ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

(18-02-2014, 05:46 PM)freedom Wrote: [ -> ]

(18-02-2014, 05:22 PM)specuvestor Wrote: [ -> ]

(18-02-2014, 04:54 PM)CityFarmer Wrote: [ -> ]

(18-02-2014, 04:50 PM)freedom Wrote: [ -> ]FCL shares are probably pledged anyway. So there is no much difference for the banks loaning the money. They are getting paid as contracted. It does not matter where the money is from. The important thing is the capability to repay the loan. Remember TDSR from MAS?

Does the bank care whether the mortgage is paid by rent income from the collateral or the salary the borrower earns?

I agree bank will not care much, but Mr. Towkay cares.

Actually the banks do care. The credit profile is different from asset, income or different entities. The credit spread will change.

Towkay will care if he is liable for the debt or his companies. Just like you will care if your son ask you to be his guarantor for a ferrari loan. That is why my base case has lawyas been FNN and ThaiBev will eventually pick up the credit card debt, not the towkay

So do you mean the banks will pull their credit though TCC is paying as contracted without any sign of incapability of repayment, which would cause TCC to alter its plan?

I dont think TCC is altering his plan. The loan was a bridging loan to takeover FNN. Just note the breakneck speed in doing capital returns and spin offs. Like I said, only other entity as motivated is OUE

And parent company generally does not take on debt for the subsidiary, only the other way round. Minority shareholders of subsidiaries benefit from such a decision (free money for them without liabilities effectively, hence avoided).

I really wanted to buy in @ 1.41 but didn't in the end...
agree that the valuation is really attractive right now, but after asking myself some really hard questions, I couldn't bring myself to pull the trigger... sigh..

The analysis I did last week as follows:

Financial Strength - Negative operating cashflow; requires significant funding to operate - may improve if offload hospitality assets to REIT
Growth Prospects - International expansion but China/ Australia appears to be slowing down
Investment Moat - Much smaller in comparison to Capitaland (which operates in the same segments as FCL)
Corporate Governance - Strong governance previously but Thai factor is an unknown
Valuation - Appears to have priced in above limitations. Worth the risk?

SWOT Analysis

Strength
Strong and experienced management team
Consistent and highly profitable revenue stream from investment propeties (contributes 12% of revenue but 34% of profit in FY2012)

Opportunities
Spin-off into Hospitality REIT will strengthen balance sheet
Off-loading malls/ commercial properties into FCOT and FCT

Weakness
Very long cash conversion cycle. Requires external funding to operate.
Share has limited liquidity due to majority Thai ownership
Relatively weak financial strength, highly geared
Inconsistent performance year-on-year. Dependent on success of launches

Threats
Loss of LHY's mojo - does it affect future deals in Singapore?
Primary 3 markets showing signs of slowing down (slower growth in China, Australia unemployment rising and Singapore regulations)
Ability to profit/ break-even for upcoming Singapore launches - Yishun Central investment appears extremely risky (>40% higher than next bid)

Likes
Dividend policy to pay out 75% of profits
3.3 Billion of unrecognised revenue!
Limited downside for FY2014 - majority of current in progress developments sold
Attractive price @ 1.41

Dislikes
Chunky earnings - industry
Relative weaker in size and execution ability in comparison to Capitaland

In the end I asked myself the following questions and changed my mind:
Would I buy to hold for long term?
Do I think that this company is gg to grow to new heights?
Do I want to buy because I really like the company/ business?
Do I think that the past performance is sustainable in future (5 years)?

So in the end, I did not buy but I wish all of those who did good luck! Kicked myself a little when the price ran up a little.

Paiseh if any of my write-up above does not make sense.

(18-02-2014, 06:02 PM)wee Wrote: [ -> ]

(18-02-2014, 05:46 PM)freedom Wrote: [ -> ]

(18-02-2014, 05:22 PM)specuvestor Wrote: [ -> ]Actually the banks do care. The credit profile is different from asset, income or different entities. The credit spread will change.

Towkay will care if he is liable for the debt or his companies. Just like you will care if your son ask you to be his guarantor for a ferrari loan. That is why my base case has lawyas been FNN and ThaiBev will eventually pick up the credit card debt, not the towkay

So do you mean the banks will pull their credit though TCC is paying as contracted without any sign of incapability of repayment, which would cause TCC to alter its plan?

Actually funding cost taken at holding company level may not qualify for tax deduction. It does make sense in many instances to push down the debt to operating entity level, just to save some taxes.

It makes sense. But from another point of view, pushing down debt to operating entity level could jeopardize the operation of the operating entities, which definitely hurts the interest of the parent holding level as seldom the parent holding level will hold large amount of cash idling because cash is non-productive. In a way, operating entities can come to the rescue for the parent holding company, but seldom, the parent can come to the rescue of the operating entities, especially, when involved with a pyramid of control.

If the parent holding company owes the debt and most of time, it is non-operating, that is, it does not consume large amount of capital other than interest payment and/or debt retirement. During distress, if the operating entities are fine, the parent holding can extract money from the operating entities through borrowing or dividends. Also, the parent holding can pledge more of its interest in the operating entities for the debt. At worst, relationship matters. Seldom, the bank will pull credit from good clients who pay as contracted and are only temporarily in distress.

What do you think will happen if UOB is taking a large cash call? Will the Wees lose their control of UOB? I think so. The worst part is that the Wees lose part of their ownership in UOB at the worst time, that is, they are selling not buying at the lowest price. That's why the Wees will make sure that UOB never has to do it. As long as UOB is fine, the Wees can take a huge amount of debt to finance their interest in other business without much problem.

This is definitely a good news, but the impact should be minimum on the PnL. The bulk of the properties sales were in Singapore, instead of in Australia.

(vested)

Central Park reaches A$1 billion in apartment sales

Sydney, 19 February 2014 – In a little over 3 years, Sydney’s leading urban renewal project, Central Park, has reached the extraordinary milestone of A$1 billion in apartment sales, exchanging contracts on more than 1300 apartments at an average price of A$770,000.
A$1 billion in sales has been achieved from the first three residential stages at the 5.8 hectare mixed-use precinct: the iconic Jean Nouvel-designed ‘One Central Park’ towers on Broadway, and the Johnson Pilton Walker-designed ‘Park Lane’ and ‘The Mark’.
Central Park, the A$2 billion mixed-use re-development of the old Carlton United Brewery on Broadway, is a joint venture between two global companies, Frasers Property Australia and Sekisui House Australia

Ref: http://infopub.sgx.com/FileOpen/Press_Re...eID=275116

(18-02-2014, 07:56 PM)jim_city Wrote: [ -> ]I really wanted to buy in @ 1.41 but didn't in the end...
agree that the valuation is really attractive right now, but after asking myself some really hard questions, I couldn't bring myself to pull the trigger... sigh..

The analysis I did last week as follows:

Financial Strength - Negative operating cashflow; requires significant funding to operate - may improve if offload hospitality assets to REIT
Growth Prospects - International expansion but China/ Australia appears to be slowing down
Investment Moat - Much smaller in comparison to Capitaland (which operates in the same segments as FCL)
Corporate Governance - Strong governance previously but Thai factor is an unknown
Valuation - Appears to have priced in above limitations. Worth the risk?

SWOT Analysis

Strength
Strong and experienced management team
Consistent and highly profitable revenue stream from investment propeties (contributes 12% of revenue but 34% of profit in FY2012)

Opportunities
Spin-off into Hospitality REIT will strengthen balance sheet
Off-loading malls/ commercial properties into FCOT and FCT

Weakness
Very long cash conversion cycle. Requires external funding to operate.
Share has limited liquidity due to majority Thai ownership
Relatively weak financial strength, highly geared
Inconsistent performance year-on-year. Dependent on success of launches

Threats
Loss of LHY's mojo - does it affect future deals in Singapore?
Primary 3 markets showing signs of slowing down (slower growth in China, Australia unemployment rising and Singapore regulations)
Ability to profit/ break-even for upcoming Singapore launches - Yishun Central investment appears extremely risky (>40% higher than next bid)

Likes
Dividend policy to pay out 75% of profits
3.3 Billion of unrecognised revenue!
Limited downside for FY2014 - majority of current in progress developments sold
Attractive price @ 1.41

Dislikes
Chunky earnings - industry
Relative weaker in size and execution ability in comparison to Capitaland

In the end I asked myself the following questions and changed my mind:
Would I buy to hold for long term?
Do I think that this company is gg to grow to new heights?
Do I want to buy because I really like the company/ business?
Do I think that the past performance is sustainable in future (5 years)?

So in the end, I did not buy but I wish all of those who did good luck! Kicked myself a little when the price ran up a little.

Paiseh if any of my write-up above does not make sense.

Today it is trading at 1.46. If 2 years from now, it can rise up to say 1.80, does it matter significantly whether you bought it at 1.41 or 1.46? I mean if you are certain that its intrinisic value is way above 1.46, then why bother about missing the lowest point? Nobody knows the lowest point

(19-02-2014, 09:57 AM)freedom Wrote: [ -> ]

(18-02-2014, 06:02 PM)wee Wrote: [ -> ]

(18-02-2014, 05:46 PM)freedom Wrote: [ -> ]

(18-02-2014, 05:22 PM)specuvestor Wrote: [ -> ]Actually the banks do care. The credit profile is different from asset, income or different entities. The credit spread will change.

Towkay will care if he is liable for the debt or his companies. Just like you will care if your son ask you to be his guarantor for a ferrari loan. That is why my base case has lawyas been FNN and ThaiBev will eventually pick up the credit card debt, not the towkay

So do you mean the banks will pull their credit though TCC is paying as contracted without any sign of incapability of repayment, which would cause TCC to alter its plan?

Actually funding cost taken at holding company level may not qualify for tax deduction. It does make sense in many instances to push down the debt to operating entity level, just to save some taxes.

It makes sense. But from another point of view, pushing down debt to operating entity level could jeopardize the operation of the operating entities, which definitely hurts the interest of the parent holding level as seldom the parent holding level will hold large amount of cash idling because cash is non-productive. In a way, operating entities can come to the rescue for the parent holding company, but seldom, the parent can come to the rescue of the operating entities, especially, when involved with a pyramid of control.

If the parent holding company owes the debt and most of time, it is non-operating, that is, it does not consume large amount of capital other than interest payment and/or debt retirement. During distress, if the operating entities are fine, the parent holding can extract money from the operating entities through borrowing or dividends. Also, the parent holding can pledge more of its interest in the operating entities for the debt. At worst, relationship matters. Seldom, the bank will pull credit from good clients who pay as contracted and are only temporarily in distress.

What do you think will happen if UOB is taking a large cash call? Will the Wees lose their control of UOB? I think so. The worst part is that the Wees lose part of their ownership in UOB at the worst time, that is, they are selling not buying at the lowest price. That's why the Wees will make sure that UOB never has to do it. As long as UOB is fine, the Wees can take a huge amount of debt to finance their interest in other business without much problem.

BTW I'm not part of the Wees... in case anyone is wondering

You have your points but I would also argue if a holding company gets a cash call due to huge debt that it could have passed down to a particular subsidiary, the holding company risks the entire group's assets when it could localised the risk. Same thing if you are a portfolio financial investor.

Based on what I've encountered, more business groups prefer to push down debt, unless its unfeasible somehow (for risk reasons and tax reasons).

Imagine getting 17% (in SG) co-payment of interest by the government. Its a real, tangible, calculable benefit which could sometimes be the chief determinant of whether a deal gets done.

Why would a holding company get a cash call as normally it is non-operative? That's weird.

As for tax problem, I could ask another question about it. There are many non-operative holdings companies with staff expense or whatever other expense without any income. Apparently, they survive okay without 17% co-payment. Plus, to get higher leverage, it is good to leave the debt in the holding level, otherwise, the leverage is reducing.

(19-02-2014, 10:09 AM)safetyfirst Wrote: [ -> ]Today it is trading at 1.46. If 2 years from now, it can rise up to say 1.80, does it matter significantly whether you bought it at 1.41 or 1.46? I mean if you are certain that its intrinisic value is way above 1.46, then why bother about missing the lowest point? Nobody knows the lowest point

yup.. i'm not bothered about missing the lowest point.. but i was just not able to convince myself that i wanted to buy the share because it was cheap..

I just have a question pop into my mind while on my way home. Since Charoen is the controlling shareholder, can he eventually increase his stake to 75%, by way of private placement, rights issues, open market purchase etc, and then launch a mandatory exit offer at a unreasonable price? And since by then he controls 75%, he can approve the EGM himself right?

What came to my mind is not whether is it beneficial for Charoen to do so; but is whether he can do so. And I just wondering what SGX rule is enforced to protect the minority shareholders, I try to search and apparently I found none.