(Long Post) Attempted Deep Dive at Bukit Sembawang Estates Limited (SGX: B61)

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.