1 of my old-time acquaintance (Polar Bear 8888 ) asked me
about this counter back in March. But I did not have much time to take a look at
this counter until recently.
It is a Property Developer listed on SGX
that has more interest income than interest expense.
On the first glance of this chart, I
might have thought that the Singapore Property Price have dropped a lot or this
Property Developer is undergoing the China Syndrome.
Alternatively, I might also have
thought that maybe something else has gone wrong such as interest payments have
gone skyrocket through the roofs.
However, none of these are true.
1) Private
Property Price in Singapore has been on a rise.
Compared to
the levels seen in 2019, there has been around 30+ % increase from 1Q 2019 to
4Q 2023. Therefore, to associate Singapore Property Price has dropped is not
the reason
2) Interest
rates increase affecting the company.
Looking at
the financial statements, FY 2022/23 and 1H FY 2023/24 have been
positive in
terms of financial income.In fact,
there is no borrowings but over 350 million of cash in the company as of its
latest financial results.
What could be
the real reason for the fall over the years?
1)
Dividend
Record Unstable
|
Year
|
Dividend Amount
|
|
2019
|
0.22
|
|
2020
|
0.11
|
|
2021
|
0.33
|
|
2022
|
0.16
|
|
2023
|
0.10
|
2) Earnings
Per Share Unstable
|
Year
|
EPS
|
|
2019
|
0.39
|
|
2020
|
0.29
|
|
2021
|
0.73
|
|
2022
|
0.32
|
|
2023
|
0.13
|
3) Higher
Discount Rates associated with the story of the company.
Previously,
the company is known to have 999-year land plots. 1 of these land plots have to
pay a Land Betterment Charge for conversion into future residential development.
As such, this might affect profitability moving forward.
Also, with each passing year of non-development, investors have to discount the landband further.
Prospects of
the Company
Looking at
its Projects. There are 4 projects ongoing currently. With 3 of them having started
selling.
Liv @ MB – EST
TOP 2025 1Q. Fully Sold
The Atelier –
EST TOP 2024 2Q. Fully Sold
Pollen Collection
– EST TOP 1Q 2026. 45% Sold.
Bukit Timah
Link Residences – EST TOP 2028. EST Launch in Q2 2024 with Previewing Soon
The sales
value currently of the projects are as follows.
Liv@MB – 717,957,580
The Atelier –
306,371,137
Pollen
Collection – 222,611,000 . Implied Fully Sold Value could be around 489,744,200.
The tough
portion is to estimate what is the margins / amount that has been recognized already
in revenue. The base case should be most of it is not recognized yet since TOP
is not done.
In its most
recent result, we can infer that the segment profit margin is around 10.48%.
How much left
of revenue to recognize?
Looking at
37% of Completion for The Atelier, 19% Completion for Liv@MB. I would estimate
around 250 million has been recognized. Along with the 256 million in 1H
2023/2024, I would have assumed that there is around 500 million left to be recognized.
However,
looking at its AGM presentation details, we might have around 435 million left.
435 million
is based on sales value of The Atelier * 0.5 + sales value of Liv *0.75
deducted by most recent revenue of 256 million.
Either way, if
the TOP is as stated above, this means we will see only meaningful revenue recognized
in 1H of next FY and next next FY as usually TOP and Completion will see a
larger chunk of revenue recognized.
To add on,
The Atelier’s land price was at $1626 psf while average selling price was 2683
For Liv@MB,
the land price was at $1280 psf while average selling price was 2413 psf.
As such,
margins wise, Liv should be better than Atelier. With more of the Liv left,
this segment margin should trend upwards moving forwards.
Lastly, we
should also not forget the main thesis behind its initial rise in share price,
the severely undervalued landbanks. Pollen Collection will represent the
company’s usage into its deeply undervalued landbanks yet again.
The segment
profit margins should not be ignored because they are close to 30%.
The segment
profit margins in 1H alone is at close to 31%.
Conclusion
The current
drop in share price is probably justified given that the development of the
undervalued land bank projects is slow and given higher discount rates in the
markets, there are better alternatives.
Is the
current price an attractive entry? Current Price of 3.31 SGD Implies 857
million of Market Cap.
Given Cash –
Liabilities= 287 million
Hospitality
Property = 208 million
Investment
Property = 21 million
This implies
that its development properties and land bank is currently valued at 341
million.
Development
Properties
Liv + Atelier
Implied Profit = 10% * 435 million = 43.5 million
Pollen Collection = 25%* 489 million
= 122.25 million
Land Bank = 95,690 SQ m GFA
Looking at past
projects where 39 Units took up 10002 SQM. This implies roughly 373 units left
to build at current land bank
Considering
the current sale price of Luxus Hills Project at 2000 -2663 psf / 4.15 mil per
unit.
This implies
a potential revenue of 1532 million or 1.53 billion. At 30% margins. This implies around 459 million profits to be realized.
However, considering that there were no new sales since covid, the margins can
be higher as prices have gone up and segment margins back in 1Q 2020 where such
projects were sold are 40% margin.
But at the
same time, we have to consider the opportunity cost of waiting. As well as
prices might keep going up as time goes by.
The stock is
probably slightly cheap right now because the development properties will be
done by 2026. As such against a potential value of 459 million profits, the 175 million left implied valuation is cheap especially considering there is still 100 million of other current assets. (Which means the present valuation is actually like 75 million)
However, if
no new development is to occur from the precious landbank that made Luxus Hills, then
this undervalued will lose attractiveness to any investors who are investing and hoping to make their money in the near term.
I would say if they decide to develop at least 25-30% of their current landbank by 2028, then it would be truly undervalued at current price.
If not i think it is just really undervalued on paper only.
With planning for Luxus Hills Phrase 10 underway, i believe some value will start to surface again.
Having said everything, this is not going into my portfolio or the monthly updated imaginary portfolio any time soon.
However, i might be keen for my parents to pick up the stock and sit on it when the 75 million implied PV is 0. Which means a market cap of 782 million or a share price of around 3.01.
If i want a bigger margin of safety for them then i will slap a 25% discount on the hospitality property which means another 52 million discount. Making the entry price at 2.82.
