Feb 28, 2014

    More property privatisations to come?

    THE proposed privatisation of Singapore Land by parent United Industrial Corporation throws the spotlight on the depressed residential-property development segment.

    While residential prices here have not corrected by that much, many developers have been steadily sold down in the past year, in anticipation of a market downturn.

    As SingLand gets taken private at an 11 per cent premium to its last-traded share price on Feb 19 (inclusive of dividends), investors may very well ask which company is next.

    A number of property development companies are trading at sizeable discounts to their stated values, but only a few may have upside catalysts by being privatisation candidates.

    Developer profits tend to be lumpy, so a key metric to examine is either the net asset value (NAV) of a company, or its revised net asset value (RNAV) - essentially an analyst's estimate of the company's worth.

    Profitable, long-established counters trading at a 50 per cent or more discount to their NAVs or RNAVs could be perceived as severely undervalued by their owners, who might then see value in taking their companies private.

    The owner of a private company has more leeway to reshuffle management, dispose of unprofitable assets, or even liquidate the company to unlock value - away from the glare of the public eye.

    Tuan Sing Holdings is trading near a one-year low of 27 cents a share, at a 56 per cent discount to its last-reported NAV of 64 cents a share. It is controlled by Indonesia's Liem (Lim) family through their investment vehicle Nuri Holdings. The company is currently valued by the market at $330 million.

    Tuan Sing bought freehold property Robinson Point last year for $350 million. It is also redeveloping Robinson Towers, the site that had a fair value of $344 million at the end of last year.

    In all, the company has about $1.8 billion in assets on its book, and $1 billion of debt and payables.

    The company looks a tad underpriced, even after one takes a 50 per cent discount from that.

    Residential developer Wing Tai Holdings is another marquee name that stands out, having traded below half its book value at the beginning of the month. It is now trading at slightly above half its NAV and RNAV.

    DBS Group Research recommends a "buy" on the counter with a price target of $2.22 pegged at a 45 per cent discount to RNAV, as it cautioned that there are no near-term catalysts. The counter ended at $1.845 yesterday.

    There is also small-cap residential developer Sing Holdings, which is now looking abroad for development opportunities, given the challenging state of the local market.

    Sing Holdings was one of Singapore's oldest unlisted developers before it went public in 2006. It is trading at a 36 per cent discount to NAV.

    Finally, there are a host of smaller, thinly traded China property development companies - Debao Property, Pan Hong Property, and Catalist-listed tiny-cap Starland Holdings - all trading at discounts of about 60 to 70 per cent to their NAVs.

    The large discounts are probably due to their illiquidity and lack of investor confidence in S-chips.

    The privatisation theme might be the one worth exploring.