Investment Idea – Is Wee Hur also a good investment if Parc Botannia sells well?

weehur logo

A reader asked SPK this question – “You have recommended Sing Holdings. But what about Wee Hur Holdings Ltd? Wee Hur is also the developer (partner with Sing Holdings) and main contractor of Parc Botannia.”

 

A very valid question. Let SPK answer this question below:

1. The impact of Parc Botannia’s profit to Wee Hur will not be as significant as it will be to Sing Holdings

Wee Hur is also a SGX-listed company and it is also a partner (together with Sing Holdings) in the development of Parc Botannia. However, Wee Hur holds only a minority stake of 30% in the project. Based on SPK’s estimates in the earlier post, Wee Hur’s share of profit from Parc Botannia would work out to be around S$44 mil to S$52 mil.

But let’s not forget that Wee Hur is also the main contractor for Parc Botannia. Assuming that the construction contract is valued at S$155 mil and Wee Hur makes a profit margin of 13% (base on its past construction margin) from the contract, then Wee Hur would probably make an additional profit of S$20 mil from the construction job. Hence, total profit that Wee Hur could potentially derive from Parc Botannia is estimated to be around S$64 mil to S$72 mil.

Looks decent, isn’t it? But if we compare this potential profit against Wee Hur’s current book value of S$345 mil, this potential profit from Parc Botannia can only lift Wee Hur’s book value by 19%~21%, to S$409 mil~S$417mil.

In contrast, the impact of Sing Holdings’ potential profit (from Parc Botannia) to its book value is more significant. We have mentioned previously that Sing Holdings book value could potentially jump 40% to 47% because of Parc Botannia. This is also due to Sing Holdings’ smaller book value base as compared to Wee Hur.

2. Wee Hur’s core business is in the risky construction business

Wee Hur’s construction arm contributed the bulk of the company’s revenue and profit in the last financial year. SPK is not an expert in construction but based on reports and observations, the construction industry has already become a cut-throat business, with the entry of low-cost China construction companies. In addition, exposure to raw material price fluctuation could add another layer of risk to the construction companies. With their thin margins, there is little buffer or room for error and an increase in costs could result in losses to the construction company.

Recently, news reports also mentioned that the construction sector continued to be hard-hit by sluggish demand and delayed payments, with little relief in sight.

construction

Considering the lack of upside and yet the higher risk involved in Wee Hur’s business, it would seem that Sing Holdings might be a better choice to invest in, isn’t it?

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!

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Investment Idea – Is Parc Botannia going to be the big windfall for Sing Holdings?

Sing Holdings Limited

Sing Holdings will be launching Parc Botannia this weekend. Is Parc Botannia going to be the big windfall for Sing Holdings?  Would Sing Holdings be a company that is worth investing in?

To answer these questions, SPK shall do some analysis on Sing Holdings for the benefit of the readers here.

 

Sing Holdings will have a significant cash hoard after the divestment of Robin Residences

Robin-Residences-Tanglin-Holland-Bukit-Timah-Singapore

Sing Holdings completed the disposal of its entire 100% equity holding in Sing Holdings (Robin) Pte Ltd on 8th September. Sing Holdings (Robin) Pte Ltd hold 29 strata units in the freehold Robin Residences.

With the completion of the divestment, Sing Holdings will receive cash of S$72.7 million. Adding on to the S$60 mil on Sing Holdings’ balance sheet, this means that the company will have a cash hoard of S$132.7 mil that is equivalent to S$0.33 per share!

 

Parc Botannia will be the potential windfall for Sing Holdings

Parc-Botannia-Condo-Fernvale1

In SPK’s earlier post titled “Pac Botannia will be launching next weekend. How can you profit from it?”, it was estimated that Sing Holdings could potentially make a profit of S$100 mil to S$120 mil if it successfully sells out Parc Botannia at S$1,280 psf average. This would bump up its book value by 40% to 47%, from the current S$255 mil to S$355 mil – S$375mil! That would translate to a book value per share of 88.5 cents to 93.5 cents. And by the time Sing Holdings fully sell out and complete Parc Botannia in 3 years’ time, its cash hoard would have ballooned to S$233 mil to S$253 mil, after repaying its project loan for Parc Botannia!

 

What about its debt? It has S$292 million of debt on its balance sheet! A cause for concern?

Yes, on the surface, this might look scary. With a total debt of S$292 mil and a high gearing (debt to asset) ratio of close to 50%, Sing Holdings seems to be a risky investment. Even with the cash hoard of S$132.7 mil, it is still unable to cover its debt and it is still in a net debt position.

Should we be worried? Well, let’s take a closer look at its debt. Out of the S$292 mil, it is estimated (by SPK) that approximately S$215 mil was used to fund the upfront land and development costs for Parc Botannia. This project loan will be fully paid-off by the sales proceeds from Parc Botannia upon completion. As long as Parc Botannia is able to sell well, the repayment of the loan would not be of any concern. Early signs of strong demand for Parc Botannia should give us some comfort on this.

The balance debt of S$77 mil was for the funding of the acquisition of Travelodge Docklands, a freehold 14-storey hotel located in Melbourne, Australia with 291 guestrooms. This is a stable income generating asset and hence, it should generate sufficient cashflow to service the debt and shouldn’t have much issue with refinancing as long as it continues to perform.

 

Looks too good to be true? Is it a riskless investment?

Yes, all investment comes with risks. So what is the key risk in investing in Sing Holdings? From SPK’s perspective, one key risk is the sales performance of Parc Botannia. In the event that the sales is not ideal, Sing Holdings may cut price and hence, the upside to book value will be reduced.

Another risk is the future land acquisition by Sing Holdings. After Parc Botannia, Sing Holdings will run out of land bank and launch inventory. What will it do? It needs to bid for development land at Government Land Sales and collective sales. Given the heated competition for land at this stage, it is important for Sing Holdings not to overbid for land and increase the risks of the company and shareholders. But from past trends, Sing Holdings tend to go into land bids and tenders in partnership with a main contractor, with Sing Holdings hold a majority stake. This shows prudence in risk management by the company.

 

What is the upside potential we are looking at?

Sing Holdings’ last traded price of S$0.50 per share translates to a price to book ratio of 0.78x. On its reappraised book value of $0.885 to S$0.935 per share, Sing Holdings valuation would look even more attractive, at 0.53x to 0.56x price to RNAV. Let us just assume a re-rating of the stock to 0.8x price to RNAV, and this would imply a potential profit of 43% to 50% in capital gain! Looks like a BUY, isn’t it?

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!