Budget 2014 will hit hard to local property industry by J&J author.
We think the approach is too hard even though we do not agree to sky rocketing property’s prices. The root is whether it is speculative or other reasons that caused the price hike. We feel that it is because cost is increasing and developers have transferred the cost to consumer. Also as it is a highly related fact to quantitative easing strategy by most central banks all over the world.
If the second objective is to collect more taxes to balance the budget. We feel simply a 2-3% stamp duty share by both buyers and sellers may have achieved the goal plus mildly reduce speculative activities.
If property market react heavily to the approach and this may impact all chains related to property industry and we believe is quite widely spread.
it will collpase soon. Putting aside the higher RPGT rates, transactions volume have slowed down substansially in the last few months especially on penang island and KL. These measure are too stringent on the market and will have a disproportionate impact on Penang island , KL and Iskandar when it bursts. Highly leverage developers may face a liquidty crisis.
Agree with you impartially,these few weeks after the budget,lots of people are busy selling their properties before end of December. After having lunch talk with one of the properties agent,she said that the seller don't want to bear the government properties tax & possibly later buyers will be very hard to get loan from bank,that's why, all the traders are in hurry to let go their steaming charcoal in hand. .
who is your prop agent? that the guy better get more update from the bank. All banks under instructions of BNM already tighten the loan since this year, not "later". Is already not possible for those in high household debt to get their loan approved. That, indirectly filtered out those unqualify group of buyer going into prop market.
Long time never visit here. The last time I was here they were talking about Ivory acquire the Plaza Rakyat and I made some skeptical comments about it.
Now Ivory just released its three quarters result ended 30 September 2013. Revenue increased by 79% to 214.4m. But net profit dropped by 80+% to just 5.7m, with EPS at 1.4 sen per share for 9 months.
The main reason was the significant drop in the "other operating income" from 49.6m to just 14.2m. What is this "Other operating income"? If I remember correctly it was some revaluation surplus, or gain from some funny stuff, or more specifically a one time non cash useless item. So is this year's "other operating income" of 14.2m the same stuff? If it is so, the 5.7m net profit would quickly transformed to a loss of 8m+ then.
A look at the cash flow statement which shows as usual, negative cash flow from operations, this year of -45m, huge negative CFFO. Every year Ivory said they make money, but where is the cash?
It is not easy to confirm what the answer is by looking at the balance sheet. The net total borrowings has increased again, as usual, by 35% to 309m now.
Interestingly, people still buy its share at 60 sen, though its NAB is 83 sen, the quality of its assets are very poor. Most of the NAB is made up of PPE, receivables and inventories.
The crowd keeps on cheering.
Year 2013 2012 Change Revenue 214442 119754 79% Other income 14232 49581 -71% Net profit 5745 32780 -82% EPS, sen 1.37 9.68 -86%
CFFO -45070 -30468 Capex 0 0 FCF -45070 -30468
Cash 66226 58070 14% Total debt 375564 287993 30% Net borrowing 309338 229923 35%
A lot of people chase this ivory stock, mostly are because of Cold Eye uncle's effect ! Master Kcchongnz, would you mind to give your opions on others 2 property stock, KSL and Brem. Are they potential ?
I have written about KSL before and compared its value with two other of my favorite property companies, Daiman and Plenitude. I used two methods to compare, earnings based as well as asset based. It is shown in the following link:
If Ivory ends up the full year with an EPS of 2 sen based on ytd performance, it will be valued at a p/e ratio of 30 at 60 sen. Most if not all of last year profit came from one off revaluation surplus. Its cash flow from operations had been negative for quite some time. P/E of 30 for a small cap developer is very high. Tambun is just trading at a multiple of 10 and the same applies to Matrix. Borrowings of 380 mil is worrying as Ivory still has off balance sheet debt through its SPV.
kcchongnz, Based on your investment approach honed through experience, what is your preferred approach towards investing in stocks? -Graham net net -Enterprise Value approach -Gordon Growth
Graham net net will be useful if a company does not have much operational profits to show but is rich in liquid assets(cash, quoted & unquoted investments)
EV is a universal methodology as it applies to all companies
Gordon growth specifically applies to dividend paying stocks only
Besides the above questions, What will be your preferred approach in valuation of "turnaround stocks and growth stocks" apart from DCF to arrive at NPV basis i.e stocks with not so good financials at the moment but could be double or triple baggers in the future. Would appreciate your artful input on the rationale of making assumptions on required rate of returns, assumption of dividend growth rate, minimum hurdle rate required, assumption of EPS growth rate in the above models..
Would appreciate your advise on the above. Appreciate if you could provide attachments of your previous write ups on the above as well.
tsurukame, base on your above post, you have already shown you know which valuation method is suitable for which type of company. I would like to reiterate that valuation is an art.
If you read the write up of my stock picks in i3, you would notice I use a lot of private market valuation, ie how much is the market enterprise value of the firm compared with its earnings before interest and tax, and compared with similar transactions. I normally want EV/Ebit to be less than 8, depending on the type of business. For example it is hard to find a good asset light service company like JobStreet and Prestariang selling at EV/Ebit of less than 10. And for some asset heavy companies, a EV/Ebit higher than 10 would be relatively expensive. You do notice that this type of valuation requires an earnings.
I use a lot of discount cash flow method (DCFM) with many variations of them to estimate the intrinsic value of a company. This is the most accepted valuation method by the professionals, I think, as it makes the most sense. I just used this for valuing Prestariang here using free cash flows. Of course the company valued must have earnings, FCF etc depending which DCFM you use.
But if there is no or little earnings, how to use the above two methods? that is where I use the assets based method such as Graham net net, for example on PM Corp.
The more interesting thing for some companies is not only they are qualified as a Graham net net company, meaning their quality asset is more than the market price, they are also qualified as a good investment using earnings based valuations (low EV, high margin of safety against their intrinsic value etc) such as those below:
Posted by tsurukame > Dec 2, 2013 11:03 AM | Report Abuse
kcchongnz,
Besides the above questions, What will be your preferred approach in valuation of "turnaround stocks and growth stocks" apart from DCF to arrive at NPV basis i.e stocks with not so good financials at the moment but could be double or triple baggers in the future. Would appreciate your artful input on the rationale of making assumptions on required rate of returns, assumption of dividend growth rate, minimum hurdle rate required, assumption of EPS growth rate in the above models..
As I have said, the three methods above are the appropriate method of valuations. What other method for "turnaround stocks and growth stocks"?
It all boils down to what you consider that particular company is turning around, or growing very fast? Is its revenue going to grow at a fast rate again? What rate you reckon? Is its margin which has been falling makes a turnaround of higher margin, higher ebit etc? What margin you expected? Are all your assumptions here realistic? etc.
So you put in all these optimistic assumptions, and may be use a higher discount rate, and do the DCFM and see what the new intrinsic value will be. If you are sure of the "turnaround" and put in correctly (where got always correctly one) and then you will get a higher intrinsic value, hence incorporated in your turnaround story.
this counter requires a bit of patience as earnings yet to come in. But potential is there as holds 49% of Penang World City which has GDV of RM10 billion. They launched the properties early this year and received favorable respnses from buyers. Should be able to book in profit next year.
Target price RM1.00 for mother share, RM0.50 for Warrants (100% upside)
Wednesday, December 4, 2013First Phase Of Penang World City Selling Well TROPICANA Bay Residences, the first phase of the RM10bil Penang WorldCity (PWC), has been selling briskly since it opened for booking in February.
A total of 85% of its 906 condominium units have been snapped up, generating RM540mil for the developer Tropicana Ivory Sdn Bhd (TISB).
TISB is a joint venture company formed by Tropicana Corporation Bhd and Ivory Properties Group Bhd.
Tropicana founder and executive vice-chairman Tan Sri Danny Tan Chee Sing said PWC, developed on prime freehold land of 41.5ha, was conceptualised to combine the quiet charm of island living with the convenience of a vibrant city life.
“Since the special preview of Tropicana Bay Residences early this year, we are pleased that it has recorded an 85% take-up rate.
“We are encouraged by the positive response and happy to commence this waterfront development.
“We believe this integrated development that consists of residential towers, office blocks, recreational and retail offerings, a wellness centre, a hotel as well as an international school will further add vibrancy to Penang’s economic landscape,” he said at the groundbreaking of PWC at Bayan Mutiara.
Present at the event were state Housing, Town and Country Planning Committee chairman Jagdeep Singh Deo, Ivory chief executive officer Datuk Low Eng Hock, Tropicana chief executive officer Datuk Yau Kok Seng, Tropicana managing director Datuk Dickson Tan and TISB managing director Datuk Andy Khoo.
Low said the ground-breaking ceremony marked the beginning of an amazing phase.
“There is a lot of construction to do and we are still on a mission to set a new benchmark in urban living as well as provide comfortable luxury green homes for our first batch of privileged buyers,” he said.
Low said that over the last few years, Penang had emerged as a property hub, catching the attention of both Malaysians and foreigners alike.
“The property market in Penang is expected to see further growth with the current population of Penang standing at 1.61 million.
“The population is expected to increase by 40% in 2020.
“One-third of this total consists of those aged 25 to 44, thus pointing towards constant demand for residential property,” Low said.
Strategically located within Bayan Mutiara, PWC will be an integrated waterfront city at the gateway of Penang island, right off the Penang Bridge.
It is in the eastern part of the Tun Dr Lim Chong Eu Expressway and in the vicinity of Sungai Nibong. It can be easily accessed from George Town and from the Penang International Airport.
Penang WorldCity by Tropicana and Ivory Posted on | November 25, 2013
Penang WorldCity by Tropicana and Ivory.
Congratulations. Today’s official groundbreaking ceremony of Penang WordCity makrs the successful new beginning of this prestigious new development that boasts of a gross development value of RM10 billion. Developed by Tropicana Ivory Sdn Bhd, a joint venture project between Tropicana Corporation Berhad and Ivory Properties Group Berhad, Penang WorldCity has been conceptualised to represent the quiet charm of island living as well as the vibrancy of city life. Look forward to a new and exciting development of residences, commercial units, offices, leisure and recreation, a wellness centre, as well as an international school that will add more energy to Penang’s economic landscape.
Saturday, May 25, 2013Ivory Properties Group Berhad - Penang World City The Earnings Driver Ivory Properties Group Berhad - Price Target:0.92 Last Price:0.77 Penang World City The Earnings Driver
We value Ivory at MYR0.92, based on 45% discount to RNAV. The stock is currently trading at 0.88x P/B. Ivory’s earnings are expected to pick up from FY14 onwards, largely driven by the successful preview of PWC in 1Q13. The first four blocks have received an encouraging booking rate of 70-80%. We are hopeful that the JV co could bring in reputable players to add value to PWC.
- Penang World City (PWC) taking off. We visited PWC, which is a 55:45 JV project between Dijaya and Ivory. This project has a GDV of MYR9.8bn, and it forms more than 80% of Ivory’s total portfolio GDV. Apart from residences, it also comprises a retail mall, medical centre, international school, hotels, Grade A offices and convention centre. Since its soft launch in early 2013, the four residential blocks at Phase 1 (GDV of MYR610m) have achieved an average booking rate of 70-80% at an average price of MYR700 psf. The JV co is currently in talks with a few interested parties to jointly develop the retail mall with an estimated NLA of 1m sqf. Outright land sale is also possible if the price is attractive and /or the development can add value to PWC.
- Earnings impact will come from FY14 onwards. The JV co is expected to obtain the A&P license in Aug. Bookings will then be gradually converted into sales. We expect earnings to pick up only from FY14 onwards. Note that, earnings will come from two sources – property development and construction. Given Ivory’s 48% share of the GDV, this translates to construction revenue of MYR293m just for the first four blocks launched. Earnings in FY13 will be underpinned by ongoing projects such as The Peak Residence and The Latitude condo worth a total GDV of MYR439m. The recent preview of City Residence has also received an encouraging booking rate of 80%.
- Cheap, but lacks track record. Admittedly, Ivory is lacking solid earnings track record and balance sheet strength (net gearing 0.6x) that warrant a convincing re-rating. However, given the current buoyant sentiment on the sector, Ivory’s current valuations appear undemanding at 0.88x P/B. Land value on the Penang island is expected to rise further as IJMLD and E&O make announcements on their projects in 2H. ♦ Fair value at MYR0.92. The stock is not rated. We value Ivory at MYR0.92, based on 45% discount to RNAV.
I don't know who is the rhb anaylst that wrote this and where is the person now . I do know the rhb anaylst that covered Tambun ms loong . She had made a deputy director of research . I can perhaps try to ask her
Well thats optimistic many developers are experiencing slowing sales and it will get worse next year when rpgt kicks in especially high end ciondos like those in penang times square
Almost 1.5 times of market cap and that excludes off balance sheet debt from their spv . They are the ultimate gurantor for the spv debts and the real figure could be significantly higher
i bet big on ivory. 45% of the RM10 billion Penang World City translates into GDV of RM4.5 billion. To be developed over eight years, every year GDV is RM562m. Assume net profit margin of 15%, net profit of RM84m per annum. Add contribution from other property projects, total net profit of RM100m per annum. PER of 8 times results in market cap of RM800m. Divide by shares of 400m, target price of RM2.00 per share. Warrant fair value = RM2.00 - RM0.75 = RM1.25. Now only 25 sen. Upside of 500%. Achievable over three years
How are they going to raise funds for the project when gearing is so high? They said the same about Penang Times Square(A multi billion GDV flagship project) to investors few years back but they haven't realized any significant profit for the project in the last 2 years except revaluation gains. There was so much hype about the project when it launched 5 years ago and all it boasts is an empty mall and its already entering phase 3. Many fund managers have learned their lessons. The question is how do they end up from being the successful bidder for the project to being a minority stakeholder now ? They don't even have the authority to make major decisions for the Penang world city project as minority shareholder now
lets say gross profit of 84 million per annum, but this company is capable of spending more than 50 million per annum in administrative expenses?! It will consume off most of the profit.
Year 2012 Administrative expenses was 55 million, and separately there was a interest expenses of 11 million. Year 2013 Administrative expenses could be higher.
impartiality the details of how they are going to raise funds for Penang World City was set out in the circular to sahreholders for the proposed joint venture with Tropicana. Not a problem lah
robbin65, you have to pull yourself out and look at the big picture. No point keep focusing on small items. When the revenue came in, the profit will follow.
they are going through gestatio period now. Marketing expesnes had been incurred while revenue has yet to come in. That is why their expesnes now is high.
Like robbin65 said the company has shown questionable cost control ability. Analyts told me that the company has one of the lowest revenue per staff in the industry , an indication of bloated administration and low productivity
You cant blame investors for not forgetting easily especially when they think that management had not been honest in the past. Fund managers and analysts put their reputation on the line when they make decisions like this. The best example is Sunway. It has a lot of legacy issues in the past and it is trading at a low P/E despite having turned around for many years. Analysts have never regained trust in the company. No one knows whether Ivory is capable of turning around yet and its small size does not bode well for investors confidence either
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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....
davidkkw79
5,068 posts
Posted by davidkkw79 > 2013-10-25 18:44 | Report Abuse
ivory has a lot of debt... it debt will affect it to going further....