Invest in property developers? My portfolio.

Oh, no! Another short blog?

Although I like undervalued investments, there is always the possibility of such investments staying undervalued for an extended period of time.

Some readers might have noticed that this is usually the case with property developers.

My preference is, therefore, to invest in property developers that are able and have shown a willingness to reward shareholders with meaningful dividends.

The wait can be a long one and being paid while we wait makes it more affordable for most people.

Although individually my investments in property developers are definitely not big enough to be in my list of largest investments, collectively, they could be.

In late 2019, I shared the list of property developers I was invested in.

They were the following:

1. Guocoland

2. Ho Bee Land

3. Hock Lian Seng

4. OUE

5. Perennial Holdings

6. Tuan Sing

7. Wing Tai

The list has shrunk as I let go of my positions in Tuan Sing, Perennial Holdings and OUE. 

Tuan Sing was sold a few years ago when its share price rose to what I felt was fair value. 

Perennial Holdings was delisted and I made a small gain in the process a few years ago. 

OUE was a very small investment in the list and it wasn't very impactful. 

So, I let go of that investment and used the money to increase my exposure to our local banks instead.

For a while now, I have been left with the following property developers in my portfolio:

1. Guocoland

2. Ho Bee Land

3. Hock Lian Seng

4. Wing Tai

With interest rates much higher today, property developers are unlikely to do much better than before.

However, these four companies are undervalued and they should still be able do well enough to pay meaningful dividends.

I like being paid while I wait.

For example, Wing Tai Holdings which is trading at close to 70% discount to NAV is offering a 4% dividend yield.

It is like Warren Buffett buying socks at a huge discount but it doesn't stop there because the socks, in this case, pay us for wearing them!

Having said this, I am not increasing exposure to property developers although I am more than comfortable to hold on to my existing investments.

Related posts:
1. Perennial Holdings stock spikes!
2. Invested in Tuan Sing Holdings.
3. Hock Lian Seng should be 69c.
Recently published:
Fixed income strategy. My plan.

Quek Leng Chan ups stake in Guocoland. Is AK buying? (How much exposure to property developers does AK have?)

Someone asked me if I would be increasing my investment in Guocoland recently as it is still trading at a big discount to NAV.

In fact, he also asked if I would be increasing my exposure to the property sector since interest rates look like they will stay low for some years to come.

Although I like undervalued investments, there is always the possibility of such investments staying undervalued for an extended period of time.

Some readers might have noticed that this is usually the case with property developers.






My preference is, therefore, to invest in property developers that are able and have shown a willingness to reward shareholders with meaningful dividends.

The wait can be a long one and being paid while we wait makes it more affordable for most people.

Guocoland is a pretty good fit.

Since becoming a shareholder of Guocoland, I have received three rounds of 7c DPS.

Dividend yield is about 3.8%.

That is pretty decent for a property developer.








I became a shareholder of Guocoland in 2017.

That was when I noticed persistent insider buying and decided to do an incomplete analysis.

Then, I decided to invest in Guocoland which was trading at a hefty discount to valuation. 

Well, there is more insider buying now.

Following recent purchases, Mr. Quek Leng Chan's stake in Guocoland increased to almost 72%.

Although paying a price of $2.05 a share is more than 10% higher compared to what we paid back in 2017, the price is still a big discount to the NAV of $3.47 a share.






I am quite happy to hold on to my investment in Guocoland but I won't be adding now.

Reason?

Although individually my investments in property developers are not big enough to be in my list of largest investments, collectively, they are.

So, which property developers am I invested in?

They are:

1. Guocoland
2. Ho Bee Land
3. Hock Lian Seng
4. OUE
5. Perennial Holdings
6. Tuan Sing
7. Wing Tai

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






Based on market value, together, they probably account for a sizable chunk of my investment portfolio.

For a retiree like me, I feel that is enough exposure to property developers.

For sure, I do not know when value would be unlocked and this unknown makes limiting the total investment exposure to 10% of my portfolio or lower sensible.

What if value is not unlocked in my lifetime?

Hmmm...






Although I am not interested in increasing my exposure to property developers, I have increased my investment in the property sector by putting more money into the following business entities not too long ago:

1. IREIT
2. Centurion
3. Accordia Golf Trust

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






It should be obvious that the ability to generate a meaningful recurring income stream has always been an important consideration for me.

It has become more so as I grow more settled into my early retirement.

Of course, I am only doing what makes sense to me.

Others have to do what makes sense to them.

Oh, totally unrelated, I watched the following video by CPFB and had a good laugh:





Related post:
Largest investments updated (4Q 2019).

Invested in Tuan Sing Holdings.

When a reader asked me what I thought about Tuan Sing Holdings as it trades at almost 60% discount to NAV, it got me interested enough to take a closer look because this is something I think I understand.

I approached this in a way that is similar to my approach to investing in Guocoland. 

Substantial shareholders, the Liem family, and also Koh Wee Meng of Fragrance Group together hold a 60% stake in Tuan Sing. 







It is interesting to note that Mr. Koh's purchase price in 2014 was 43c a share and Tuan Sing's NAV per share then was 68c.

Based on its Annual Report for 2016, Tuan Sing's NAV per share grew to 77c and its stock is now trading at a lower price than in 2014. 


On the face of it, therefore, Tuan Sing is worth more today and with a lower share price, it is more undervalued than before.





Why is this so?

Tuan Sing's earnings have been in decline and Mr. Market probably doesn't like that. 

To top it off, Tuan Sing's gearing level is pretty high and interest cover ratio has also weakened from 14x in 2012 to just 2.2x in 2016.

At the current price level, there seems to be plenty of value waiting to be unlocked but it also seems to be thornier an investment.

We must remember that undervalued could stay undervalued for some time. So, it would be good to be paid while we wait. 




Do they pay dividends?

Tuan Sing pays a dividend but it is nothing to shout about. How much? 0.5 cent to 0.6 cent a share. 

Assuming a purchase price of 33c a share, we are looking at a dividend yield of 1.5% to 1.8%. 

Anyone who buys into Tuan Sing for income has to be mental. 





1.5% to 1.8% is lower than the 2.7% dividend yield from Guocoland based on an entry price of $1.83 a share and that was not an ideal investment for income either.

We know that property developers usually have pretty lumpy earnings but I am most interested in the fact that Tuan Sing has a relatively big portfolio of investment properties in Singapore, China and Australia.

Therefore, like Guocoland, Tuan Sing has the potential to become a more attractive investment for income investors if future payouts should increase together with any increase in future cash flow. 




Of course, this is somewhat speculative as it is anyone's guess what the Liems have in mind.

Source: Tuan Sing Holdings Limited.

To continue along this line, Tuan Sing's portfolio of development properties is pretty small at less than 10% of its total portfolio value. This reminds me of OUE Limited which I also have a relatively small investment in.

A big reason probably why Tuan Sing's gearing level is so high, their earnings is much reduced and, consequently, their interest cover ratio is so poor is because quite a big portion of its investment properties are still under development. They have yet to generate any income.




It stands to reason that once Tuan Sing's investment properties are fully completed, once they start generating income, earnings will improve and, significantly, it is worth noting that this will be recurring income which is something investors for income look for.

Of course, Tuan Sing still have development properties to sell but since that business is a relatively small portion of their entire portfolio, if they should sell well, it is the icing on the cake. If they don't sell well, it is not going to be a disaster either. 

Cake without any icing, anyone?




Tuan Sing is another asset play and if the valuation is to be believed, they are a pretty heavily undervalued asset play too. 

Just like my investments in OUE Limited, Wing Tai, PREH and Guocoland, my investment in Tuan Sing is only a nibble because it could be a long wait before value is unlocked.




In the news this year:
Sime Darby Centre purchased
and
Tuan Sing's earnings tumble 64%.
Related posts:
1. Guocoland analysis.
2. PREH analysis.
3. OUE Limited analysis.
4. Wing Tai Holdings analysis.

Could we see Wing Tai Holdings' stock price going higher?

Wing Tai Demo. Wow!

There was some excitement today for retail investors who have a stake in Wing Tai Holdings. Share price formed a long white candle, touching a high of $2.12 a share before closing at $2.11 a share. 

The closing price is some 10.18% higher than the closing price last Friday (i.e. $1.915 a share).

Why did Mr. Market chase Wing Tai Holdings' stock to a much higher price level? 

Could it be that privatisation is on the card? 

If so, what might the offer price be? 

These are some questions which people might be asking.

Well, with NAV/share at about $3.80, could we see an offer of about $3.00 a share or a 20% discount to NAV?

Honestly, I don't know.

What I do know is that the white candle formed today is on the back of much higher volume. In fact, it is the highest daily trading volume in years. This suggests that the upmove in price is likely to have momentum.

Could the stock provide more excitement in the days ahead? I am inclined to think so. 

This might not be over yet.

The momentum oscillators have formed higher highs which suggest that the upward price movement could continue too.

Could I hazard a guess as to the next price target? Well, if no one is going to hold me to it, I could always indulge in a bit of crystal bowling ball gazing.

Using Fibo lines, it seems that the high formed about two years ago in 2013 could be challenged. 

Given time, S$2.37, perhaps?

Related posts:
1. A nibble at Wing Tai Holdings Limited.
2. An incomplete analysis of Wing Tai Holdings.

Wing Tai Asia.

A nibble at Wing Tai Holdings Limited.

On 22 October, I did an incomplete analysis of Wing Tai Holdings Limited to arrive at what I thought would be a nice entry price. 

Any reader who might have missed that and would like to read it, please see the related post at the end of this blog.

Today, I became a shareholder of Wing Tai Holdings Limited. 

Entry price is $1.655, a 56% discount to NAV and a few bids higher than the $1.64 per share that I mentioned on 22 October.

At this price, I am basically paying for their investment properties at book value, their development properties at a huge discount to valuation and I am basically getting their retail businesses for free. 

I shared some of these numbers in my incomplete analysis mentioned earlier.

Technically, the downtrend is intact but the momentum oscillators are forming higher lows. 

So, it seems that the stock could be forming a base and further downside could be limited. 

The chart shows stronger supports are to be found at $1.59 and $1.55 a share.

$1.55 also happens to coincide with the low formed more than 2 years ago on 15 November 2012.

Related post:
An incomplete analysis of Wing Tai Holdings.

An incomplete analysis of Wing Tai Holdings Limited.

Wing Tai Asia.

Someone asked me that since I bought into OUE Limited at a 50% discount to NAV, why not Wing Tai? Wing Tai's NAV/share is $3.78 and it last traded at only $1.74. That is a massive 54% discount to NAV.

Well, both OUE Limited and Wing Tai might be in the real estate business but they are not exactly the same. Wing Tai makes most of its money from property development, more than 80%, in fact. On the other hand, OUE Limited keeps its exposure to property development to a smaller 20% or less.

Of course, we know that in the current day environment with all the cooling measures in place and also an impending increase in interest rates, property development business is really not as promising as it was a few years ago.

We could say that Wing Tai also develops properties in Malaysia and China but are the residential real estate markets there insulated from rising interest rates? I would think not.

In an environment that makes building and selling residential real estate difficult, it is the property companies which have strong recurring income streams that will weather the downturn better. In this area, Wing Tai is rather weak as its investment properties are a small fraction in value compared to its development properties.

Undeniably, for Wing Tai to do well, its development properties will have to sell well but it seems unlikely that this is going to be the case.

Revenue has dropped significantly in the last 12 months and the decline could continue for some time to come. Although Wing Tai's boss said that they are not dropping prices to move stock, I would not be surprised if he should eat his words in the next 12 to 24 months.

Unless some of the earlier cooling measures should be removed by the Singapore government, things are unlikely to look up for the property sector. Unless interest rates stay low in future, investors are more likely to avoid investing in properties.

Wing Tai will have to pay extension charges for development properties which have not been sold two years after receiving their TOPs. It will be a percentage of the respective sites' purchase prices. 8% in the first year, 16% in the second year and 24% in the third and subsequent years.

To avoid paying these charges, Wing Tai could do a SC Global and privatise but with only slightly more than 50% of the issued shares in their control, it would cost the Cheng family quite a fortune to do so and Wing Tai's boss has already said that there is no plan to privatise.

I am not an expert analyst on the property sector and I am not sure how well Wing Tai's properties will sell in future but I am willing to bet that conditions will continue to be difficult. Revenue could continue to decline and if Wing Tai should drop prices on its development properties, revenue could receive a boost but earnings might be flat.

The question now is really what is Wing Tai worth on a per share basis?

Well, I am more sanguine about its investment properties than its development properties. Those are worth about 72c or 73c a share. These properties are recurring income generators. Income could be increased by improving occupancy levels or increasing asking rents or rates where possible.

As for its development properties, the only way for them to make money for Wing Tai is if they were sold. Otherwise, even if we were to assume further write downs in value, they are just dead weight if they remain unsold. With the extension charges payable 2 years upon receiving their TOPs, they will become liabilities until they are sold. Therefore, to be very conservative, taking into consideration possible bigger write downs in future, to me, they could be worth $1.50 a share.

Wing Tai has cash on hand but not enough to pay off all its borrowings. They are short of some 58c per share. However, unless things get seriously bad, Wing Tai is in no danger of going belly up. It could always sell a fraction of its development properties cheaper to raise cash. At the moment, with the cash that it has, Wing Tai is at least able to reduce borrowings further in case interest rates should go up in order to avoid higher finance cost.

So, based on this incomplete analysis of Wing Tai Holdings Limited, to me, a fairly good entry price would be $0.72 + $1.50 - $0.58 = $1.64, give or take a few bids.

Technically, $1.64 looks like it could be tested as a support while in the short term, we could see a rebound in share price as the MACD formed a higher low.

See: Full Year 2014 Financial Statements.

Related post:
OUE Limited: A nibble.

Formerly Wing Tai's headquarters.