Lafe Corp has been shedding its tech business to focus on property development.These are interesting:
*** Very profitable condo project in Orchard called Residences at Emerald Hill. Bought 30,239 sq ft land (plot ratio 2.1) at only $750psf. Now marketing the condo at above $2,600 psf, and more than 50% are sold, according to agents. The project will TOP this year, so profits could be reported very soon. Company may make about $80-90 million from this condo, or 7cts per share, gross.
*** Owns 2.3 million sq ft industrial land in China which it is applying for conversion to residential/commercial use. Some approvals have already been granted. Based on big land size, substantial gains from conversion?
*** Owns an industrial site in Hongkong with a GFA of 70,341 sq ft. H govt is encouraging the changing of land use from industrial to residential as the SAR is short of land. Lafe is now studying the possibility of such a conversion.
Approvals for converting Lafe's land in China and Hongkong will not only boost the value of its land and NTA but also allow it to become a larger scale developer, if it chooses to develop these sites.
Profits from Emerald Hill condo will yield very high EPS relative to its share price. NTA of stock is currently 14cts. The earnings from its condo project and land conversion could boost RNAV to 20-30cts.
Looks good, especially when insider Lew Syn Pau has been buying and buying the shares. May just join him, altho the business is not easy to follow as it involves properties in China & HK. The financial results so far have been, er, lousy.
Last week SGX-listed Yuexiu bought 2 parcels of land in Panyu, Guangzhou for:
Plot A: 178,969 sqm, gross floor area 326,836 sqm, Plot ratio 1.826, Price: RMB2.38 billion or RMB7,282 psm of GFA (for Residential/Commercial)
Plot B: 49,686 sqm, gross floor area 89,435 sqm, Plot ratio 1.8, Price: RMB495.02 million or RMB5,535 psm (for Residential only)
The 2 plots are in Panyu Southern District.
Lafe owns 212,797 sq m of industrial land in Panyu's Shiguang Road - which looks like a more central part of Panyu. This land is rezoned by the government as residential/commercial. Lafe has already successfully applied for conversion of this land to residential use. It is now applying for conversion to residential/commercial, probably to get a higher plot ratio and selling price/value.
Assuming 1.8 plot ratio,100% of the land approved for residential (as approved now already), assuming RMB5,535 psm GFA for the land (same price as Yuexiu's plot), value of this land = 212,797 X 1.8 X RMB5,535 = RMB 2.12 BILLION = $420 million.
Lafe has not revealed much details like GFA, lease top-up cost if any, etc. So even if assume costs not factored in yet as $100 million, the net value of the land is still $320 million, or 27.4cts per share (1.166b shares).
Market capital of Lafe now is only $99 million at 8.5cts.
NTA per share now = 14cts.
Present Book NTA of the land in Panyu = 5cts per share (assumption based on Lafe's Annual Report 2009's 6.1cts per share. But this includes the factory in Hongkong. So 5cts for Panyu land is a conservative assumption.)
Potential hidden value of Panyu land = 27.4cts - 5cts = 22.4cts.
NTA will then surge to 36.4cts.
Net gain from Residences at Emerald Hill is about 6cts. To be conservative, mark this down to 4cts, due to expected weaker property market in Singapore.
New NTA or RNAV is 36.4 + 4cts = 40.4 cts.
Lafe, at 8.5 cts, is now trading at about 32cts discount to RNAV of 40.4cts, or 21% of RNAV.
Company is loss making now because it is getting rid of its old business (laying off costs, drop in revenues as factories close) and transforming into a property developer. It has also spent money paying for the land conversion in China - charging this as an expense but no increase added to book value of the land.
In addition to above, another wild card is the possible conversion of Lafe's factory land in Hongkong into residential. That will boost NTA further.
If Wiki's assumptions are correct, I believe the land conversion could materially affect Lafe's value, and the company should either
(1) do an independent valuation of the land as a result of the conversion, or
(2) do a simple internal comparative study (if it wants to save cost) with recent land transactions in the area and then extrapolate these values onto Lafe's own piece of land, especially becos approvals for conversion to residential usage have already been granted, and hence there should be a revaluation done, notwithstanding its recent move to convert it to resi/commercial.
Lafe should then announce this valuation on SGX website. Info such as how much more money is expected to be spent on the land conversin should also be revealed.
In addition, Lafe should show a simple map of where the land is relative to Panyu, pictures of the land and its surrounding, and a google earth map, so that minority shareholders, who probably have not even heard of Panyu, can make a better judgment and not sell off their shares due to a lack of precious data and info from the company.
If Wiki's assumptions and calculations are correct then the value of the Panyu land is more than 3 times the market value of Lafe shares now, and to anyone, this is very material info. Can you imagine if CityDev does not reveal that somewhere in its land holdings, it has a piece of land that is internally valued at $35 per share, or 3 times its stock price?
Oh, and if Lafe is shy to reveal more, perhaps minority shareholders could do a little work and ask SGX to persuade Lafe to reveal more info on this matter? Each one should write individually so that it does not appear that only a single or a couple of shareholders are interested.
I have personally written in to SGX to ask a listed firm to announce a dividend payout date, after the firm proposed a dividend but failed to reveal a payout date for a few months. The date was determined and revealed within a week. Perhaps my writing to SGX did work.
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