Tuesday, April 28, 2015

Misleading investors?

There are companies that provide actual true information, and be frank about things - not very many of them in Malaysia.

There are companies that do not provide much information, so much so that their Annual Reports are pretty much copy and paste from previous years. We can forgive them for not knowing about corporate responsibility and not doing the right job of informing - these probably covers the most companies in Malaysia, the number of companies under this category decreasing (improving) though.

Then there are companies that continues to mislead - time again and again - quite a few of them. One cannot just feign ignorance as some of them are pretty clever. If one knows how to mislead, they cannot claim ignorance.

Just read below and try to identify which category this company comes under.

It says here, clear market leadership position. I am wondering how does it justify that? There is www.mudah.my, does it have more adverts than mudah.my?

Read my previous article then one can probably figure out the actual intention. The announcement in September 2014 was not meant to be executed, is it true? The announcement was to tell people of their stocks value through subsidiary / associate holdings. But they can't sell as there probably has not much market to sell to. That announcement caused their shares to rise.

Just an example iProperty.com, see below 5 years performance. Even the one year, it made profit in 2013 was due to an accounting entry. (Ironically the profit was mainly due to its sale of iCar, which it claimed accounting profits)

Will iCar experience the same trend as iProperty? That is a very high chance, given the competition and poor ability to charge in this business. Maybe even worse as developers have money to spend, by advertising with iProperty. Second hand car dealers are poorer. For the second hand car market, most - if not almost all adverts are free. That's the problem.

5 years of performance of iProperty
Again if you look above, do you see any thing that's amiss. Revenue increase was followed by costs increase, hence EBITDA does not improve much. (you see good companies do not use EBITDA, but in this case, I just provide that chance, since they use EBITDA to tell their story).

If you looked at Jobstreet many years ago (unfortunately Bursa now just limit to 5 years), revenue increase would have commensurate with profit increase, almost in the same quantum. Why? Because dotcom business like Jobstreet, pretty much has their costs remain - things like building, staffs costs, electricity etc. Their fixed costs remain pretty stable. There are not much variable costs.

I do not see that in iProperty.

Monday, April 27, 2015

Bursa limits information to 5 years ONLY?

While checking out some information, I realised that I am able to search for information on a particular company only for the last 5 years (see below diagram). In the past I was able to obtain information for any particular company since 1999 if not mistaken as long as they were around since then.

Information for more than 5 years is definitely needed as one will need to look at trends or any changes that occurred, or even identify the progress of each of the company.

I am not so sure if this is due to Bursa limiting it temporarily due to some housekeeping reasons or is this permanent. If it is permanent, I will definitely need all readers to lobby to request for it to be reinstated to what was offered before. This is the period where information is more than important and critical for the sake of investor's knowledge. It is also when stock exchanges competes for clients - limiting information is many steps backward.

I thought Bursa was doing something great before.

Sunday, April 26, 2015

A look at different developers GDV in Malaysia (as at April 2015)

One of the various measurement for property developers especially for those established ones in Malaysia can be the total remaining Gross Development Value (GDV) that each of them have. Of course in establishing that, one should also not discount the factor of location, balance sheet strength, business margin and their individual business strength.

While I am not really into buying property, I have made substantial visits to launches and new development over the last 2 years. In Malaysia, I would say several developers are in the upper league and these are large scale developers usually one which have township development. I would say those are:

- SP Setia;
- UEM Sunrise;
- Sime Darby;
- IJM Land;
- EcoWorld - whom have made a name in less than 2 years;
- Tropicana - through an exercise it has become a prominent brand with sizeable landbank;
- IOI Properties;
- Mah Sing;
- UOA Development - a company which focus on high rise and city development.

Few more are in the smaller development companies league and they probably have almost the same pricing power. These are Gamuda (due to lack of available GDV), TTDI, Paramount, I&P, OSK Properties, Malton, DRB-Hicom, Hong Leong Properties and several others.

In the past one year, one can notice that the prices of properties have sort of stagnated and total transacted properties have probably reduced. This is a positive sign and in the past few years from 2009 to 2012, I have wondered where does the rise in property prices stop at. If it is not in check, it may experience the past experiences of Japan (1990s) and US (sub-prime crisis).

In any case, I still think there are lots of opportunities for well-established (or regarded) developers as some of them have either the ability to sell at above average prices - such as EcoWorld and SP Setia - hence they have no problem in buying land at current high prices. Just look at the purchase by Eco on the Batu Kawan land. Understood that they were no other bidders. Some others have significant landbank which were owned at very low costs - UEM Sunrise, Sime Darby, IJM Land.

In terms of location, I would think that Klang Valley has the most potential and sustainability as they are just too many new young families that are to be brought up in KL and Selangor. The government has projected that Klang Valley will be homes to some 10 million people by 2020 - up from 7 million now. That represents 2.5 million households (4 people per household) at the very least and that also means the need for about the same number of homes by 2020. If one is to judge how many households are there in one township development - Kwasa Damansara which covers 2,330 acres of land is building homes for 28,000 households and IJM Land which is building Rimbayu on 1878 acres of land is building homes for 10,000 households. How many new homes and how many more townships of that size would there be by 2020 in Klang Valley?

Next in my preference is Penang, then only Johor in which case at the moment is facing oversupply situation, largely due the presence of developers from China. We just are not able to figure the scale the Chinese builders can do, I guess. (Read this where Country Garden Danga Bay just launched a RM18 billion GDV in one launch.)

So how do we value a property development company? I am not in favour of PE as for example in the case of Sunrise in the past, they were pretty much a very strong developer in just one area - Mont Kiara. But its brand and ability attracted UEM to purchase them. Whether it created value for UEM, I do not think so. Property developers need their most important raw material which is land.

Price to Net Asset is also not as preferred due to some land can be cheaper when purchased while its GDV approved may be higher in respect of GDV per square foot.

In any case, one of the stronger ways to look at the value of these guys is the GDV (shorter term i.e. 3 to 5 years) against their market valuation as well as their balance sheet strength. I have hence picked up several companies - those which are purely a listed property counter.

The above are basically those that have market capitalisation of RM1 billion and above (I did not include Sime Darby as it is just too complex and UOA Development.) As for comparison, not all of them are apple to apple comparison (example IOI has significant Investment Properties portfolio). IJM on other hand is a much bigger group which includes construction and plantation.

If one is to look at the market cap to GDV, I am attracted to Tropicana as not only it has a significant development over the next few years with strong GDV but its market value to those is substantially lower to as compared to Mah Sing, SP Setia or even IJM Land prior to it being absorbed into IJM two months ago. (Prior to the delisting IJMLand was valued at around RM5.4 billion.) Additionally, while it had problems with regards to its sizable debt, its sale of several businesses i.e. the Tropicana Mall(and office), Austin Powder, land in Kota Kemuning to EcoWorld and a piece to a Chinese Developer would have reduced its net debt to below RM1 billion.

Below are the presentation made by several developers in terms of acreage and GDV.

IOI Properties GDV. It has a significant landbank in Johor just like several others.

EcoWorld's GDV without including the Batu Kawan purchase

MahSing's GDV. Notice its significant landbank in Greater KL as compared to the rest

SP Setia.  Notice the very significant GDV in Battersea.

Tropicana. Still significant landbank and GDV in Johor, but as per above it is focusing in Central region which will keep it busy for many years

If one is to notice above, Johor seems to have more total GDV than Klang Valley and Penang combined. Is Johor so much more attractive? We have yet to include UEM and Country Garden which seems to have few hundred mbillion GDV in partnership with the Johor Sultan.

Monday, April 20, 2015

Purchased Tropicana and Trop-WA

I have just bought Tropicana and Trop-WA.

At the price of purchase it is valued at RM1.65 billion. Although I have been critical of the company before, I have to admit that its restructuring few years back is for the better of the company and the brand. For a long while, Tropicana is largely a popular brand for being a high end developer in the Damansara area - next to Bandar Utama. Many of the properties there comprised of bungalow, semi-dees, or higher end landed.

In 2012 / 2013, Tropicana or Dijaya then did a restructuring which turned the group into a larger group. It is now understood to be an exercise where the group is now making use of a much stronger branding from Tropicana rather than Dijaya, and consolidating the entire landbank under one roof. It now has project with mainly concentration in Klang Valley, Penang, Johor.

From this perspective, it is now a significant property player and although high end properties is facing challenges due to the tightening of credit by Bank Negara and naturally the rally in property prices over the last 5 years could not sustain. I however felt that, investors have over discounted the value in Tropicana especially when it has managed to pare its debt down to a very manageable level.

The last 1 year, we have seen that Tropicana has sold some of the following assets:

- Austin Powder for RM194.7 million;
- Tropicana City Mall for RM540 million;
- land sale to EcoWorld for RM470 million.

It also has an announcement of selling a piece of land to a Chinese group for RM450 million in Bukit Bintang still pending.
Those exercise (except for the one in Bukit Bintang) comes to about RM1.2 billion in value. I specifically like the exercise as they have strategically strengthened their position. Maintaining Austin Powder does not make strategic sense for a property developer. It does not manage a mall as well as say IGB or even See Hoy Chan around the vicinity, hence the sale in Tropicana City Mall at a very respectable price. And the sale to EcoWorld while maintaining a significant 800 acres is right especially where its land adjacent to EcoWorld's and IJM's development.

All in all, I like that it is at attractive valuation with some very smart divestment.

The Tropicana-WA has some time to expire (8 December 2019) at exercise price of RM1.00 and I think the risk is manageable.
You can check out the latest fund position here.