Wednesday, December 31, 2014

OUE Ltd - Updates on Gemdale stake and Incheon consortium resort


There has been a couple of news coming out from OUE Ltd as we approach towards the year end.

The last article I blogged about was about the divestment of Crowne Plaza Changi Airport.


A couple of days ago, the management announced that they would acquire a stake in Gemdale Properties at an issue price of HK$0.52, which represents approximately 22.97% of the enlarged issued shares of Target Company. The issue price of HK$0.52 represents a discount of approximately 16.1% to the Target Company's net tangible asset value of HK$0.62 per share as of 30 Jun 2014.

The management cited the rationale for the proposed subscription to gain access and exposure to the real estate market in China through its shareholding in the Target Company as well as the opportunity to leverage on future potential collaborations and partnership.

Some of the investors are not that familiar with the acquired company, Gemdale Properties so maybe we can explore that a little bit.

Company Overview

Gemdale Properties is a company engaged in the property development, investment and management of residential and business park projects. The company has to date returned -44.2% from its peak of  HK$0.75. We will see this in more detail in a later stage.

Some of the major competitors in the same industry includes Y.T Realty Group Limited, Kong Shum Union Property Limited and 21 Holdings Limited.

Profitability Analysis

Gross Profit Margin for 2013 is much better as compared to the previous year due to different accounting standards adopted. However, during the 2nd Quarter of 2014, the company reported a loss of HK$0.01/share. Of all the product lines, Business Park had the highest operating profits leading the pact while the Property Development sector reported a loss equivalent to 241% of the sales.

Profitability Comparison

The company announced dividends of HK$0.01/share, which implied a dividend of around 2% at the current price of HK$0.50. It is no surprising that as a growth company, the payout ratio is at the lower end of the tail.

Book Value

If we take a look at the book value, they are currently trading at a discount, which is what OUE claims to be saying by taking a stake at HK$0.57. We know that the China residential market is similar to Singapore and they are mostly facing headwinds at the moment, so you can see why the stock price has been performing very badly this year. Obviously, OUE see this as an opportunity.

Book Value Comparison

Conclusion

As stated from the OUE management, the impact to this is likely to be small in the near term, though they see this as a further step to break into the Chinese market and taking advantage of it. The Riady family is good at engineering this sort of deals and latest news I hear they even managed to secure the deals to buy the Korean resort which OUE is going to own 40% of the purchase from Lippo.

News are certainly circulating fast but it remains a concern why the share price is not moving as fast as the news. I'll give this stock some more time to see what they are up to.

4 comments:

  1. Hi B,

    I was chit chatting with my broker on OUE few weeks ago. He had some insider news (friends working there) that while outside was package nicely, inside was mysteriously condemned by staffs!

    Of course staffs' comments does not represent a co well being since for investors, earnings is the most important. However it seems that sentiments within my broker firm were not so pro OUE!

    Maybe that's why at such a low PB, price still do not move. Or maybe it's just the property "big picture" jinx yet to be blown away yet. Just a wildest guess!

    Anyway, just leave it untouched, since like u I am vested.

    Rolf

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    1. Hi Rolf

      Thanks for the news.

      I am actually not that bullish about the stock. Im vested with 5 lots and I think that's probably it. I think the high P/BV is one thing but i think the management isn't going to realize the value for that high P/BV. The unlocking of their assets to recycle the capital is great but i think they need to use the money to generate enough earnings for the investors which they are not doing at the moment,

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  2. Hi B,

    After your posting, another piece of announcement came and it seems the subscription of the stake in Gemdale Properties is now an equal share joint venture with another company Epoch Thrive Limited (solely owned by an individual Gu Lei). So I guess future investment and venture are now shared risk and probably this Mr Gu Lei must also have vast connection in China.

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    1. Hi Nelson

      Thanks for the update.

      I checked out the announcement after you highlighted about it and seemed that this Mr. Gu Lei is an influential person that they want to establish a connection with closely. It was mentioned that he is a television and entertainment industry background so I think it'll be an interesting development where this would go.

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