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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.
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| 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 OUE, Wing 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.
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