Guocoland attractive candidate for privatisation
By
Ven
Sreenivasanven@sph.com.sg@VenSreeBTApr 15, 20165:50 AM
THE Singapore bourse seems to have been bitten by the "privatisation" bug. A combination of moribund market conditions and resulting undervaluations has prompted a steady stream of delistings over the past year. And many are saying opportunities abound for a further wave of privatisations.
The move by OSIM International founder Ron Sim to take his company private is the latest such corporate action to have caught the eye - and imagination - of the market, with analysts hopping on the bandwagon, furiously working the numbers.
Earlier this week, OCBC Investment Research pointed out - rightly - that attractive valuations, low capital costs and the upbeat long-term prospects of Asia presented ideal conditions for privatisations or takeovers on the Singapore bourse.
Scouring the market for companies with strong cash horde and whose stocks are trading at low price/NTA ratios, and where insiders have been scooping up shares, it listed about 20 potential delistings, many of which were in the oil & marine (O&M) and property industries. Among the more prominent property names cited were Wing Tai, Wheelock Properties (S) and Banyan Tree.
But there is one property play that seems to have escaped the gaze of most analysts - Guocoland.
GuocoLand Limited is a developer of prime residential, hospitality, retail and commercial properties across Singapore, Malaysia and China. It has a very long listing history in Singapore, and right now has a market capitalisation of some S$2 billion. Its total assets, as at Dec 31, 2015, stood at about S$8.8 billion. Its Malaysian subsidiary Guocoland (Malaysia) Bhd has a market capitalisation equivalent to some S$300 million.
Controlled by Malaysian banking and property tycoon Quek Leng Chan, the company is the real estate flagship of Hong Leong Group (Malaysia). Guoco Group Limited owns some 69 per cent of the Singapore listed entity, while the free float is about 20 per cent. The balance is held directly by the Quek family and aligned interests.
The mainboard-listed company has a vast property portfolio and some of its key assets include the 2.3 million sq ft Damansara City project in the affluent Bukit Damansara neighbourhood, and various projects in China, including the massive Changfeng Residences in Shanghai. In Singapore, it owns the prime office tower at 20 Collyer Quay, amongst others.
But the jewel in the crown is its massive 1.7 million sq ft Tanjong Pagar Centre integrated complex, which is carried in its books at S$2.4 billion. The company also has a cash horde of about S$2 billion, and for the half year ended Dec 31, 2015, recorded a net profit attributable to equity-holders of close to S$590 million.
Market insiders believe that its stated total assets and net assets of some S$8.8 billion and S$3.7 billion respectively hugely undervalue the Tanjong Pagar project.
The project - comprising commercial, hotel and residential properties - sits atop the Tanjong Pagar MRT station on a prime site just a stone's throw away from the next major city waterfront project where the current port sits. Little wonder that some analysts believe that even at the low-ball market valuation of S$2,500 psf, this project should be worth some S$4.2 billion.
But let's keep it simple for now.
Based on the existing stated net asset valuation, Guocoland's book value per share is close to S$3. But in a report late last year investment house CIMB valued Guocoland at S$3.65. However, if one were to reflect the true market valuation of the Tanjong Pagar project, it would increase to at least S$4.5 billion. And this is even without revaluing the assets in Malaysia and China, which analysts believe could be almost 40 per cent higher than the company's stated book value.
Divide this by 1.1 billion shares, and we would derive a share price of at least S$4. Yet Guocoland's stock is currently hovering around S$1.80 - a massive 55 per cent discount. The highest the stock has risen to in recent times was $2.44 in June last year. And its 52-week low was S$1.69.
Rather unloved and unappreciated, Mr Quek might say. And he is not one to sit idly by if things don't look right. Almost two years ago, he attempted to take his Guoco Group Ltd private at HK$88 per share, a price which was half its book value.
Today, his Singapore entity is trading at an even bigger discount. This is despite strong assets, robust earnings, low gearing and an enviable cash stash.
Given that the stock's stated book value is about S$3, Mr Quek could very well put in an offer for S$2.50 - a price which Guocoland's long-suffering shareholders might just accept, given the low liquidity and weak sentiment towards property stocks amid a generally moribund market. This would cost him a cool S$550 million, not a princely sum considering that assets such as that in Tanjong Pagar are worth a lot more.
Whichever way one slices or dices it, Guocoland appears to be an attractive candidate for privatisation. All that remains is for Mr Quek to pull the trigger. And this could happen sooner rather than later.
Amendment: The previous version said Mr Quek Leng Chan attempted to take Guocoland Hong Kong private almost two years ago. It should be Guoco Group Ltd.