(03-06-2012, 10:20 AM)Drizzt Wrote: [ -> ]im more thinking from my tech perspective that thinks don't last forever, yet ESRI have been around for a god damn long time! we always need geo spatial data and transformation isn't it.
I get it. Your "partnership" comment refers to Esri/IBM, while I was thinking more of Boustead/Esri USA.
I think geo-spatial technology is important, of course. the uncertainty part I am concern with is about the environment, the ownership structure, the sole-distribution rights, etc.
(03-06-2012, 10:03 AM)wee Wrote: [ -> ]Hi Drizzt, we seem to have the same concern. If I am to invert and play the devil's advocate, the partnership will get more unbalanced should Esri USA gets true monopoly (or close) of the geo-spatial market. So it seems to my simple mind that either way (i.e. Esri software gets more OR less popular), the impact on Boustead isn't going to be favourable, isn't it? A change in ownership might just accelerate the process.
Some might argue that is unlikely to happen in the mid-term, which may well be true. However, if we are to pay 8X earnings (as an example) for a business, we are assuming that, more or less, things will remain the same for at least 8 years. No that easy in the tech world, in my view.
Boustead SE Asia was started back in 1990, which means a working relationship of more than 22 years. ESRI has a total of more than 80 distributors outside US currently, which makes it hard for them to take over distributorship. The only choice is to award it to another distributor.
While ESRI is the market leader, it is never close to a monopoly status. In fact, ESRI has an estimated market share of only 30-40% globally. Singapore and Australia are the better ones with a market share of 50-70%.
ESRi is the market leader as a result of network effect. As ESRi is regarded as the leader, university often teaches their student ESRI. As more are trained in ESRI, it also makes sense for corporation to use ESRI since there will be a greater pool of employee to tap into. This is just one of the layer of the network effect involved.
A change in ownership will be a real concern though I am bias toward a point of view that it does not make sense to change a distributor that has been doing well. To squeeze more profit out of it might more plausible.
(vested interest)
Shanrui,
thanks for your comments and the nice summary on network effects. I think i understand network effects, its network effects that gave rise to many monopolies or close monopolies in the tech world, isn't it? However, I also learn from microsoft and Intel that while a true monopoly may need partners, they don't need sole-partnerships. Their financial interests are best served if they there are competing distributors.
To my simple mind, a monopoly Esri don't need to take over the global distributorships. They can simply open the door slightly to competing professionals. They can raise prices. Since in a monopoly scenario, all geo-spatial pros will be well versed in Esri, there will be no lack in technical capability. This won't happen overnight, and chances are it might not even happen. I am not betting on a specific outcome. I'm simply trying to invert, like Munger always preaches.
(03-06-2012, 10:35 AM)shanrui_91 Wrote: [ -> ] (03-06-2012, 10:03 AM)wee Wrote: [ -> ]Hi Drizzt, we seem to have the same concern. If I am to invert and play the devil's advocate, the partnership will get more unbalanced should Esri USA gets true monopoly (or close) of the geo-spatial market. So it seems to my simple mind that either way (i.e. Esri software gets more OR less popular), the impact on Boustead isn't going to be favourable, isn't it? A change in ownership might just accelerate the process.
Some might argue that is unlikely to happen in the mid-term, which may well be true. However, if we are to pay 8X earnings (as an example) for a business, we are assuming that, more or less, things will remain the same for at least 8 years. No that easy in the tech world, in my view.
Boustead SE Asia was started back in 1990, which means a working relationship of more than 22 years. ESRI has a total of more than 80 distributors outside US currently, which makes it hard for them to take over distributorship. The only choice is to award it to another distributor.
While ESRI is the market leader, it is never close to a monopoly status. In fact, ESRI has an estimated market share of only 30-40% globally. Singapore and Australia are the better ones with a market share of 50-70%.
ESRi is the market leader as a result of network effect. As ESRi is regarded as the leader, university often teaches their student ESRI. As more are trained in ESRI, it also makes sense for corporation to use ESRI since there will be a greater pool of employee to tap into. This is just one of the layer of the network effect involved.
A change in ownership will be a real concern though I am bias toward a point of view that it does not make sense to change a distributor that has been doing well. To squeeze more profit out of it might more plausible.
(vested interest)
(03-06-2012, 11:05 AM)wee Wrote: [ -> ]Shanrui,
thanks for your comments and the nice summary on network effects. I think i understand network effects. However, I also learn from microsoft and Intel that while a true monopoly may need partners, they don't need sole-partnerships. Their financial interests are best served if they there are competing distributors.
To my simple mind, a monopoly Esri don't need to take over the global distributorships. They can simply open the door slightly to competing professionals. Since in a monopoly scenario, all geo-spatial pros will be well versed in Esri, there will be no lack in technical capability. This won't happen overnight, and chances are it might not even happen. I am not betting on a specific outcome. Simply trying to invert, like Munger always preaches.
it is definitely of no wrong to try to question one's premise in investing in a stock. it is rather good to constantly challenge oneself as we can become bias or locked in a certain perspective at times.
i understand your concern and this is definitely 1 big risk. if it were to happen, i will really consider pulling out of Boustead.
speaking from a bias point of view, i believe esri and boustead are in a very happy working relationship especially after FF Wong took over. when he took over Boustead in 1996, ESRI distributorship as well as the name of Boustead are what that attracted him. At that time, ESRI is only producing a net profit of less than 500k per year. Today, net profit has increased by more than 50 times.
esri will not become a monopoly unless they decide to reduce their price to match its competitor. Even so, open source will be providing a weak but significant competition to esri. To introduce competing distributor is not impossible, and will be made more likely should there be a change in management. However, as most of the customers in australia and Singapore are the public sector, there's something called the preferred supplier status which they are ESRI SE Asia is entitled to. Sensitive data is handled at the level of military defense as well as other area, which they will not want to have supplier changing very often.
(03-06-2012, 11:24 AM)shanrui_91 Wrote: [ -> ]esri will not become a monopoly unless they decide to reduce their price to match its competitor. Even so, open source will be providing a weak but significant competition to esri. To introduce competing distributor is not impossible, and will be made more likely should there be a change in management. However, as most of the customers in australia and Singapore are the public sector, there's something called the preferred supplier status which they are ESRI SE Asia is entitled to. Sensitive data is handled at the level of military defense as well as other area, which they will not want to have supplier changing very often.
ESRI's map format is effectively a de-facto standard much as .doc is with MS and they pair it up with their very effective ArcGIS tool which accepts open standards such as DTED.
It is really frustrating to see efforts at Boustead overlooked since its 180th anniversary celebrations in 2008. Share price is currently languishing around $0.85 vs all-time high of around $1.25. I have enclosed the latest FY12 results and FY08 results, the year that marked 180th anniversary to illustrate the value created which has been overlooked.
NTA has risen from $0.322 to $0.504 after paying $0.22 in dividends to shareholders (FY08 Finals - 3.5c, FY09 - 4.0c, FY10 - 5.5c, FY11 - 7.0 and FY12 Interim - 2.0c). Inclusive of dividends, Boustead has chalked up an CAGR of 31.2% pa in shareholders' equity since 2008.
There are further highlights on the underlying strength of Boustead's growth over the last 4 yrs:
i) net cash grew from 150.8m to 170.5m;
ii) short and long term investments rose from 5.2m to 56.7m;
iii) properties held for sale and for investments rose from 29.0m to 113.5m;
iv) net work-in-progress (asset) rose from 1.6m to 37.1m;
v) trade receivables declined from 94.4m to 82.9m; and
vi) trade payables rose from 156.8m to 232.8m - suppliers and contractors are more than happy to extend credit to work for Boustead.
While FY12 appeared to be a slight disappointment in terms of dividend payment, the silver lining lied in mgt's decision to raise ordinary div to 5c, a level that looks sustainable in line with mgt's conservatism with respect to signalling to the mkt.
With recurrent income base from leaseback properties and ESRI substantially stronger than 2008, it will be a matter of time (may be a long time to come) when Boustead's strength is being rediscovered.
Personally, a proven track record is a well balance between sharing with shareholders (via consistent dividend payments) and growth in strength of the business (visible cash retention and growth in productive asset bases)
Vested
The reasons for Boustead's apparent low valuation (I feel) are:-
1) Predominantly contract-based businesses - Until they can get their leasehold portfolio to a decent size, it remains a fact that it will generate just $18M revenues and $9M PBT, which is not much if you compare with their peak NPAT of $60M two year back.
2) Conglomerate Discount - Having four separate but disparate businesses means a conglomerate discount has to be applied to each of Boustead's divisions, and for Boustead as a whole. This is compared to buying, for example, a pure play water company, O&G company or industrial leasehold property development company.
3) Cash is languishing - ROE is dragged down by the huge cash hoard; and even with the OMH investment the amount of cash on Boustead's Balance Sheet is still very substantial.
4) Mixed Signals - Though Boustead has raised final dividend to 3c/share for a payout ratio of 50%, it has not signalled whether payout ratio will increase or if it intends to return more cash to shareholders. On the one hand, FF Wong says they want to keep the cash handy for leasehold project financing (and cash burn for development projects is high because only after the project is completed will it earn rental income) and also to look out for suitable opportunities. Hence, in the absense of such M&A opportunities, and with no clear signal on how to deploy the cash (e.g. more dividends, share buy-backs); the market therefore does not appreciate the Company.
5) Lack of appropriate catalysts - There are no catalysts at play or on the horizon for value to be unlocked from each division. Essentially, spinning off each division in a separate IPO will boost valuation for that division and unlock latent value; but this cannot be done so easily; though it was alluded to.
6) Lack of clarity on performance of investments - Let's face it, Hankore isn;t exactly out of the woods yet, and OMH has yet to commence construction of their Sarawak Project, even though approval has been given. With these uncertainties looming, the market would not accord Boustead a high valuation.
There could be more reasons (e.g. poor performance of Salcon) but these 6 are the ones I could think of and explain off-hand.
(07-06-2012, 11:54 PM)Musicwhiz Wrote: [ -> ]The reasons for Boustead's apparent low valuation (I feel) are:-
1) Predominantly contract-based businesses - Until they can get their leasehold portfolio to a decent size, it remains a fact that it will generate just $18M revenues and $9M PBT, which is not much if you compare with their peak NPAT of $60M two year back.
Interestingly i just finished listening to last 3 prev year audiocasts.
In one of them, FF Wong mentioned that IBM itself could generate recurring revenue of s$13M for 15 years.
(08-06-2012, 08:53 AM)valuestalker Wrote: [ -> ]Interestingly i just finished listening to last 3 prev year audiocasts.
In one of them, FF Wong mentioned that IBM itself could generate recurring revenue of s$13M for 15 years.
Tenant exercised option - Boustead had no choice I guess.
On a separate note, OMH is plunging to 35.5 AUD cents today; methinks FF Wong may initiate adding onto their existing position should price fall below their investment price of 35 AUD cents/share.