10 hours talk with SHLs Founder - with some 25 years old Whiskey - confirmed its an undervalued business (RM3.23 TP)Hi Investors,远在天边, 近在眼前.For many years, whenever looking out from the side windows of Plaza OSK, I always know there is a very well-run property company located just across the street from my office.Ironically, I think only a few remembers this company – a company which has been listed in the stock exchange for 18 years - SHL Consolidated Bhd.Not only that SHL has been a public listed company for 18 years, it has also been making profits and paying dividends for 18 straight years.After seeing this 18-storey building for my whole life in Plaza OSK, about a month ago, I thought the time was right to visit the company.That’s when I met up Dato’ Yap and enjoyed listening to SHL’s 18 years of uninterrupted earnings story with the 25 years old whiskey (probably older than that when we opened it ☺).Somehow, we managed to accumulate more than 10 hours of talk after seeing each other for only 3 times (yup, all the way after work until about 11pm).So why only now seeing the company, because :-i) It has already accumulated RM262m net cash as at 30 June 2013 compared to RM93m net debt in FY08ii) FY13 earnings increased 88% and 1QFY14 earnings up 55% y-o-yiii) Based on the RM300m unbilled sales and future launches, it is likely that FY14 earnings will be around RM40m and future earnings to surpass the FY05 RM45.4m record leveliv) In the 4QFY13 results, management said :“ our existing and future projects will further enhance our Group’s earnings in the coming years.”v) SHL’s FY14 PER has now been reduced to about 7x after factoring in its RM262m net cash or RM1.08 net cash / share vs. RM2.25 share pricevi) SHL is now trading at a discount compared to its RM2.43 NTA / share as at 30 June 2013vii) The discount to NTA may actually be greater as all its assets have not been revalued for at least 3 yearsviii) Dividend has been increasing and should be able to gradually increase going forward in tandem with earnings growthix) At least 20% net profit margins for the last 2 yearsFYI, the 18-storey building (0.23 acres & freehold) which is sandwiched in between Intermark and Sunway Velocity is now only valued at RM45m in the book.While Bandar Sungai Long has been the flagship development (famous for its bricks façade houses), SHL’s next earnings driver should be the RM1.1bn GDV Goodview Heights, Kajang.Goodview Heights has a designated exit / entrance from / to the SILK highway. Using SILK, you can reach AEON Cheras Selatan in 10 mins and Taman Connaught in about 15 mins.The Kajang land, which is about 200 acres, has already been cleared. Main roads and street lights have been built. Some piling works have started too. Launching should be very soon.Talking about SHL’s property launches, I couldn’t recall if I have seen any of its advertisements before, could you? – but the houses have been selling very well.I was in Twin Palms (by Lum Chang) yesterday, attending a full moon party. Twin Palms which is located just next to Goodview Heights is almost 100% sold for the launched projects.Twin Palms is a high-end development and I could see many people are already staying in the houses.Based on my observation, I think Goodview Heights, a higher-end project for SHL, should be able to do equally well.I foresee SHL is likely to have many more good years ahead as it is operating in an industry with long-term favorable and durable economics characteristics:-i) Because of strategic land scarcity in Klang Valley and Penang, 2nd tier cities have become favorites for buyers and property developersii) Young population profile in Malaysia – 83% below 50. Have you ever wondered why IKEA opened such a big store in Malaysia?iii) Malaysian’s general preference is still landed propertiesiv) The more affordable landed properties are now in Shah Alam, Klang, Rawang, Kajang and Semenyirv) “ There has been a latent shortfall of 100,000 houses in the market every year since 2009 ” – REHDA, March 2013. That means supporting healthy price appreciationvi) Improving infrastructure e.g. MRT and LRTWhile one would need to pay more for Whiskey as it ages, SHL’s shares are getting cheaper over the years as it business grows bigger with higher accumulated cash.Considering the RM1.08 net cash / share vs. RM2.25 share price compared to the FY14’s 16.4 sen EPS, it means you’re only paying about 7x to own a company with such track record.As the company currently still has land bank which could likely sustain earnings growth for the next 6 years, I think SHL could maintain at least 12 sen net dividend going forward assuming business as usual.So, if you take a 3-year horizon, you will likely be rewarded by at least 16% cumulative net dividend yield in 3 years.SHL’s current market-cap is about RM545m vs. RM262m net cash. It should be able to make about RM40m earnings in FY14.At the current valuation, SHL is indeed at risk of being privatized cheaply – same as Pintaras Jaya a year back (RM122m net cash vs. RM231.5m market-cap on 6 Sept 2012)With both earnings and net cash are expecting to rise in the coming years, you can expect the net cash to grow closer to the current RM545m market-cap.We are using 1.3x FY14 P/NTA to value the stock.If you look ahead a few more years, SHL could potentially worth more than RM3.23 / share.Despite the RM262m net cash in the bank, ensuring the company making money for the last 18 years and also maintaining the dividend track record for 18 straight years, Dato’ Yap and his brother were willing to draw only
Posted on: Tue, 22 Oct 2013 06:56:56 +0000
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