2nd Liner Prop Stocks

Hi kayaroti, here is my short note on 2nd liner prop stocks:

1. KSH remains my fave 2nd liner prop counter. The stock resumed its climb these 2 days, perhaps due to it trading Cum Bonus. The co’s recent wins via JVs at Rio Casa and Woodleigh could contribute some $60m of gross profit in 2019-21. However, its main angle remains: 1. Its multiyear GBD project 2. Mgt’s acumen, generosity and working (as compared to deaf) ears.

2. CES remains my second favorite counter. It’s safer than KSH in that it’s trading at a good 40% discount to NAV (vs KSH trading at a premium). Its tender win at Woodleigh could yield it about $56m in gross profit, adding to its unbooked profits at Grandeur Park ($78m gross) and High Park ($90m gross unbooked). I am assuming ASP of $1,600 psf and breakeven of $1,450psf for its Woodleigh site. CES is also be sitting on a huge revaluation surplus for its Alexandra hotel (as much as 35-40ct net), bringing its RNAV to above $2. To be prudent, I have omitted its Aussie projects as well as surplus valuation from its other investment properties. I think co will have no problem paying 4ct DPS next 3-4 years, with profits from its 3 99yr projects.

3. Hiap Hoe and Heeton remain underperformers as shareholders get frustrated and give up on mgt and major shareholders’ deaf ears. That explains their steep discount to NAV, as shareholders grow weary attending their AGMs and hearing the same old excuses. Nevertheless, for those with patience, there may be surprise privatization offers due to their cheap valuations. Hiap Hoe has been quite inactive in recent years but their hotel assets are hugely undervalued. Heeton’s mgt is not sharp, missing out on making money at iLiv and Grange Infinite. HIap Hoe also sold off their Balmoral and Waterscape projects at unfortunate prices. I have reduced my holdings in these 2 stocks in favor of KSH and CES.

4. Bukit Sembawang and FCL are 2 other prop stocks that I own and prefer. Bukit should have enough land bank for 10 years of development, a rarity in Singapore. I estimate its land bank can yield in excess of $1b in gross profit. FCL is my preferred exposure to Australia.

Further to my last posting,

1. CES was reported to have appointed an agent to market its 420 St Kilda, Melbourne office block in April, asking for A$65m or A$20m more than what the co purchased for a short while ago. Co has also cleared about or more than 75% of Fulcrum and Grandeur. This probably explains its courage to bid aggressively for Woodleigh site, beating all the big developers. Estimates for construction and other costs in some reports seem to be excessive, and hence a $1,800 psf ASP was assumed. I am more hopeful that CES is able to fulfill the construction requirements for a 10% free balcony space and lower non-land cost, and hence am projecting a lower ASP of $1,600 psf.

2. Bukit Sembawang is expected to launch its St Thomas Walk project soon. I expect ASP of $2,500 psf, giving the co a fat profit given that it only paid $1,141 psf for the Airview Tower en bloc and $625 psf for the Chez Bright site, both of which were then amalgamated for the present building. Its Watercove cluster housing at Sembawang has also sold well after being launched recently. A rare big land (and mostly FH too) owner which does not need to fight with other developers fo GLS sites should be worth a premium.

Thank you Sumer for yr sharing.
I am wondering what you may be referring to when u said "...as shareholders grow weary attending their AGMs and hearing the same old excuses."

What were the issues at hand and what "old excuses" did you get?

Hi Sumer, many thanks for the detail analysis !

There seems to be an increase in buying activity in Hiap Hoe recently. This could be tied to it Q2 results which would be released next week. They could have realised more profits from their Marina Tower project. I hope they give us an interim dividend too .

Terence Wong, CEO of Azure Capital, in an article in BT:

www.businesstimes.com.sg/companies-marke...-since-inception-ceo

Now, his largest positions include large-cap Global Logistic Properties and far smaller counters like Avi-Tech Electronics, Fu Yu Corporation, and KSH.

Fu Yu, a plastic injection moulder, "must be the most boring company out there". The plastic injection moulding industry has been consolidating, and Mr Wong said he is happy to collect dividends while waiting for the company to realise its potential for being taken over. He thinks the counter has another 15 to 20 per cent to go from current levels.

Avi-Tech Electronics , a printed circuit board manufacturer, can rally a little bit more than that, he said. Avi-Tech is riding on the Internet of Things boom. Like Fu Yu, it has downside protection due to a large cash position, he said.


He also owns shares in Sing Holdings, a niche property developer. Trading at under 0.6 times book value, the company is developing a Fernvale project where another nearby condo has sold well, he said.