdings was one of Singapore's oldest unlisted developers before it went public in 2006. It is trading at a 36 per cent discount to NAV.
Finally, there are a host of smaller, thinly traded China property development companies - Debao Property, Pan Hong Property, and Catalist-listed tiny-cap Starland Holdings - all trading at discounts of about 60 to 70 per cent to their NAVs. The large discounts are probably due to their illiquidity and the lack of investor confidence in S-chips.
Pan Hong's Hong Kong-listed business unit Sino Harbour Property Group gets better valuations than its Singapore counterpart - though Sino Harbour is also at a 36 per cent discount to NAV. Debao has a few projects under development or potential development in Foshan, China, and one in Malaysia, according to its 2012 annual report.
It is possible these companies will look for China listings once financial markets there settle down and initial public offerings flow again. Despite their undervaluation on paper, though, there seems to be no upside catalyst for now. The privatisation theme might be the only one worth exploring.
More property privatisations to come?
BYCAI HAOXIANG HAOXIANG@SPH.COM.SG PRINT |EMAIL THIS ARTICLE
THE proposed privatisation of Singapore Land by parent United Industrial Corporation throws the spotlight on the depressed residential property development segment. While residential prices here have not corrected by that much, many developers have been steadily sold down in the past year, in anticipation of a market downturn.
As SingLand gets taken private at an 11 per cent premium to its last traded share price on Feb 19 (inclusive of dividends), investors may very well ask which company comes next. A number of property development companies are trading at sizeable discounts to their stated values, but only a few may have upside catalysts by being privatisation candidates.
Developer profits tend to be lumpy, so a key metric to examine is either the net asset value (NAV) of a company, or its revised net asset value (RNAV) - essentially an analyst's estimate of the company's worth after taking into account properties held at cost that should be revalued to market prices - and the present value of future development profits, with liabilities subtracted.
The SingLand bid comes at a roughly 30 per cent discount to average RNAVs, a discount level to which analysts usually set target prices. RNAVs are usually higher than NAVs due to adjustments made for market prices and future profits. This implies that profitable, long-established counters trading at a sufficiently wide discount to their NAVs or RNAVs - say 50 per cent or more - could be perceived as severely undervalued by their owners, who might then see value in taking their companies private.
The owner of a private company has more leeway to reshuffle management, dispose of unprofitable assets or even liquidate the company to unlock value - away from the glare of the public eye and free from the costs and constraints of quarterly reporting.
Companies that are likely to go private are typically smaller and owned mostly by wealthy families, making them easier to take over. There are some interesting possibilities on the market among less-covered counters.
Tuan Sing Holdings is trading near a one-year low of 27 cents a share, at a 56 per cent discount to its last reported net asset value of 64 cents a share. It is controlled by Indonesia's Liem (Lim) family through their investment vehicle Nuri Holdings, which owns a 46.6 per cent stake.
Chief executive William Liem's father, Lim Tek Siong, controls another 4.72 per cent. The company is currently valued by the market at $330 million.
Tuan Sing bought freehold property Robinson Point last year for $350 million. It is also redeveloping Robinson Towers, the site which had a fair value of $344 million at end-2013.
The company also owns other businesses, including hotels in Australia and printed circuit board manufacturer Gul Tech, which it delisted last year. In all, it has about $1.8 billion in assets on its book, and $1 billion of debt and payables.
NRA Capital Research had a fair value of 74 cents a share for the company last May, excluding future potential sales of residential projects Seletar Park Residence and Sennett Residence. The company looks a tad underpriced, even after one takes a 50 per cent discount from that.
Residential developer Wing Tai Holdings is another marquee name that stands out, having traded below half its book value at the beginning of the month. It is now trading at slightly above half its NAVs and RNAVs. The company is considerably bigger than Tuan Sing and widely owned, so going private might not be in its interest yet. Public listings do give prominence and access to capital, and it is difficult to convince a more diverse shareholder base to part with their stakes at a reasonable price.
DBS Group Research recommends a "buy" on the counter with a price target of $2.22 pegged at a 45 per cent discount to RNAV, as it cautioned that there are no near-term catalysts.
There is small-cap residential developer Sing Holdings, which is now looking abroad for development opportunities, given the challenging state of the local market. Sing Holdings was one of Singapore's oldest unlisted developers before it went public in 2006. It is trading at a 36 per cent discount to NAV.
Finally, there are a host of smaller, thinly traded China property development companies - Debao Property, Pan Hong Property, and Catalist-listed tiny-cap Starland Holdings - all trading at discounts of about 60 to 70 per cent to their NAVs. The large discounts are probably due to their illiquidity and the lack of investor confidence in S-chips.
Pan Hong's Hong Kong-listed business unit Sino Harbour Property Group gets better valuations than its Singapore counterpart - though Sino Harbour is also at a 36 per cent discount to NAV. Debao has a few projects under development or potential development in Foshan, China, and one in Malaysia, according to its 2012 annual report.
It is possible these companies will look for China listings once financial markets there settle down and initial public offerings flow again. Despite their undervaluation on paper, though, there seems to be no upside catalyst for now. The privatisation theme might be the only one worth exploring.