A look at different developers GDV in Malaysia (as at April 2015)

One of the various measurement for property developers especially for those established ones in Malaysia can be the total remaining Gross Development Value (GDV) that each of them have. Of course in establishing that, one should also not discount the factor of location, balance sheet strength, business margin and their individual business strength.

While I am not really into buying property, I have made substantial visits to launches and new development over the last 2 years. In Malaysia, I would say several developers are in the upper league and these are large scale developers usually one which have township development. I would say those are:

- SP Setia;
- UEM Sunrise;
- Sime Darby;
- IJM Land;
- EcoWorld - whom have made a name in less than 2 years;
- Tropicana - through an exercise it has become a prominent brand with sizeable landbank;
- IOI Properties;
- Mah Sing;
- UOA Development - a company which focus on high rise and city development.

Few more are in the smaller development companies league and they probably have almost the same pricing power. These are Gamuda (due to lack of available GDV), TTDI, Paramount, I&P, OSK Properties, Malton, DRB-Hicom, Hong Leong Properties and several others.

In the past one year, one can notice that the prices of properties have sort of stagnated and total transacted properties have probably reduced. This is a positive sign and in the past few years from 2009 to 2012, I have wondered where does the rise in property prices stop at. If it is not in check, it may experience the past experiences of Japan (1990s) and US (sub-prime crisis).

In any case, I still think there are lots of opportunities for well-established (or regarded) developers as some of them have either the ability to sell at above average prices - such as EcoWorld and SP Setia - hence they have no problem in buying land at current high prices. Just look at the purchase by Eco on the Batu Kawan land. Understood that they were no other bidders. Some others have significant landbank which were owned at very low costs - UEM Sunrise, Sime Darby, IJM Land.

In terms of location, I would think that Klang Valley has the most potential and sustainability as they are just too many new young families that are to be brought up in KL and Selangor. The government has projected that Klang Valley will be homes to some 10 million people by 2020 - up from 7 million now. That represents 2.5 million households (4 people per household) at the very least and that also means the need for about the same number of homes by 2020. If one is to judge how many households are there in one township development - Kwasa Damansara which covers 2,330 acres of land is building homes for 28,000 households and IJM Land which is building Rimbayu on 1878 acres of land is building homes for 10,000 households. How many new homes and how many more townships of that size would there be by 2020 in Klang Valley?

Next in my preference is Penang, then only Johor in which case at the moment is facing oversupply situation, largely due the presence of developers from China. We just are not able to figure the scale the Chinese builders can do, I guess. (Read this where Country Garden Danga Bay just launched a RM18 billion GDV in one launch.)

So how do we value a property development company? I am not in favour of PE as for example in the case of Sunrise in the past, they were pretty much a very strong developer in just one area - Mont Kiara. But its brand and ability attracted UEM to purchase them. Whether it created value for UEM, I do not think so. Property developers need their most important raw material which is land.

Price to Net Asset is also not as preferred due to some land can be cheaper when purchased while its GDV approved may be higher in respect of GDV per square foot.

In any case, one of the stronger ways to look at the value of these guys is the GDV (shorter term i.e. 3 to 5 years) against their market valuation as well as their balance sheet strength. I have hence picked up several companies - those which are purely a listed property counter.

The above are basically those that have market capitalisation of RM1 billion and above (I did not include Sime Darby as it is just too complex and UOA Development.) As for comparison, not all of them are apple to apple comparison (example IOI has significant Investment Properties portfolio). IJM on other hand is a much bigger group which includes construction and plantation.

If one is to look at the market cap to GDV, I am attracted to Tropicana as not only it has a significant development over the next few years with strong GDV but its market value to those is substantially lower to as compared to Mah Sing, SP Setia or even IJM Land prior to it being absorbed into IJM two months ago. (Prior to the delisting IJMLand was valued at around RM5.4 billion.) Additionally, while it had problems with regards to its sizable debt, its sale of several businesses i.e. the Tropicana Mall(and office), Austin Powder, land in Kota Kemuning to EcoWorld and a piece to a Chinese Developer would have reduced its net debt to below RM1 billion.

Below are the presentation made by several developers in terms of acreage and GDV.

IOI Properties GDV. It has a significant landbank in Johor just like several others.

EcoWorld's GDV without including the Batu Kawan purchase

MahSing's GDV. Notice its significant landbank in Greater KL as compared to the rest

SP Setia.  Notice the very significant GDV in Battersea.

Tropicana. Still significant landbank and GDV in Johor, but as per above it is focusing in Central region which will keep it busy for many years

If one is to notice above, Johor seems to have more total GDV than Klang Valley and Penang combined. Is Johor so much more attractive? We have yet to include UEM and Country Garden which seems to have few hundred mbillion GDV in partnership with the Johor Sultan.

IHH, KPJ, Sime Darby: Why listing healthcare is such a dangerous thing

Greed is good. Or is it?

Have you heard of these rumblings before? A simple procedure may cost us RM10,000. Delivering a baby may cost you more than RM10,000 in total. A son who faced with his passing father is slapped with total hospital bill of more than RM100,000 in the process of trying to save his dying father. The hospital would not let go of the body until all the outstanding bills are cleared. How ridiculous, but it is happening.

There is no doubt that these are charges which are the results of greedy hospitals and some medical practitioners - taking advantage of people who need healthcare assistance. Are these charges called for? Yes, we may say there is public hospital as an option.

But see this...

IHH is controlled by Khazanah, KPJ by Johor Corp and Sime Darby which is going strong on expanding its healthcare portfolio is owned by ASB / PNB. These are all states corporations and the hospitals they own are the largest hospital groups in the country. Are these government who owns the states corporation for the public or for the profits, you may wonder?

IHH for example, registered at most RM400 million last year as a group (inclusive of the Turkey's subsidiary - Acibadem group) This year, they sort of promised RM800 million. Double the profits? For a group which already has such long presence, what do you think they will do to register such profit growth? Either they already would have to double their presence (hospital beds) over such short period of time or do the unethical - increase their charges inconsiderately! Do you think within less than a year they would be able to increase their total visiting patients to high double digit percentage. No! They probably are not even able to increase their occupancy (per hospital). (Do you see these numbers reported in the Annual Report or Prospectus? No, I have yet to see them)

The most important number I want to see is the Average Revenue per Patient which I am not able to see. Why? They do not want to let us see how ridiculous this stats are - how much these numbers increase year on year. IHH has no choice but to reach the RM700 - RM800 million profit benchmark this year, as it is now they are being valued at more than RM25 billion (i.e. more than 60x historical PE). If they don't a much higher bottomline, it would be a disaster as investors would be claiming that they are over promising.

As the government, what would you do if the private hospitals increase their rates exorbitantly? Control these hospitals from increasing their rates? I do not see that. Adding to that, doctors are now asking for allowance to increase their fees. Don't you feel surprise that the doctors themselves are claiming the high charges all the while are due mainly to the hospitals, Managed Care Organizations and insurance companies?

Now, I feel that the government has no choice but to allow the doctors to increase their fees, otherwise this most important part of the chain is going to do a silent boycott (or the least, voice out their displeasures)! Imagine what can happen when the doctors are unhappy.

In increasing profits, another way to achieve that is by reducing costs - even this is dangerous don't you think as reducing costs could as well be reducing the number of staffs per patient or not increasing their wages proportionately to the increase in revenue. Mind you, these are all dangerous, and I can see it coming.

At a time when during the most critical of economic times, Barack Obama's administration is trying to solve the healthcare issues (which has been running for decades) of his country, we are embracing our ownership of this potentially catastrophic idea - celebrating private ownership of healthcare.

Could we have moved onto the wrong direction?

I am not against private healthcare but over-concentration in getting the numbers may be a really bad thing.

Probe on Sime-E&O deal, pressure for general offer - Is there a hidden agenda?

An article by MalaysianInsider.com got me thinking. Sime Darby has signed an agreement with 3 different shareholders for 30% of the Eastern and Oriental (E&O) stake at 60% premium to the market price.

The contention is that the SC chairperson's (Zarinah Anwar) husband is the chairman of the E&O board. He has over the last 4 months bought 450,000 units of E&O. The market is basically saying that since he is the chairman, he would have known about the transaction and now his stake is worth 60% higher than when he purchased the shares. Was there any insider trading involved? I do not think so. Why?

1. He was not the seller although being the chairman, he would have known the shares are undervalued - hey! that's why he bought, anyway but he may not know that there is a private deal going around;
2. The 450,000 shares bought over last 4 months was not the only time he bought the shares. In fact that 450,000 shares only represents 11% of the E&O stake he owns. He was buying the stocks from years before in fact. Prior to the purchase, he already owned 4.05 million shares. Hence claiming that he has taken advantage of the pending deal may not be right. If he knew, he would have bought much much more, and normally in this situation they do not use their own name. In this case, he used his name and did announce to Bursa. To me nothing wrong here;
3. Are we saying that the price of E&O is now RM2.30 per share? Not really. Sime Darby wanted a controlling stake and that 30% is the controlling stake. To have a controlling stake, usually a premium has to be paid.
While I may not think there are any hanky-panky involved surrounding Zarinah, I welcome SC and the Watchdog to probe the deal further. Zarinah also has to come clean and reveal their position in this deal. My advice is this though: Since you are the SC's chairperson, get your husband to resign from all public company's position unless of course his own business. We have too many of ex-politicians or even current politicians in the public listed companies board.

Read the article below:

KUALA LUMPUR, Sept 9 — Securities Commission (SC) chairman Tan Sri Zarinah Anwar is under pressure to investigate her husband, Datuk Azizan Abdul Rahman, for insider trading over conglomerate Sime Darby Bhd’s recent purchase of 30 per cent in property developer Eastern & Oriental Bhd (E&O).

There is also pressure on Sime to make a mandatory general offer (MGO) to E&O’s minority shareholders as the plantations-to-property group had paid a 60 per cent premium for the 30 per cent stake bought from three shareholders. Azizan, who is E&O chairman, did not sell to Sime but has been reportedly buying shares in the past few months.

The SC has already said it is investigating the deal although it did not note the relationship between Zarinah (picture) and Azizan.

“We are also examining the circumstances surrounding the transaction for any Takoever Code implications. Our course of action will be based on our findings,” SC said in an e-mail response to local newspapers on Wednesday.

Minority Shareholders Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon had also questioned the deal and asked if there would be an MGO although the share purchase was below the 33 per cent threshold to trigger a mandatory buy.

“Where does this leave the minority shareholders? Is it fair to them?

“We believe that in the circumstances, the Securities Commission should investigate whether the other conditions for an MGO have been fulfilled,” Bushon wrote in The Star newspaper yesterday.

Bursa Malaysia filings showed that shareholders and board members of E&O and investment firms had been buying up E&O shares ahead of the deal being announced on August 28.

Just before the Hari Raya break, Sime Darby announced it wanted to buy a 30 per cent block (involving 273 million shares and 60 million irredeemable convertible secured loan stocks) in E&O at RM2.30 per share or a total of RM766 million from three vendors — E&O managing director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah and Singapore-listed GK Goh Holdings Ltd.

The RM2.30 offer price represented a 60 per cent premium to E&O’s then market price.

The filings revealed that GK Goh bought shares totalling 1.25 million shares from the open market for three consecutive days starting August 10. Others buying up E&O shares in August ahead of the deal being announced include ECM Libra Financial Group Bhd, which acquired 6.16 million shares, increasing its stake by 0.63 per cent amounting to 6.25 per cent in four transactions in August.

Azizan also purchased 100,000 shares on August 12 from the open market, bringing his total purchase to some 450,000 shares from the open market involving five separate transactions from April to August this year.

In a statement to The Star, Azizan said: “With regard to the issues raised pertaining to Sime Darby’s proposed acquisition of a 30 per cent interest in E&O, I would like to highlight that it is a private transaction between major E&O shareholders and Sime Darby.”

“The transaction does not require board approval and, hence, was not discussed at the board level. As such, board members were not privy to the transaction and continued to trade in accordance with the prevailing rules and had made appropriate filings with Bursa Malaysia,” Azizan said in the e-mail response.

Apart from these transactions, three of the transactions were done in July and August. Based on Bloomberg data, E&O saw trading volumes increase drastically in July and August, with the company’s share price hitting an initial high of RM1.70 ahead of the deal being announced. E&O’s share price had been moving upwards since mid-March (RM1.08 on March 16) and closed at RM1.68 yesterday.

“The main sore point is the offer price which amounts to 19 times E&O’s forecast earnings for 2012 and 1.85 times its price-to-book value, where, by comparison, the property sector has an average of 12 times forecast earnings for 2012 and 0.8 times price-to-book value,” Bushon had said in her column in The Star daily.

She argued while the premium could be partially justified since it is a controlling block, “but with a mere 30 per cent stake, the extent of earnings contribution accruing to Sime is merely at the equity-accounting level as an associate, or a mere 0.6 per cent increase to Sime Darby’s profits in 2012 and 2013”.

“So soon after reeling from its recent billion-ringgit losses in its energy division, it is hoped that the board had undertaken all due diligence in this deal,” she added.

Serious Investing!