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Invested in Guocoland with Mr. Quek Leng Chan.

Thursday, March 30, 2017

I am going to pre-empt a response to this blog and say that although I am known more as an investor for income, I also invest in stocks which are not for the purist income investor.

To my regular readers, this would be quite apparent in many instances. So, by revealing that I bought into Guocoland recently would not surprise them.

Guocoland is a developer with businesses in Singapore, Malaysia, China and Vietnam. They also have some exposure to the U.K. and Australia through a 27% stake in Eco World International, helmed by Mr. Liew Kee Sin who left SP Setia after it was bought out in a hostile takeover in 2014.

Business Times dated 21 Feb 17.

Guocoland recently got my attention because of a series of insider buying by Mr. Quek Leng Chan. Of course, I do not know exactly why he was buying but Peter Lynch said if insiders buy, it is usually because they think they will make money from doing so (i.e. the stock is undervalued).

Doing more research into Guocoland gave me a second and bigger push to become a shareholder. Being a developer, earnings are lumpy. Most assets are development properties meant for sale.

However, Guocoland is going to see an increase in recurring income and a big increase too. 

This is in the form of Tanjong Pagar Centre in Singapore and Damansara City in Kuala Lumpur. 

Guocoland is the majority stakeholder in both projects.

Quite possibly, Guocoland is worth more than what its book value of about $3.00 a share suggests. 

At $1.85, the discount to NAV is about 38% but if my guess is correct and the RNAV is higher, then, the discount is more than 40%.

Do take note that I am no expert in this area and these are just my back of the envelope scribbles. OK, if you must know, I really scribbled on this:

Want to own a piece of prime commercial property in Singapore's CBD? 

What about Tanjong Pagar Centre at a discount?

This gives me a feeling of deja vu because it is similar to Saizen REIT's past situation. 

If the sale of certain assets at a premium in China and Malaysia by Guocoland in the recent past were good instances to go by, all the assets they are holding now could be worth more.

I like recurring income.

I like buying good stuff at a big discount.

If Mr. Quek thinks his company stocks are cheap enough for him to buy more at $1.85 a share earlier this year, then, I want in. 

There has been speculation that Guocoland could be taken private because of the big discount to valuation and the very small float. Mr. Quek's stake is almost 70% of the issued shares.

So, to add a bit of speculative flavor:

GuocoLand rated "buy" at target prices of $2.55. UOB notes that GuocoLand is a potential privatisation play due to its stock trading at a deep discount of 45% to its revalued net asset valuation (RNAV). A low public float of 21% and a high majority-sponsor stake of 68% are also contributing factors.

Of course, I don't know if it is going to happen.

Guocoland, like my investments in OUEWing Tai and PREH, is more of an asset play with no guarantee that value will be unlocked soon. 

So, I have sized my investment in a way that will make patience more affordable.

What does this mean?

If we are invested in an undervalued business and we are waiting for its value to be realized, it requires patience but we must be able to afford patience.

In general, we would be able to afford patience if 

1. We are not investing with borrowed funds.

2. We are not investing with funds we need in the near future for other purposes.

3. We are not investing an amount of money that might make us lose sleep at night.

Now that I have gotten that reminder out of the way, did I mention that Guocoland has a rather predictable 5c dividend per share every year too?

I like being paid while I wait.

Finally, another word of caution. I did a lot more research into Guocoland than what I am sharing here. 

Knowing what I know, I decided that I want Guocoland in my portfolio. You should do your own research too.


Solace said...

Hi AK,

I was also looking at property counters, in addition to my stake in OUE and PREH.

Earlier, in the year i brought into hongkong land as it was too trading at good valuation, at about $6.6 USD.

I did take a look at guccoland, not enough funds to put too much property counter. hahaha

AK71 said...

Hi Solace,

I was alerted to HK Land by a friend but I have an irrational aversion towards counters listed in a foreign currency. -.-"

Kevin said...

Hi AK,

Mr Quek buying back from open market plus currently trading below 200DMA means what ah? :P

By the way, any love for UOB-Kay Hian or you prefer tangible assets to intangible assets? ;)

AK71 said...

Hi Kevin,

I very stupid one hor. Don't ask me cheem cheem questions like these. -.-"

I will leave the commenting on UOB Kay Hian to someone else. I lazy. ;p

lbs said...

your "envelope" cost $5 a week leh.
i am surprised you actually bought it. What do you like about the magazine?

AK71 said...

Hi BS,

Oh, I assure you, it is free of charge. ;)

Kevin said...

Hi AK,

Your plan is to wait till Guocoland's value being realized and then take profit to buy Wallich Residence's one and only super penthouse right? ;P

I just watched the video link on this blog post. Time to pay Tanjong Pagar Centre a visit to have a look. ;)

AK71 said...

Hi Kevin,

A small investment like mine? Probably enough to buy a toilet in one of the units. -.-"

I am lucky to have friends who work in the vicinity and they are very impressed by TPC. Maybe, one day, lazy AK will go take a look too. ;p

gagmewithaspoon said...

it is very impressive but besides the lunch crowd, it is rather quiet. 100am mall is still holding up well even after TPC was opened. I think TPC needs to have more attractions to draw in the shopping crowd.

AK71 said...

Hi Gag,

I think it might be a mistake to look at the shopping space in TPC as a mall in the conventional sense. TPC is an integrated development. So, the mall is more a convenience for the office crowd, the hotel guests and the residents. It might be another ARC or MBLM. Of course, if TPC does much better, I am not going to complain. ;)

EK said...

Hi AK,

Thanks for sharing the insights. I'm new to property developing company. With regards to the properties you have posted, damansara,TPC etc, does guoco has the ownership of the full properties and they rent out the spaces for rental gain? Or do they always develop properties and sell off the entire assets for capital gain? I'm sort of confused by this business model and whether to evaluate based on p/e or based on NAV. Could you kindly share your opinion?

AK71 said...

Hi EK,

Developers can hold development properties for sale and also investment properties for income. Guocoland's strategy is to increase the latter. TPC is going to be a big recurring income generator for them. :)

Using PE ratio to value developers is usually tricky because earnings are lumpy. NAV gives us an idea as to the actual value but because the earnings are lumpy, developers usually trade at a discount to NAV as there is less income visibility. However, if there is significant recurring income thrown in, we might see trading closer to NAV. ;)

You might also want to see my blogs on OUE and Wing Tai. Do a search using the search box at the top of my blog. Happy reading! :)

EK said...

Awesome.. thanks for your words. I now have a clearer idea! Have weekend!

AK71 said...

Hi EK,

I anyhow talk to myself de. Happy weekend! ;)

AK71 said...

Hi AK, thks for sharing on guocoland!
Just wondering if u hv a concern with the high debt level? Understandable property counters may have higher debt but guocoland's debt seems higher than the rest? How should we look at it?

When we look at debt, we should also look at cash flow. Debt is more manageable now even thought it is still elevated because cash flow is strengthened. 😉

Mich said...

Hi AK,

would like to know where to get hold of the list of "insider" purchase that you scribbled on. Is it a webpage or magazine? Thanks.

AK71 said...

Hi Mich,

I got that from "The EDGE", a weekly publication. :)

hangloose said...

Given recent Government's ruling on properties, do you think Guocoland will be affected? Could the drop in share price showing this impact?

AK71 said...

Hi hangloose,

Which ruling are you referring to?

Nick said...

The group will see a smaller percentage contribution from Singapore as contributions from China and the UK step up...

With development margins in Singapore being compressed, the group is looking to build a bigger portfolio of recurring-income assets.

"The business is no longer the same as in the old days when you can hold the land for many years and the property appreciates in value," Mr Choong explained. "Today, with the more competitive market and lower margins, speed and execution are very critical." BT 3 Apr 2017

hangloose said...

Hi AK,

This news: Property developers in Singapore are faced with a difficult decision, to discount unsold luxury homes or pay penalties for failure to meet government-mandated sales deadlines, after the government closed a tax loophole that enabled them to offload residential units in bulk to institutional investors and wealthy individuals.

AK71 said...

Hi Nick,

Being an investor for income, I like the strategy. :)

AK71 said...

Hi hangloose,

"...residential property developers are concerned about the impact that an impending move to plug a stamp duty loophole may have on bulk sales, but GuocoLand is likely to escape the brunt of it. As at end-February, 300 of the 381 units have been sold. Under Singapore's Qualifying Certificate (QC) rules for foreign housing developers, GuocoLand has to sell the balance units by June 15 to avert paying punitive extension charges to the government."

In an earlier blog, I said OUE Limited is much bigger than Twin Peaks. Well, Guocoland is much bigger than Leedon Residence. ;)

AK71 said...

· With development margins expected to be under pressure in Singapore, management will be hoping to increase contributions from recurring income streams. This currently only accounts for 2% of group profits

· However, with the expected completion of their 80% owned S$3.2m mixed used development Tanjong Pagar Centre this year, it will help the group increase its exposure to recurring income streams from fiscal 2018. The office and retail components are about 90% committed already. The 181 units residential component is expected to be launched sometime this year and 16 caveats have already been lodged at about S$3,000 psf;

· In Malaysia, its flagship mix used integrated development project (consisting of a hotel) Damasara City which is also expected to be ready by fiscal 2018 is also expected to help bolster its recurring income stream

Lim & Tan

Kevin said...

Higher sales lift Q3 profit at GuocoLand. :) :) :)

AK71 said...

Hi Kevin,

Thanks for sharing the good news. More of the same, please. ;)

apex property investment said...

higher profit does not translate to higher share price...?

AK71 said...

Hi Apex,

Price is what we pay. Value is what we get. They don't always move in the same direction. ;)

AK71 said...

April 27, 2017 by CapitalCube

GuocoLand Ltd. relative valuation is now UNDERVALUED. It was previously rated NEUTRAL, and has a fundamental analysis score of 28.

Our analysis is based on comparing GuocoLand Ltd. with the following peers – Ho Bee Land Limited, Yanlord Land Group Limited, City Developments Limited and Stamford Land Corporation Ltd.

GuocoLand Ltd.’s price of SGD 1.83 is lower than CapitalCube’s implied price of SGD 1.95. CapitalCube believes that at these levels, GuocoLand Ltd. is undervalued and has upside potential. Over the last 52 week period, the stock has fluctuated between SGD 1.78 and SGD 2.03.

K said...

Looking for some Chinese buyers?

AK71 said...

"Tanjong Pagar Centre makes two key contributions to the Singapore city. It will act as a catalyst in accelerating the rejuvenation and transformation of Tanjong Pagar District into a business and lifestyle hub in the CBD," said Mr Choong. "Additionally, its 'Integrated Vertical Living' design concept offers a model for Singapore’s urban future."

Calling the building "GuocoLand Group’s S$3.2 billion flagship development in Singapore", Mr Choong said that it will add to the group's "growing portfolio of large-scale integrated mixed-use investment properties in Singapore and the region"

"This is in line with GuocoLand’s growth strategy to grow our investment income through iconic mixed developments in selected gateway cities in Asia," he added


Kevin said...

GuocoLand looks to rise in private home prices :)~~~~~~~~

JH said...

2.29!!! up and up and up!

AK71 said...

Hi Charles,

Thanks for the update :)

AK71 said...

Jonathan Ang Wei Shan:
Hi AK, Guocoland is 2.29 now, I bought it at 1.83 when I read your article and did some homework. Are you still holding on to it? I was thinking if Guocoland has the ability to earn more money in the future to justify me holding it for longer time

You did some homework? Then, you should have the answer. Don't ask me. :p

Jonathan Ang Wei Shan:
Do homework already must double check with shifu 😂

All of us should know clearly why we invest in something. Then, we know what to do.

Jonathan Ang Wei Shan:
Actually I have been asking myself this question, which is the goal of every investment. Each person is different. For you, you are more focused on generating income. I am still finding my own character as an investor with only 2 years of experience. I have a lot to learn from you. My initial plan was to exit when the price is closer to RNAV and if I find another better opportunity.

"My initial plan was to exit when the price is closer to RNAV and if I find another better opportunity."
You have a plan! ;)

Kevin said...

Hi AK and Jonathan Ang Wei Shan,

This might give you some clue. The link below is the latest valuation of Guoco Tower and 20 Collyer Quay. ;)~~~~~~~~~

AK71 said...

Hi Kevin,

Thanks for the update :)

sleepydevil said...

Dividends at 7 cents declared :)

FY2017 report

AK71 said...

Hi sleepydevil,

Good news and the major beneficiary is Mr. Quek Leng Chan. ;)

sleepydevil said...

Hi AK,

Major beneficiary is Mr Quek Leng Chan.. Yes..
But...It's a good news for AK too :)

Congratulations :)
Do drop by my blog :)

AK71 said...

Hi sleepydevil,

I was lucky I got in when I did. Just pure dumb luck. ;)

Welcome to the blogging community. :)

sleepydevil said...

Hi AK,

Thanks for the welcome :)
Can we exchange blog links?:)

Also, thank you for dropping by :)
I believe it's not luck, we've done our homework~

AK71 said...

Hi SD,

I have added a link to your blog in my blog's left side bar under "RESOURCES".

Good or bad, I always believe it is luck. Well, for me anyway. ;)

laurence said...

Today Guocoland reported huge profits plus 7c dividends but the stock price went up a measely 1c?
Most investors fail to see value when even when it' s staring at their faces. Instead they keep trooping into bottomless sink-holes such as Noble and Ezion, just like the fairy tale The Pied Piper of Hamelin. Lol.

"GuocoLand' s Q4 net profit surges S$205m to S$244.8m
PROPERTY developer GuocoLand Limited' s net profit for its fourth quarter leapt S$205 million to S$244.8 million from the preceding year, the group said in a Singapore Exchange filing on Sunday morning.

For the three months ended June 30, revenue surged 89.9 per cent to S$407.4 million from the previous year. The gain in revenue was due to higher sales and progressive revenue recognition from Singapore' s residential projects as compared to the previous corresponding quarter, it said."

AK71 said...

Hi Laurence,

There are both investors and speculators in the ecosystem.

If they are good at what they do, they will both make money. :)

anon said...

Hi AK,

I remember you writing somewhere abt the high Gearing in yr blog on Quocoland. Now I can't find it.

I just would like to learn two things from you re Gearing:-
How do you compute (formula you use), and
What's your threshold for High Gearing?


AK71 said...

Hi jojo,

"Gearing refers to the level of a company’s debt related to its equity capital."

This is usually expressed in percentage terms.

I find a gearing ratio of 100% or higher to be high and Guocoland is quite close although it has dropped to under 100%. It is my view that it could drop further as cash flow improves and some debt possibly repaid in the next couple of years, if they do not have new projects to fund.

Kevin said...

Hi AK and jojo,

You can make use of the StockFacts function on the SGX website.

It is a very powerful tool which summarises all the important data for analysis for stocks listed on the SGX and most importantly it is free of charge for usage. :P

This is Guocoland's data shown on SGX StockFacts.

AK71 said...

Hi Kevin,

Thanks for sharing. Always learning new stuff from you. :D

csky said...

Hi AK, I am kind of confused about property counters and hope you can share some thoughts.

If one is negative about the prospects of residential property (increasing vacancy, falling rental and lack of demand catalyst), why would it make sense to invest in property stocks? Granted, you mention that it's undervalued because you believe it's priced lower than its RNAV, but if the prospects are deemed negative, then it may never recover to RNAV? And isn't kind of worrying that property developers are bidding land at sky-high prices when the short term prospects on residential property are not so clear?

Second, although these property counters are diversified into commercial properties… but what if there is a market crash? Then these commercial properties will be hit hard.

Or is it that even after taking these factors in consideration, we could expect price to recover to at least 80% of RNAV and hence at 40% discount to RNAV, there is sufficient margin of safety to invest in them? And this is akin to if you can find a property today that is selling at 40% to NAV, you should not hesitate to buy it?

Thank you!

AK71 said...

Hi csky,

Your concerns are valid.

Have you wondered why my investments in property developers did not make it into the list in the blog below?

AK71 said...

Reader says...
Long time never write on Guccoland liao hor....u are so right to get out of Accordia Golf ....drop so much now 🙂

AK says...
Aiyoh. I anyhow think and anyhow buy and sell one lah. I blur blur de. 😛
Guocoland? Alamak. I forgot I have.
Relatively small investment. Easy to forget 😛

JH said...

any new thoughts on Guccoland? price plunge for all related stocks after gov announcement

AK71 said...

Hi Charles,

The latest property cooling measure is unfortunate for local property developers.

Guocoland is now trading at an even bigger discount to NAV.

What to do?

I am satisfied to simply hold on and be paid in the meantime.

AK71 said...

Reader says...
Guocoland now interesting value now. Come to think of it, there might be interesting property play in the next few months if company cannot sell their units. What do you think?

AK says...
It is trading at a big discount to NAV. I think it is cheap but I am more interested in accumulating SingTel now. 😜

Reader says...
i would think some property counters would wanna private to save money and price is cheap

AK says...
Guocoland is actually quite a good candidate for privatisation but that is in the realm of speculation. I will keep my position in Guocoland relatively small. 🙂

AK71 said...

Lena Nyk says...
Can I ask if you still have position on Guocoland.
Also would you accumulate more now that Guocoland is at $1.84.
Thankful if you can talk to yourself.

AK says...
I am still invested but I am not adding.

On its own, it isn't a big investment but my overall exposure to property developers in Singapore is quite significant if we put all the investments together:


I stay invested because they are all trading at discount to valuation and look cheap but I won't be adding unless Mr. Market goes into a depression

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