Company update 3 October 2016 Current Price Overweight S$0.199 Fair Value S$0.335 Up / (downside) 67.7% Stock Statistics Market cap S$88.9m 52-low S$0.185 52-high S$0.230 Avg daily vol 115,793 No of share 446.9m Free float 25.39% Key Indicators ROE 17F 5.8% ROA 17F 2.5% P/BK 0.56 Net gearing 1.03x Major Shareholders TEE International 63.28% Phua Chian Kin* 68.45% *Phua Chian Kin is deemed to have interest in TEE land held by TEE International Limited. 0.24 0.22 0.20 0.18 5.0 Liu Jinshu Historical Chart 0.0 08/15 10/15 12/15 02/16 04/16 06/16 (+65) 6236-6887 jinshu.liu@nracapital.com www.nracapital.com Prized Find in Exclusive Area New acquisition in Pasir Panjang area. Ltd announced on 26 Sep that it is acquiring 100% of freehold 241 Pasir Panjang Road. The land was originally acquired by Ley Choon Group Holdings Limited in late 2012/early 2013. To maximize tax savings, has acquired the land via the purchase of 100% of the shares in the holding company Ley Choon Development Pte Ltd at a cost of S$11.5m. We see this acquisition as a positive, where new units in the area are being transacted at prices of about S$1,790 psf. For forecasting purpose, we assume a robust ASP of S$1,600 psf to yield an estimated gross development value of S$29.0m and a net development value of S$5.81m to be recognized over FY18 and FY19. Clean acquisition No ABSD. The acquisition cost of S$11.5m works out to a cost of S$635 per sq. ft. per plot ratio, based on a land area of 1,201.5 sq. m. and plot ratio of 1.4x. Conversely, Roxy Pacific Holdings Limited announced the acquisition of 211-233A Pasir Panjang Road at S$772 per sq. ft. at the end of August. While is technically acquiring the shares of the holding vehicle, we understand that the seller will pay for any additional buyer s stamp duty (ABSD) and any first year Qualifying Certificate (QC) extension charge. In addition, will also be acquiring the holding vehicle free of any liabilities. As of 30 June 2016, the target has a net liability value of S$2.21m. To enforce these conditions, the consideration shall be split into three parts whereby the second and third payments will be adjusted for any ABSD and first year QC extension charge. Seeking interest for Quality Hotel CKS Sydney. We have also found out that JLL Hotels & Hospitality Group has been exclusively appointed as the agent for the Quality hotel 55% owned by in Sydney. We reckon that could be merely exploring opportunities to better recycle and manage its capital as no formal announcement to sell the said property has been made. Expressions of interest will close at the end of October. At this juncture, we have not incorporated any potential gains into our forecasts. But keep 1Q17 expectations low s 1Q FY17 quarter ended at the end of August 2016. Last year, s 4Q16 accounted for the bulk of full year profits, likely due to the timing of project completions and finalisation of accounts. Likewise, we expect to progressively perform better over 2Q to 4Q FY17. Under this context, we caution that the company s 1Q17 results will likely be similar to that of 1Q16, but maintain our forecast of S$9.3m in PATMI for the whole of FY17. In this update, we revised our forecasts and model to factor in contribution from 241 Pasir Panjang Road. As a result, our valuation has been revised slightly upwards from S$0.325 to S$0.335 per share. Maintain Overweight (high-average return / low risk). Key Financial Data (S$ m, FYE May) 2015 2016 2017F 2018F 2019F Sales 60.2 34.9 102.2 113.7 110.5 Gross Profit 19.3 13.1 25.3 31.9 47.9 Net Profit 11.1 7.3 9.3 17.1 30.2 EPS (cents) 2.48 1.64 2.09 3.83 6.77 EPS growth (%) (5.3) (33.9) 27.3 83.3 76.8 PER (x) 8.0 12.1 9.5 5.2 2.9 NAV/share (cents) 34.9 34.9 36.6 38.9 43.0 DPS (cents) 1.05 0.63 0.83 1.53 2.71 Div Yield (%) 5.3 3.2 4.2 7.7 13.6 Source: Company, NRA Capital forecasts
Figure 1: Analysis of 241 Pasir Panjang Road 251 Pasir Panjang Road, The Orient 15 out of 52 units sold since Dec 2014, of which 7 units were sold in Apr Aug 2016 at average prices of S$1790 psf. Viva Vista, South Bouna Vista Road 2 sub-sales at average price of S$1357 psf in Feb Jun 2016. 6 sub-sales at average price of S$1758 psf in 2015. 241 Pasir Panjang Road, to be acquired by at S$635 per sq. ft. per plot ratio (psf ppr). 211 233A Pasir Panjang Road, to be acquired by Roxy Pacific Holdings Limited at S$772 psf ppr. Source: URA, NRA Capital Description 241 Pasir Panjang Road Land area 1,201.5 sq. m. Tenure Freehold Plot Ratio 1.4 Maximum GFA 18106 sq. ft. Estimated Efficiency 100% Est. Saleable Area 18106 sq. ft. GDV @ S$1,600 psf of saleable area S$28.97m Land cost -S$11.5m Construction cost @ S$450 psf of saleable area -S$8.15m Operating expenses @ 8% of GDV -S$2.32m Tax @ 17% -S$1.19m NDV S$5.81m Expected Launch Early 2017 Expected Completion 2019 Source: NRA Capital Valuation bumped up slightly higher. Based on the assumptions in Figure 1, we add about S$14.48m of revenue and S$2.91m of PATMI per annum to our estimates in FY18 and FY19. As a result, FY18 PATMI has been bumped up from S$13.7m to S$17.1m. FY19 PATMI has also been revised higher from S$26.9m to S$30.2m. The net impact is a slightly higher valuation of S$0.334 (rounded to S$0.335) per share, based on a 40% discount from an RNAV per share of S$0.556. The key risk against our view is whether will be able to complete construction by early 2019, before attracting qualifying certificate extension charges for the units. Hence, the company has a relatively tight schedule to sell and construct the units. We will revise our forecasts and valuation again depending on the take up rate during launch. We highlight that has sold the majority of units at 183 Longhaus within a relatively short period of launch. Likely, the key will be how the units are priced. The Peak I at Cairnhill. We also attended the AGM of recently. Questions raised include the company s exposure to units at The Peak 1 @ Cairnhill. We clarify that this property is not subject to ABSD, but will be liable for QC extension charges. As estimated in our previous update, the first year QC charge for the 20 units is about S$0.7m of which S$0.47m will accrue in FY17. To factor in this risk, we have already added S$1.0m of additional expenses in our model. page 2
Figure 2: List of and GDV Estimates Launched and majority owned projects in Singapore Realised No of Area Value of ASP (S$ psf) Sales units (sq. ft.) Avg size (S$psf) portion 100% GDV Hilbre28 100% 1,204 24.89 12 9,998 833 1,200 12.00 36.88 183 LongHaus - Residential 100% 1,591 32.91 10 10,122 1,012 1,400 14.17 47.08 Launched associated projects in Singapore Realised ASP (S$ psf) Sales No of units Area (sq. ft.) Avg size (S$psf) Value of portion 100% GDV Residential Newest 7% 981 223.74 5 11,480 2,296 980 11.25 234.99 Rezi 3TWO 45% 1,481 40.05 13 9,463 728 1,450 13.72 53.77 Floraville 7% 1,330 40.69 9 6,898 766 1,300 8.97 49.66 Floraview 7% 1,242 47.90 34 33,413 983 1,200 40.10 87.99 Commercial Newest - shops 7% 4,593 310.82 16 6,108 382 4,500 27.49 338.31 Hexacube - shops 30% 3,263 18.06 19 11,088 584 2,500 27.72 45.78 Hexacube - office 30% 1,876 39.48 10 7,339 734 1,900 13.94 53.42 Trio - shops 35% 3,899 19.61 28 20,784 742 4,000 83.14 102.74 with limited or no existing sales data Saleable Area No of units (S$psf) 100% GDV Third Avenue - SOHO 100% 701 464,416 233.33 108.36 Third Avenue - shops 100% 31 23,250 333.33 7.75 Floravista - shops 7% 28 16,049 2,500 40.12 183 Longhaus - shops 100% 10 11,281 4,000 45.12 Land bank Land Area (sq. ft.) Maximum GFA Plot ratio Efficiency Est. Saleable Area (S$psf) GDV 31 & 31A Harvey Avenue 100% 11,044 2.00 22,088 80% 17,670 1,400 24.74 20 Lorong 35, Geylang 51% 12,002 2.80 33,605 80% 26,884 1,500 40.33 241 Pasir Panjang 100% 12,933 1.40 18,106 100% 18,106 1,600 28.97 Source: URA, Company, NRA Capital *We generally assume similar ASP for units, except for larger units. For larger units, we generally assume a lower ASP. The list in Figure 9 excludes The Peak@Cairnhill I which is carried on the balance sheet as completed properties for sale. During FY16, has already written down the value of this property and we believe that our discount from RNAV will adequately reflects the risks of this property. Figure 3: List of and Net Development Value Estimates Attributable Saleable Area Attributable Land cost Other costs Est. Rev. Recognitio n NDV to be recognized Attributable GDV NDV Hilbre28 100% 30,674 36.9 18.5 17.0 1.4 20% 1.1 183 Longhaus 100% 42,088 92.2 45.2 29.8 17.2 0% 17.2 Newest 7% 21,932 40.1 12.0 15.6 12.5 62% 4.8 Rezi 3TWO 45% 16,431 24.2 10.2 10.1 3.9 30% 2.7 Floraville, Floraview, Floravista 7% 8,787 12.4 6.7 5.1 0.6-30% 0.8 Hexacube 30% 13,501 29.8 20.4 8.6 0.7 0% 0.7 Trio 35% 9,034 36.0 14.1 9.5 12.4 0% 12.4 Third Avenue 100% 487,666 116.1 10.7 88.2 17.2 20% 13.8 31 & 31A Harvey Avenue 100% 17,670 24.7 4.2 11.7 8.8 0% 8.8 20 Lorong 35, Geylang 51% 13,711 20.6 10.2 8.2 2.1 0% 2.1 241 Pasir Panjang 100% 18,106 29.0 11.5 11.7 5.81 0% 5.8 Total 679,600 462.0 163.7 215.5 82.7 70.2 Source: Company, NRA Capital *Other costs include S$450 psf of construction cost for Singapore projects and S$150 psf of construction cost for Third Avenue, 5% other expenses and 3% interest costs. Tax is assumed at 17% in Singapore and 25% in Malaysia. For projects with retail components, we assume that the retail property revenue will be recognized only on completion. As such, some projects may suffer initial losses which will be reversed on completion, e.g. Newest and Floraville, Floraview and Floravista. page 3
Figure 4: Revenue Recognition and Key Forecasting Assumptions Revenue Recognition FY17 FY18 FY19 FY20 Hilbre28 29.51 183 LongHaus - Residential 7.85 23.54 15.69 Third Avenue - SOHO 52.01 34.68 31 & 31A Harvey Avenue 8.25 8.25 8.25 20 Lorong 35, Geylang 13.44 13.44 13.44 241 Pasir Panjang 14.48 14.48 Third Avenue - shops 6.20 183 Longhaus - shops 45.12 Property Development 89.37 100.59 96.99 21.69 FY16 FY17 FY18 FY19 Average daily rate 132.37 136.34 140.43 144.65 Number of rooms 225 229 229 229 Australia Revenue 10.87 11.40 11.74 12.09 New Zealand Revenue 1.40 1.40 1.40 1.40 Australia Gross Margin 61.2% 60% 60% 60% NZ Gross Margin 75.9% 75% 75% 75% also owns the Larmont Hotel and Quality Hotel in Sydney, Australia and the Thistle Guest House and Workotel in New Zealand. FY15 FY16 FY17F FY18F FY19F Revenue 60.16 34.89 102.16 113.73 110.48 Cost of sale -40.86-21.76-76.90-81.84-62.60 Gross profit 19.30 13.13 25.26 31.88 47.88 Other operating income 2.70 3.47 1.32 0.43 0.20 Selling and distribution exp -2.26-2.94-6.13-4.55-4.42 Administrative exp -9.65-12.62-13.00-13.39-13.79 Other operating expenses -6.22-3.95-1.00-1.00-1.00 Share of associates 9.99 14.74 8.20 9.24 8.51 Finance costs -3.64-5.00-5.09-3.09-1.88 PBT 10.22 6.83 9.56 19.52 35.50 Tax -1.24 0.18-0.23-1.75-4.59 PAT 8.98 7.01 9.33 17.78 30.91 Minority interest 2.11 0.32 0.00-0.68-0.68 PATMI 11.09 7.33 9.33 17.10 30.24 Contribution from associate Chewathai is assumed at S$1.5m per annum. Source: NRA Capital Figure 5: Valuation Assets S$m Development profit (obtained from Figure 3) 70.2 Fair value of Chewathai in excess of book value (see Note A) 2.2 Common equity as of end May 2016 158.0 Less proportionate share of book value of hotels in Australia (see Note B) -35.9 Revalued hotel assets in Australia (see Note C) 54.1 RNAV 248.6 Number of shares 446.9 RNAV per share 0.556 Discount 40% Value per share 0.334 Note A Valuation of Chewathai No of shares in CHEWA held by 239,119,300 CHEWA IPO share price THB 1.54 Current share price at THB1.54 SGD THB exchange rate 25.45 Fair value of Chewathai shares in S$m S$14.47m Book value per Chewathai share THB1.31 As of end June 2016 Total book value S$12.31m THB1.31 / 25.45x239.1m shares Fair value in excess of book S$2.3m page 4
Note B Estimated book value of Australia hotels Freehold land and Buildings carried as PPE as of 30 May 2015 (from annual report) Est. acquisitions during FY16 suites at 2-14 Kings Cross Road Est. cost of renovation planned addition of 28 rooms (ref. Development Application) Est. book value Less minority interest (45%) Est. attributable book value S$46.33m S$14.4m S$4.5m S$65.23m -S$29.4m S$35.9m Note C Estimated fair value of Australia hotels Avg rm rate (A$/night) as per 11 April report Value per room (A$m) [Avg rm rate / Cap rate] Value per room x No of rooms (A$m) Cap Rooms rate Quality Hotel CKS Sydney Airport 121 149 15% 0.35 42.1 Larmont Hotel 76 212 15% 0.49 37.6 Planned 28 rooms plus 4 acquired suites 32 212 15% 0.49 13.9 Total no of rooms 229 178 A$93.5m Source: NRA Capital AUDSGD 1.03 Minority interest S$98.36m -S$44.26m S$54.10m page 5
Profit & Loss (S$ m, FYE May) 2015 2016 2017F 2018F 2019F Revenue 60.2 34.9 102.2 113.7 110.5 Operating expenses (49.3) (32.2) (93.2) (96.9) (77.9) EBITDA 10.8 2.7 8.9 16.8 32.6 Depreciation & amortisation (3.2) (4.8) (3.6) (3.7) (3.7) EBIT 7.6 (2.1) 5.3 13.1 28.9 Net interest & invt income (7.4) (4.1) (4.0) (2.9) (1.9) Associates' contribution 10.0 14.7 8.2 9.2 8.5 Exceptional items 0.0 (1.7) 0.0 0.0 0.0 Pretax profit 10.2 6.8 9.6 19.5 35.5 Tax (1.2) 0.2 (0.2) (1.7) (4.6) Minority interests 2.1 0.3 0.0 (0.7) (0.7) Net profit 11.1 7.3 9.3 17.1 30.2 Shares at year-end (m) 446.9 446.9 446.9 446.9 446.9 Balance Sheet (S$ m, as at May) 2015 2016 2017F 2018F 2019F Fixed assets 79.2 90.0 91.4 92.7 94.0 Intangible assets 0.0 0.0 0.0 0.0 0.0 Other long-term assets 79.1 73.9 41.2 32.5 32.5 Total non-current assets 158.3 163.9 132.6 125.2 126.5 Cash and equivalents 18.6 26.4 43.3 77.7 97.5 Stocks 0.0 0.0 0.0 0.0 0.0 Trade debtors 37.8 7.9 25.2 28.0 27.2 Other current assets 170.4 207.8 138.8 76.1 38.8 Total current assets 226.8 242.1 207.3 181.9 163.5 Trade creditors 8.6 11.7 19.0 20.2 15.4 Short-term borrowings 57.0 30.9 34.4 20.9 11.5 Other current liabilities 21.8 29.1 29.1 29.1 29.1 Total current liabilities 87.4 71.6 82.4 70.1 56.0 Long-term borrowings 128.6 162.7 80.2 48.7 26.9 Other long-term liabilities 2.0 0.2 0.2 0.2 0.2 Total long-term liabilities 130.6 162.9 80.4 48.9 27.1 Shareholders' funds 156.0 158.0 163.6 173.9 192.0 Minority interests 11.1 13.5 13.5 14.1 14.8 NAV/share (S$) 0.35 0.35 0.37 0.39 0.43 Total Assets 385.1 406.0 339.9 307.0 290.0 Total Liabilities + S holders' funds 385.1 406.0 339.9 307.0 290.0 Cash Flow (S$ m, FYE May) 2015 2016 2017F 2018F 2019F Pretax profit 10.2 6.8 9.6 19.5 35.5 Depreciation & non-cash adjustments 3.2 4.8 3.6 3.7 3.7 Working capital changes (14.8) (18.3) 42.0 55.1 33.4 Cash tax paid (0.5) (0.8) (0.2) (1.7) (4.6) Cash flow from operations (1.8) (7.5) 54.9 76.6 68.1 Capex (68.8) (16.0) (5.0) (5.0) (5.0) Net investments & sale of FA 8.3 10.8 49.7 14.6 0.0 Others 0.4 3.8 0.0 0.0 0.0 Cash flow from investing (60.1) (1.4) 44.7 9.6 (5.0) Debt raised/(repaid) 59.1 20.1 (79.0) (45.0) (31.1) Equity raised/(repaid) 0.0 0.0 0.0 0.0 0.0 Dividends paid (5.3) (3.7) (3.7) (6.8) (12.1) Cash interest & others 0.0 0.0 0.0 0.0 0.0 Cash flow from financing 53.8 16.4 (82.7) (51.8) (43.2) Change in cash (8.2) 7.5 16.9 34.4 19.8 Change in net cash/(debt) NA (0.0) 90.9 79.3 51.0 Ending net cash/(debt) (162.1) (162.1) (71.2) 8.1 59.1 KEY RATIOS (FYE May) 2015 2016 2017F 2018F 2019F Revenue growth (%) 49.3 (42.0) 192.8 11.3 (2.9) EBITDA growth (%) 245.2 (74.9) 229.0 88.1 93.9 Pretax margins (%) 17.0 19.6 9.4 17.2 32.1 Net profit margins (%) 18.4 21.0 9.1 15.0 27.4 Effective tax rates (%) 12.1 (2.6) 2.4 9.0 12.9 Net dividend payout (%) 42.3 38.4 40.0 40.0 40.0 ROE (%) 7.2 4.7 5.8 10.1 16.5 Free cash flow yield (%) (69.6) (10.0) 112.1 96.9 70.9 Source: Company, NRA Capital forecasts page 6
NRA Capital Pte. Ltd ( NRA Capital ) has received compensation for this valuation report. This publication is confidential and general in nature. It was prepared from data which NRA Capital believes to be reliable, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect, special or consequential damages or economic loss that may arise from the use of information or opinions in this publication. Opinions expressed are subject to change without notice. NRA Capital and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may be materially interested in any such securities. NRA Capital and its related companies may from time to time perform advisory, investment or other services for, or solicit such advisory, investment or other services from any entity mentioned in this report. The research professionals who were involved in the preparing of this material may participate in the solicitation of such business. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. You acknowledge that the price of securities traded on the Singapore Exchange Securities Trading Limited ("SGX-ST") are subject to investment risks, can and does fluctuate, and any individual security may experience upwards or downwards movements, and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities traded on the SGX-ST. You are aware of the risk of exchange rate fluctuations which can cause a loss of the principal invested. You also acknowledge that these are risks that you are prepared to accept. You understand that you should make the decision to invest only after due and careful consideration. You agree that you will not make any orders in reliance on any representation/advice, view, opinion or other statement made by NRA Capital, and you will not hold NRA Capital either directly or indirectly liable for any loss suffered by you in the event you do so rely on them. You understand that you should seek independent professional advice if you are uncertain of or have not understood any aspect of this risk disclosure statement or the nature and risks involved in trading of securities on the SGX-ST. page 7