Valuation Case Study on Bukit Sembawang Estates Limited

Transcription

1 Valuation Case Study on Bukit Sembawang Estates Limited

2 Disclaimer and Declaration The objective of the presentation is for educational purposes. The full content of the presentation is for illustration purposes only and should not be used as investment recommendations. AB Maximus and its presenters are not responsible for all investment activities conducted by the participants and cannot be held liable for any investment loss. The company and presenters may have personal interest in the particular shares presented.

3 Agenda 1 Company Background 2 Industry Overview 3 4 Valuation Risk

4 Company Background Core business is in Property Development (Residential)

5 Company Background Group Structure of BSEL Source: Corporate Website. Accessed on 2 May 2014

6 Company Background Corporate Milestones Year Milestones 1911 Started off as a rubber company. 1950s Diversified into development of landed property BSEL incorporated to do property development, investment, and other propertyrelated activities Listed on SGX Mainboard. Source: Corporate Website and Annual Report 2013

7 Company Background Article: The Straits Times, 11 June 1924, Page 2. BSEL has a very long history in Singapore! Source:

8 Company Background TOP: Dec 2011 Area: Paterson Rd Freehold Property For Sale Source: Corporate Website

9 Company Background TOP: Dec 2014 Area: Cairnhill Rise Freehold Property For Sale Source: Corporate Website

10 Company Background TOP: Oct 2015 Area: Telok Blangah Freehold Property For Sale Source: Corporate Website

11 Company Background TOP: Mar 2018 Area: Seletar Hills Leasehold 999 years Property For Sale Source: Corporate Website

12 Company Background BSEL has large parcels of valuable land. Source: CIMB Report on 28 May 2013

13 Company Background Land bank Seletar Hills area Source: FY13 Annual Report; Image: Google Maps

14 Company Background Land bank River Valley Road area Source: FY13 Annual Report; Image: Google Maps

15 Company Background Land bank 80 units of cluster housing Source: FY13 Annual Report; Image: Google Maps

16 Company Background - Revenue Can bill for 25-40% of price, on T.O.P. date Source: Urban Renewal Authority

17 Company Background Summary of Key Information Revenue Property Development (100%) Basic and diluted earnings per share (cents) Dividend (FY13) Dividend Yield 12 / 609 = ~2% Year-end 15 cts (2013), 18 cts (2012), 12 cts (2011). Ordinary Div of 4 cts. 31st March Number of Shares 258,911,326 NAV per share $4.69 Source: SGX, 3Q14 Financial Reports

18 Industry Overview Revenue Drivers Number of Units Sold for that period.

19 Industry Overview Property Expected TOP Date Area / Near The Vermont (Freehold) Skyline Residences (Freehold) Dec 2014 Oct 2015 Cairnhill Road Telok Blangah Luxus Hills Phase 4 Jul 2015 Seletar Hills Luxus Hills Phase 5 Jul 2016 Seletar Hills Luxus Hills Phase 6 Mar 2018 Seletar Hills Luxus Hills Phase 7 St Thomas Walk Paterson Collection Watercove Ville TBD Pipeline of Singapore-based Properties Source: Corporate Website

20 Industry Overview Outlook for property business Cooling measures (eg: TDSR) reduce supply of credit. Cannot borrow to buy multiple properties. Property Sales outlook expected to be challenging. Source: 3QFY14 Report

21 Industry Overview Accounting 101 Percentage of Completion Method Progressive recognition of revenue Sold does not mean recognize revenue. Payment Schedule found in Housing Developers Rules statute. INT FRS 115 Agreements for the Construction of Real Estate -> Recognize revenue based on how much costs have been spent. Hence revenue depends on units sold + how the construction is moving along Revenue can be lumpy! Source:

22 Valuation Valuation Methodologies used Discounted Cashflow (DCF) Not used due to uneven cashflows. Dividend Yield Comparison Property developers tend not to give large dividends. Retain capital for future developments. Price-to-Book Comparison

23 Valuation (P/B & P/E) Stock Price: $6.09 on 8 May 2014 BSEL trading above book value. Why? Source: Reuters (taken on 8 May 2014)

24 Valuation (Price-to-Book Ratio) Chart of Price-to-Book Value Stock Price: $6.09; NAV: $4.69 (8 May 2014) PB of 1.28 is about -0.5 SD from mean of 1.54 Source: CIMB Analyst Report dated 8 Apr 2014

25 Valuation PB ratio (current) 1.28 Price (8 May 2014) $6.09 Long Term Average PB ratio 1.54 Fair Value $7.33 Fair Value is $7.33 based on PB ratio mean reversion. Applying a 30% discount gives $5.13. Or should it be discounted? Source: CIMB Analyst Report dated 28 Jan 2014

26 Main Risks Default Risk on debt evaluation: Debt/Equity: N/A (No debt) Interest coverage = N/A (No debt) Loans payable within 1 year = N/A (No debt) Cash = $98M Default risk is very low Source: 3QFY14 Financial Reports

27 Main Catalysts Upside Borrowing to improve ROE; Special Dividends More new launches. Faster sales of property developments. Downside Inability to complete developments. Expropriation of Land.

28 Trading Data 52 Weeks Trading Range $ $7.16 Avg Daily Volume (3 mths) Market Cap 34,206 shares $ mil Source: (Taken on 8 May 2014)

29 Data: 8 May 2014 Price: $6.09 Technicals