2nd Liner Prop Stocks

Amidst the offer for HPL shares, there is perhaps one stock that may be worth taking a peek at – Bonvest.

Bonvest is known mostly for owning Liat Towers and Sheraton Towers (a hotel next to Newton MRT), although the company also has other businesses like resort hotels in Mauritius, Maldives, Tunisia and Tanzania, and owns 79% of listed entity Colex.

Liat Tower is smacked next to Wheelock Place, and while only 40,340 sq ft in land size (and 6.2 plot ratio), has an Orchard Road frontage far wider than Wheelock Place’s. I would imagine that any redevelopment of Wheelock Place would be much more prestigious if the Liat Towers site forms part of the new project. Based on a land price of $2,400 psf ppr, this would value the land at $600m. I estimate that Bonvest values Liat Towers at about $450m at most, leaving a surplus of about $150m. Liat Towers is a rather old office building with a small retail space, and is not fully utilizing its retail space entitlement, I believe. In recent years, it also had some flood issues (its shop space is lower than the Orchard Road pedestrian walkway), and could be ripe for redevelopment, especially if it becomes part of a new project that stretches from Wheelock Place to the Anguilla car park.

However, this is not even Bonvest’s big prize, which is actually Sheraton Towers, a 420-room 5-star hotel just next to Newton MRT and sitting on freehold land. Bonvest “hides” this asset under the fully owned subsidiary Richvein Pte Ltd, and if I am not wrong, values this subsidiary only at cost, ie, $143.5m. This means that each room is only valued at about $340,000! A more accurate value would be in the range of $1.3-$1.5m per room. Assuming an easy figure of $1.34m per room, we then get a revaluation surplus of $1m per room, or $420m!

Bonvest’s NAV now is $1.99, based on 402m shares. If the above “revaluation surplus” of $150m and $420m (total $570m) is reasonable, that would mean an additional NAV of $1.41, bringing its RNAV to $3.40! This, compared with the current share price of $1.28, means the share price trades at a 62% discount to RNAV!

It is no wonder that among the top 20 shareholders, Morph Investments, which is an astute value investor in various undervalued SGX stocks (including SB which was recently sold to Hiap Hoe) featured as the no. 4 biggest holder, owning 7.4m shares. Bonvests’ free float is only 17.2%, and it does not cost much for the major owner to take it private (even an offer price of $1.80 means a cost of only $124m to the majority shareholder).

Having said that, this counter can be quite illiquid, and sometimes it appears to be stubbornly trapped in a tight trading range (like last year), and no one appears interested in it. So, lots of patience may be required, and there is a risk of what some call “value trap” – you are at the mercy of the majority shareholders, who may have their own reason for not privatizing the company. Moreover, in recent years the company had been quite miserly in paying dividend, compared to its earlier years. Also, the stock has risen these few days probably due to the HPL story, so some caution is warranted.

I have never attended Bonvest’s AGMs, so I am not familiar with its owners and CEO, and trust in the people that own or run a company is an important consideration in investing. However, based solely on the figures above, I would say owning a small stake in this stock, and patiently waiting for the prize, does look safe.

Based on back of envelope estimates about 6 months back, I put nav of Bonvest to be about $3.00.

Sumer's analysis is much clearer and this may spur some interest on this quiet stock. The re-development potential alone in Liat should be a catalyst to move the share price.

Also, on a minor point, Bonvest owns about 10% of Cordlife.

Good article.

HPL land redevelopment 'can revive Orchard belt's sleepy end'. Bonvest's Liat Towers facing Orchard Road located in this section of Orchard belt's sleepy end. Liat Towers facing Orchard Rood will command much better value.

Wheelock being hungry for freehold land may have show interest in Liat Towers and Far East Shopping Centre. As both are long over due for redevelopment. These can becomes part of a project strectches along Orchard Road from Paterson Road to Cuscaden Road.

Sumer had point out:
Liat Towers is a rather old office building with a small retail space, and is not fully utilizing its retail space entitlement, I believe. In recent years, it also had some flood issues (its shop space is lower than the Orchard Road pedestrian walkway), and could be ripe for redevelopment, especially if it becomes part of a new project that stretches from Wheelock Place to the Anguilla car park.

Vested

Bonvests looks like a greater discount and safer investment than YING LI (now at 0.84x book value). $1.33 for Bonvests now and 28.5 for YL

Bonvest @ $1.33 is still way under-value as compare to my estimation of over $3/- and Sumer calculation of $3.40 and NAV of $1.99.

Sumer had cautious; lots of patience may be required, and there is a risk of what some call “value trap” – you are at the mercy of the majority shareholders, who may have their own reason for not privatizing the company.

I bought into Bonvest since 2009 at very low price. As Bonvest share price increased to over a dollars, I had par down some shares. Reasons, cost of holding less attractive (low yield). The other reason, "value trap" and deployed my cash to other stocks.

If we prepare to park some of our cash in Bonvest and with great patience, 'sooner or later it will pay-off.'

On the balance of probability (given the major shareholder has > 80% holding), one may positively surmise that Bonvest will be eventually privatised.

In view of its solid margin of safety, I have added further position last week.

Bonvest is a deep value play with prized properties in its balance sheet.

I will stay the course on Bonvest.