Friday, 8 February 2019

A brief attempt at estimating Singpost (SGX: S08)


Introduction
This post would attempt to briefly value Singpost using the balance sheet and many assumptions.
Singpost is the dominant local mail provider in Singapore with its headquarters situated at Paya Lebar.
In recent years, it has gone on an acquisition spree with as many as 11 companies under its Goodwill.(Goodwill is the excess paid over book value for acquisition of a company)
This has allowed Singpost to expand its logistics and eCommerce business. 
It has also revamped a portion of its headquarters at Paya Lebar into a retail mall.
However, the results of logistics and eCommerce segments seems to be declining in recent years.

Valuing Singpost's discount rate
In determining the discount rate to be used, we would use the rate of return required on equity and debt. As Singpost has perpetual on its balance sheet, we would need to account for those as well.

Tax rate used will be 17% . Assume return of equity to be 15% as a personal target for investing via stock picking.


Rate of Return
% proportion of Debt + Equity
Total return
Debt
3.5% (Listed Notes)
14.6%
0.424%(0.0042413)
Equity
15%
67.9%
10.185% (0.10185)
Perps
4.25%
17.5%
0.0743%(0.0074375)
Company Discount rate(Sum of 3 above)


11.35% (0.1135)
           
We will be using 11.35% as our discount rate.

Postal Segment
Method of Estimation: Extrapolation of 9 months results and doing a Discounted Cash Flow (DCF) calculation

Bull Case: Assume revenue growth of 3%, Operating margins to be kept steady at 22% as per Q3 results.
Value per share = $0.7673

Normal Case
Assume revenue growth of 0%. Operating margins at 22%
Value per share = $0.5481

Bear case     
Assume revenue growth of -2%. Operating margins at 22%
Value per share = $0.4566

Property
(Lease of Singpost headquarters expires 30 August 2081)
Method of estimation, using discounted cash flow method till 2081 by extrapolating amount of profit at 9mths FY18/19 for full year.

Bull Case: Positive profit growth at 6%
Value per share = $0.3531

Base Case: Positive profit growth at 2%
Value per share = $0.1934

Bear Case: Negative profit growth of 1%
Value per share =$0.1605


Logistics
Method of estimation, using discounted cash flow for bull and base case.

Bull Case. Good turnaround in Q3 continues and profit margins hit 0.7%, 1 % growth
Value per share = $0.001438

Base Case. Assume profit margins of 0.46%(Q3 margins) with 0% growth
Value per share = $0.0009272

Bear Case. Unprofitable business, assume sale at 50% tangible book value(as of 2017 FY)
Value per share = $0.07676

E-Commerce
Segment has been unprofitable  since FY15/16
Method of estimation. Divestment as there is no profits since FY15/16
Bull Case. Divestment at 75% of book value
Value per share = $0.06114

Base Case. Divestment at 75% of tangible book value
Value per share = $0.03464

Bear Case. Unprofitable business, assume sale at 50% tangible book value
Value per share = $0.02310


Overall
Value per Share($)
Bull Case
Base Case
Bear Case
Postal
0.767340369

0.548076822

0.456648576

Property
0.353154134

0.193356617

0.160458906

Logistics
0.001437987

0.000927204

0.076760488

eCommerce
0.061139201

0.034649862

0.023099908

Total
1.183071691

0.777010504


0.716967877

% of scenario occurring
5%
60%
35%
Implied Value
Per Share
0.77



Key Concerns
Postal:  Business may not continue indefinitely as the license needs to be renewed periodically.

Property: Estimation of bull case profits increase of 6% could be overly optimistic

Logistics: Business estimation is definitely very difficult as profits for these 9 months of FY 18/19 are very low resulting in margins that are way lower than previous years.

eCommerce: Losses may continue and affect divestment price as these negative profits will reduce equity and in turn reduce assets. This would hurt the divestment value of the segment.


Food for thought
In FY18/19, the company has moved its self storage business (General Storage Company Limited) from Logistics segment to Property Segment. As such it becomes harder to estimate the commercial property rental.



As of Q3 FY18/19, Intangible assets accounted for 13.79% of total assets and 21.5% of net assets. It also amounted to value per share of $0.1677.

Conclusion

I would practice my patience and wait for a purchase price of $0.59 to occur. This would give me a 15% upside to my bear case estimations which is in line with my 15% return on equity set earlier. Any upside that will improve the valuations will have to come from a surge in margins of logistics business or a turnaround in the e-commerce business.

Alternatively, a good exit value of the acquisitions made will improve the net asset value of the company and improve its balance sheet by reducing intangibles.












Monday, 21 January 2019

Frasers Centrepoint Trust 1Q Results Write-up


FCT has released its 1Q 19 results today.
DPU came in at 3.02 cents.
At today's trading price of $2.26, it offers 1.33% dividend for 1 quarter.

The Positives
1Q 19 vs 4Q 18
Gross Revenue( $ millions)
1Q 19
4Q 18
% Change
Causeway Point
21.76
21.53
 1.07
Northpoint City North Wing
13.51
13.02
 3.76
Changi City Point
6.83
6.92
-1.30
Yew Tee Point
3.55
3.45
 2.90
Anchorpoint
2.11
2.04
 3.43
Bedok Point
1.52
1.55
-1.94
Total
49.28
48.51
 1.59

1Q 19 vs 4Q 18
Net Property Income( $ millions)
1Q 19
4Q 18
% Change
Causeway Point
16.84
15.44
 9.07
Northpoint City North Wing
10
9.11

 39.77
Changi City Point
4.51
4.41
 2.27
Yew Tee Point
2.47
2.29
 7.86
Anchorpoint
0.94
0.89
 5.62
Bedok Point
0.62
0.73
-15.07
Total
35.39
32.87
 7.67

  •           From the 2 tables above, we can see that Quarter on Quarter ("qoq") net property income has improved by 7.6%. With the exception of Bedok Point, the rest of the areas have seen improvements throughout. This is definitely a positive for the reit.
  •           Another positive for the reit will be its improving mall occupancy rates throughout all malls. Anchorpoint and Bedok Point in particular have improved their mall occupancy by 6.2% and 5% respectively

The Concerns
  •          Northpoint City North Wing has recorded a negative rental reversion of -1.3%. This definitely is puzzling given that it has just underwent AEI. Even though in 3Q 18 (April 2018 to June 2018) rental reversions went up by 25.8% followed by 0.5% in 4Q 18, it seems like the positive rental reversions might have come to a halt. Coupled with 11.8% of gross rent to expire in FY 2019, it remains to be seen if gross revenue would exceed $52.21 million in 2018.
  •          Anchorpoint records 3 consecutive quarters of negative rental reversions. While not a big mall under its portfolio, -32.8% in 3Q 18 followed by -10.4% in 4Q 18 and -12.1% in 1Q 19 would not be pleasing news to any investors. Coupled with 16 leases accounting for 43.1% of gross rent expiring in FY 19, future negative reversions would reduce the net property income from Anchorpoint further.
  •          While not an observation from 1Q 2019 results, I have realised that the capitalisation rate has decreased in the 4Q 2018results(Slide 19) when compared to 4Q 2017. Assuming everything else is constant, a lower capitalisation rate results in higher valuation and this would affect net asset value .


What to lookout for in future results
·        Causeway Point's rental revision. In 1Q 19, 11.1% positive rental reversion is achieved. With 22.1% of gross rent of mall to expire in FY 2019, a double digit rental revision would definitely drive top and bottom-line.
·        Interest rate of refinancing. With $222 million or 27.1% of total borrowings to be refinanced this year, it would be interesting to see the new cost of borrowing after the loans have been refinanced.

Fun Fact
  •         FCT has the lowest average cost of borrowings at 2.7% when compared to other reits such as SPH REIT(2.8%),Mapletree Commercial Trust(2.93%) and Capitaland Mall Trust(3.1%)




Tuesday, 8 January 2019

Short Write-up on Medinex and UnUsual Limited. A longer Write-up on Road King


First of all a very happy 2019 to all, hope everyone had a good first weekend of 2019. Personally I had a good weekend as I attended Wang Lee Hom's concert and had a good long talk with a friend at Macs later on that lifted my mood.
Moving on to today's write-up .........
Medinex
HC Surgical released its 2nd quarter results earlier in the day, 
Share of Results of an associate (Medinex) came in at $6000. This is a decrease of 99.1% compared to previous year's same quarter results. This would probably indicate that Medinex earned lesser than $300 000 for the 2nd half of the year as compared to $1 057 000 in 1st half of 2018 . This is a fall of 70% from first half to 2nd half. It remains to be seen how this IPO fares in the long run but I have voiced my concerns in my previous post on the IPO.
UnUsual Productions
If number of concerts in Singapore is a good gauge of revenue then the below table might be useful
In $
2017 Q4 Jan- March
Q1 April- June
Q2 July- Sept
Q3 Oct- Dec
(Estimations)
Concerts Occurred in Singapore
8
3
9
7
Revenue
16 323 227
6 029 172
18 809 192
13 900 000
Gross Profit
6 169 051
3 861 289
6 301 041
5 560 000
Gross Profit Margin
37.79%
64.04%
33.49%
40%
Admin Expense
1 878 498
1 154 674
2 046 442
1 807 000 (13% of revenue)
Income Tax Expense
867 621
510 617
1 058 201
821 070
(21.87% of Profit Before Tax)
Profit After Tax
3 485 625
2 359 258
3 242 773
2 931 929
EPS (Cents)
0.33
0.22
0.32
0.28

-A key thing to note would be that productions(61.65%) bring in higher margins than promotions(22.53%) in FY 2018. Also according to FY 2018, ticket sales contribute to promotions. This could explain why Q1 had better margins despite Q2 having higher concerts occurring. With that I would estimate gross profit to come in at $ 5 560 000 in Q3. My estimations of Profit after tax would be 2 931 929 or 0.28 cents
- Moving forward, it seems like there is only 4 concerts in Q4 (January to March). It remains to be seen if more events are added or overseas collaborations(those not listed on UnUsual website) would improve the top and bottom line.



Road King (HKEX: 1098)
Road King has released its operating statistics for full year 2018
In RMB millions
Q1
Q2
Q3
Q4
Full Year
Toll Revenue
698
772
857
752
3079
Property Sales
6978
10247
8298
8980
34503
Total Sales
6978
9549
9155
9732
37582

As Compared to full year 2017
In RMB millions
Q1
Q2
Q3
Q4
Full Year
Toll Revenue
Not Given
Not Given
Not Given
Not Given
2661
Property Sales
8992
6882
7392
5066
26304
Total Sales
8992
6882
7392
5066
28965

Total Sales amounted to a year on year gain of 29.7%. This is particularly impressive as I have previously read online that the Road King Management aims for 30 000 million in property sales in 2018 and they have achieved it.
Road King's property sales are usually recognized as revenue in the following years ahead and this year's sales would have provided some light on its FY 2019 results.
To have a better picture, let's compare to other listed property companies with operations in China
In RMB Millions
China Aoyuan(HKEX 3883)
Country Garden(HKEX 2007)
Logan Property(HKEX 3380)
China Vanke (HKEX 2202)
Shimao Property (HKEX 813)
Road King (HKEX 1098)
Full Year Sales
91 280
501 880
71800
606 950
176 146
34 503
Full Year Sales per Share
34.04
23.28
13.07
54.98
52.23
46.04
1H Portion
44.13%
61.93%
49.4%
50.2%
41.1%
49.9%
2H Portion
55.87%
38.07%
50.6%
49.8%
58.9%
50.1%
Gross Margins (1H 2018)
28.6%
26.5%
37%
33.7%
31%
47%
Net Profit Margins (1H 2018)
10.8%
12.3%
25%
12.8%
14.3%
20.2%
Net Gearing Ratio( 1H 2018)
67.5%
59%
66.3%
32.7%
62.7%
49%

From the table above(which is not comprehensive), we can tell that there isn't a clear cut winner but Road King has done well in the gross margins segment by topping the table. It is also believed that Road King has produced the highest gross margins in 1H 2018 among all China listed property companies. In the other segments it did not top, it placed itself in top 3 among the 6 company comparison. As not all December sales number are released yet among the various companies, this result is just a small sample size.
Nevertheless, I would be interested to hear about the property sales targets and estimated gross margins from the Road King Management in 2019.