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SYMPHONY LIFE BHD

A deeper look into its deep value

Main highlights:

• Based on my assumptions and rough estimates, fully diluted RNAV is RM4.34. Applying a conservative 50% discount, the stock has a fair value of RM2.17.
• Symlife should start to progressively reflect its true value after FY16 in view of two positive catalysts in 2017-18.
• Main catalyst will be the announcement of the Sg. Long land development's launch (slated for 2017/18). If valued at RM50 psf, the Sg. Long land is worth RM900mil (3.9x market cap). GDV for this development was previously estimated at RM8bn (>30x market cap).
• The other catalyst will be a jump in profits (and as a result probably higher dividends) driven by its record high unbilled sales of over RM700mil (about 2.5x FY15 revenue). Upcoming/future launches of around RM2bn in GDV (excluding Sg. Long development and ongoing projects) to support earnings.
• Despite the subdued property market, Symlife's high-end projects (first phase of Star Residences and TWY) achieved high take-up rates of more than 80%.

The delay of the Sungai Long development and management's guidance for lower sales in FY16 may come as a disappointment to some who follow Symphony Life (Symlife) closely.

But for some investors who are more forward looking, Symlife still remains an attractive property stock to be invested in.

After FYE Mar 2016, about 7 months from now, the stock could start to progressively reflect its true/intrinsic value, in view of the positive catalysts that's about to come in 2017-18.

The main catalyst would be the announcement of the Sg. Long development's launch (which should draw interest of institutional investors to the stock).

The other catalyst would be a jump in profits (and as a result, probably higher dividends) driven by unbilled sales of over RM700mil (the highest ever recorded by Symlife; ~2.5x FY15 revenue).

Much of this sales weren’t reflected in recent quarters and won’t be in the remaining ones of FY16 because Symlife’s recent launches were mostly high rise developments which construction works are now only at the foundation level.

As profits are recognized using the stage of completion method, the bulk of the unbilled sales will only be recognized at further stages of the developments' construction, from FY17 onwards.

Sg. Long development – the main catalyst

The Sg. Long development is now slated to be launched in 2017/2018. The land area for development has now been reduced to 400 acres after around 20 acres was acquired for the EKVE.

With less land, the previously estimated GDV of RM8bn should also be lower now. If we assume a proportional GDV to land area decrease, the GDV would be roughly 5% (20/420 acres) lower at RM7.6bn (but still over 30x Symlife's current market cap)

On the bright side, the EKVE cutting through the development could serve as a positive due to better accessibility/connectivity

Figure 1: Information on the Sg. Long land

Source: Symlife’s IMTN Programme Information Memorandum (dated 16 May 2013)

Location of the Sg. Long land

From the info memo (Figure 1), location details are:

To the south of the Sg. Long land:

- Bandar Mahkota Cheras

- Bandar Sungai Long

- Taman Cheras Vista

- Taman Vista

- Taman Desa Budiman

To the north of the Sg. Long land:

- Taman Bukit Sekawan

- Taman Sri Nanding

- Taman Cempaka

- Taman Perkasa

- Taman Dusun Nanding

- Kampung Sungai Serai

Based on this info, I believe the land is located somewhere inside the orange circle in Figure 2. Google Maps link: https://goo.gl/maps/twA50

Figure 2: Sg. Long land indicative locationSource: Google Maps, www.mapcustomizer.com

The location looks about right judging from the quarry terrain (currently the land is being used for quarry operations, Symlife in FY12 paid about RM143mil to extend the lease of the land to 99 years and to convert the land status to make it ready for property development).

Potential value

Since the land is close to Bandar Sungai Long, which was developed by SHL Consolidated Bhd, land prices in that area could serve as a good indication to what Symlife's Sg. Long land is worth.

PublicInvest Research, in a non-rated report on SHL, indicated the market value/price of land in Bandar Sg. Long was RM130 per sq ft. (The report can be found here on bursamarketplace.com)

Figure 3: Extracts from PublicInvest Research report on SHL

Source: PublicInvest Research non-rated report on SHL (dated 22 Jul 2014)

If we use the RM130 psf as guidance, Symlife’s 400-acre (17,424,000 sq ft) land could be worth RM2.27bn, or about RM7.30 per share.

In a July 2015 article by The Edge Property on Bandar Sungai Long (link to article), there was a mention that “the value of residential land in the township is between RM150 and RM300 psf now.”

Another way I would value the land is to use the NPV method.

As a rough estimate, if we evenly spread out the RM7.6bn GDV over a 10 year development period (RM760mil/year), assume net margins of 20% (net profit of RM152mil/year), use a WACC of 11%, we would get an NPV of RM895mil, which comes to about RM51 psf. Based on this, the land is worth RM2.89 per share.

Potential value of Symlife stock

Many of Symlife's properties have not been revalued for some time and hence are carried at low net book values (see Figure 4).

Figure 4: Properties owned by Symphony Life

Source: Company annual report

What could Symlife's RNAV be if we were to value the properties at current market prices?

For my own entertainment, I made some guesstimates to the values of the properties to see what RNAV Symlife could potentially have (see Figure 5). Note that these are just my own estimates and not the market prices. I feel my estimates are conservative, but actual market prices could be lower or higher.

Figure 5: Hypothetical revaluation of Symphony Life properties

*Based on my own assumptions/estimates.

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