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SOS Is Gadang's property segment a drag? 2018
sosfinance
Publish date: Fri, 23 Feb 2018, 02:12 PM
sosfinance
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VALUATION DOES NOT DETERMINE THE PRICE, IT'S JUST A TOOL TO ESTIMATE A VALUE OF A BIZ
www.sosfinancialplanning.blogspot.my
"How do you save RM50,000? - I shared with a friend on how to do it. I got a term life for RM280 p.a covering RM100k until 70 years old. I cancelled my wholelife insurance of RM2,800 p.a. for the same coverage up to 100 years old. Save RM2500 p.a x 20 years = RM50,000. (PM0122037325)
.....IS THIS ARTICLE FAKE OR FACT?? ANYONE CAN CONFIRM?
www.sosfinancialplanning.blogspot.my
"How do you save RM50,000? - I shared with a friend on how to do it. I got a term life for RM280 p.a covering RM100k until 70 years old. I cancelled my wholelife insurance of RM2,800 p.a. for the same coverage up to 100 years old. Save RM2500 p.a x 20 years = RM50,000. (PM0122037325)
.....IS THIS ARTICLE FAKE OR FACT?? ANYONE CAN CONFIRM?
PROPERTIES
IS IT REALLY THAT BAD?
General consensus, property market sentiment is weak due to various reasons.
However, if we look at Gadang's property, they are focus more on affordable housing and landed properties.
Some of which, they JVs (Laman View, Taman Putra Perdana, Kwasa Land) develops for other landowners (lower risk).
Current project (Unbilled sales of RM119m)
1) JV on Capital City, Profit to be recognised - about RM200m (2 years time)
2) The Vyne, Sungai Besi - RM534m
3) Sena, Kena - landed residential - RM300m
4) Laman View - PRIMA Homes (Affordable homes), Cyberjaya (JV) total GDV RM1.8b
2018 launches
1) Laman View, Cyberjaya, PRIMA Homes - RM330m
2) Taman Putra Perdana (JV) - Landed house - RM160m
Future
1) JV Kwasa Land (6 years project) - RM700m - high rise towers & villas
2) Semenyih RM500m (LT) - landed properties
3) Melawati Land (LT) RM400m
4) Latest, Johor Land, RM550m
Gadang entered into property in a bigger way during 2016 and 2017, after the slow down in 2015. Their strategy focus on affordable and landed properties, which are still in demand.
For some longer term development, they JVs with other land owners, lower their holding cost. Their future projects in Johor and Semenyih, is mainly landed residential properties, which is not effected by the slow down (mainly in luxury condos in the city).
(No mention of a piece of land bought in Damansara Perdana - by the way the market price is higher than the purchase cost)
HOW SHOULD WE ANALYSE GADANG'S PROPERTIES SEGMENT VS MARKET CONSENSUS?
1. Capital City (RM200m to be recognised) - over next 2 years (based on completion)
2. GDV of about RM4.2b (4.4b x 20% over 10 years = RM84m p.a.) - sustainable
Assuming I spread Capital City contribution over 10 years i.e. RM20m p.a + other projects of RM84m p.a., average earning contributions is about RM100m. (Today's market sentiment is weak), PE of 7x = RM700m.
CONSTRUCTION
Order book of RM1.67b x 10% (4 years) = RM42m p.a.
Market PE for constrcution (42m x 12X) = RM500m
CONCESSIONAIRES
Water, Hydro, Solar PV
Hydro and Solar has not contribute yet.
Estmated total investment of RM200m (some in progress). Value 2.5x of invested capital = RM500m
ESTIMATES OF GADANG'S VALUE
PROPERTIES + CONSTRUCTION + CONCESSIONS
RM700m + RM500m + RM500m = RM1.7b
No of shares 660m
Value of Gadang shares = RM2.57 per share
23 Feb 2018 trading at RM1.07 per share
1.5.2018
CYBERJAYA JV - PRIMA HOUSING
SEMENYIH - ALL LANDED RESIDENTIAL
ISKANDAR (BUY WITH DEV ORDER BY 2019) - ALL LANDED RESIDENTIAL
MELAWATI (SELANGOR) - MAINLY LANDED RESIDENTIAL
(Yes, there are some high rise, but substantially are landed residential).
DISCLAIMER
Estimating the value of the shares is only step one. It does not necessary mean the price has to reflect the value immediately. However, over a long run (3-5 years), when the earnings contributions is reflected in the books + sustainable future, commonly the price will reflect the value of the Company. This is one of the basis of investment, indentifying stocks with potential growth and value before the consensus catch up with it.
Management control the substance of the company (hard cold solid cash flows), participants/investors (emotionals - based on participants) will decide the price of it. That is why, price is what you pay, value is what you get.
Btw, there are 999 more options out there, invest in what you know. Not other people said, especially "free blogs". Not a buy, hold or sell call. I understand, many Gadang holders' may be frustrated.
When the stock does well, everyone says, its flawless, when it is not doing well, like now, people said it is hopeless. Well, these is just participants emotions. Focus on the substance (sustainability of the Company) - not worries over the emotions of other participants. After all, the stocks does not recognise its owner. JUST A PIECE OF PAPER.
(It takes 3 million shares (total shares of 479m) to bring INNOPRISE market cap dropped from RM550m to RM320m, and back to about RM400m in 3 days - and the company fundamental did not move an inch - Hmmmmm, are we buying the emotions of others or the value in the company? You have to decide).
A BILLION DOLLAR QUESTION FOR GADANG
How to bridge the gap between the value and the price (1.07 vs 2.57)? Acquire 20% of WCEH? Long term - 3 strong segments, construction, infrastructure + properties. No more reason to blame it on weak property sentiment. After all, they are doing affordable housing and landed properties, nothing got to do with the weak luxury condo market. Or they are providing solution of "affordability issue" to the mass market demand.
2 March 2018 updates
Add some at RM1.04. Glut is on luxury condos (above RM900k). Banks are reluctant to lend especially for luxury condos. Gadang's substantially focus on "affordable housing", and "landed properties" and JVs with land owners Cyberjaya and Sungai Buloh(Kwasa Land). Add a bit at 88sen.
EPF and LTAT and MD Kok Onn update on 20 April 2018 (TOTAL BOUGHT = 13.1%)
EPF became substantial shareholder on 11 August 17 = about 33m shares
@29 April 18 = about 45m shares
Average cost for EPF is about RM1.20 per share
LTAT became a substantial shareholder on 22 Mac 18 = 33 m shares
Average cost for LTAT is about RM1.00 per share
Total EPF (RM54m) and LTAT (RM33m) bought over last one year is about RM87m. It is obvious some of the unit trusts sold down.
Similarly the MD, Kok Onn started buying in April 2017 (RM1.30) until lately April 2018 (87sen), total of 8.9m shares, with average cost of about RM1.19 per share = RM10.6m.
So total purchases by EPF, LTAT and MD is about RM98m, almost RM100m. (a total of 13.14% change hands, or 86.7m shares change hands. Likely from other unit trusts.
At the price not 87 sen, it is a bargain. Of course, property sector is over punished due to weak sentiment. Gadang's land bought since 2016 and 2017 and 2018 are all bought at depressed price, and some of it already now making capital gain. However, the "fund managers" like to lump all property sector into ONE SECTOR disregard the quality of the land bank and type of development.
The standard statement, retails and commercial are overbuilt. But never bother to check, Gadang's property are mainly for landed property (Semenyih and Iskandar) and affordable units (Cyberjaya), with a bit of condos (but not luxury type). And 50% of its contracts are in Infrastructure. (EPF and LTAT may know something we do not know for future development).
20 April 2018 (Fri) - Bought more at 85 sen, at least 2 years investment (April 2020)
Rationale for purchase :
1) Market Cap now RM566m
2) Proceeds from Capital City RM214m (in 2 years time)
3) Market Cap net of Cash = RM352m
4) PATMI (exclude Capital City) = average p.a. next 3 years = RM88m
5) PE = 352/88 = 4x (comparative PE based on bad sentiment on property & construction = 8.5x)
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Discussions
4 people like this. Showing 4 of 4 comments
Should we take the contribution from capital coty at full value? Proprrty developers usually buy land when they receive money from their previous development. That should be the maintenance capex
2018-02-23 17:06
Just an estimates. A very conservative estimates will be RM67m p.a. earning contribution for next 3 years. So, taking RM200m is reasonable. (lower valuation can use as buffer).
2018-02-23 18:18
Land purchases
Semenyih RM100m
Damansara Perdana RM55m
Pontian, Johor RM149m
Total purchases RM304m
Dividend last 2 years
FYE2016 RM16m
FYE2017 RM19m
(Appears that Gadang is cash rich, when it purchases land in 2016 to 2018)
JV Land
Kwasa Land RM700m
Cyberjaya RM1,800m
Expected Cash inflow from Capital City, Johor RM220m + operating CF about RM150m.
2018-02-26 18:48
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Larrytrader
2.57 a share so undervalued
2018-02-23 14:43