Amara Holdings

[psslo]

Hi Kayaroti

With all the latest developments, is the RNAV still $1.064 ?

Tks

In the recent re-rating of Hotel and Property counters, Amara seems to be overlooked by most. It could be that its reported NAV is only $0.39.
However, if you take a closer look at its yet to recognised surpluses on its properties, it may be a different story altogether and may be worth considering for value investors.

Recently Amara has also ventured into its first EC project.
[URL="http://www.stproperty.sg/articles-property/singapore-property-news/amara-hldgs-develops-its-first-ec-project/a/94706"]http://www.stproperty.sg/articles-property/singapore-property-news/amara-hldgs-develops-its-first-ec-project/a/94706[/URL]

Ref [URL="http://www.amaraholdings.com/Annual_Report_2011/Amara_AR.pdf"]http://www.amaraholdings.com/Annual_Report_2011/Amara_AR.pdf[/URL]

Base on 2011 Financial report
Total surplus not recognised (pg 82) = $229,230,000 + $86,497,000 + $71,603,000 = $387M

NAV in report = $0.3931
Total number of shares issued is (pg 90) about 577M

RNAV = $0.3931 + $387M/577M = $0.3931 + $0.671 = $1.064

At 44 cents Amara is trading at about 60% discount to RNAV.

Vested and Caveat Emptor

Below is a post dated 9 Jul'14 that I picked up at the Shareowl forum that answers your question:

"Taken from AR2013:
"A desktop valuation on Amara Hotel was carried out by Knight Frank Pte Ltd, a firm of property consultants, on 31 December 2013 on the highest-and-best-use basis (2012: valuation carried out by Chesterton Suntec International Pte Ltd in December 2012). The surplus on revaluation of the leasehold land and building based on this valuation amounting to $307,220,000 (2012: $234,469,000) has not been incorporated in the financial statements of the subsidiary nor in the consolidated financial statements.

A desktop valuation on the Group’s land use rights for land located at 582 and 600 Changshou Road, Shanghai was carried out by DTZ Debenham Tie Leung Ltd, a firm of property consultants, in December 2013 on the open market value basis (2012: valuation carried out by DTZ Debenham Tie Leung Ltd in December 2012). The surplus on revaluation of the land use rights based on this valuation amounting to $92,931,000 (2012: $86,695,000) has not been incorporated in the financial statements of the subsidiary nor in the consolidated financial statements.

A desktop valuation on Amara Sanctuary Resort, Sentosa was carried out by Suntec Real Estate Consultants Pte Ltd, a firm of property consultants, on 31 December 2013 on the highest-and-best-use basis (2012: valuation carried out by the Chesterton Suntec International Pte Ltd in December 2012). The surplus on revaluation of the leasehold land and building based on this valuation amounting to $71,265,000 (2012: $75,167,000) has not been incorporated in the financial statements of the subsidiary nor in the consolidated financial statements."


Let's do some math: Total number of outstanding shares is 576.9 million, so the above should add around 82c to the current NAV of 53c to become RNAV of 135c. P/RNAV = 0.43 "

[Curiousparty]

If there is so much difference between actual share price and RNAV, why has Mr Market not reacted?
Is there no "BIG BANG" catalyst ?

[kayaroti]

If there is so much difference between actual share price and RNAV, why has Mr Market not reacted?
Is there no "BIG BANG" catalyst ?

Think management did mentioned before on evaluating REIT, that may potentially be the catalytic event to unlock the value.

Vested.

[Tiggerbee]

I know of a hotel group that is listed in HK and trading at 0.7x book value and less than 0.2x RNAV. Furthermore, the company is paying out about 5% yield. Is Amara really undervalued? Think again..

[mee2]

I know of a hotel group that is listed in HK and trading at 0.7x book value and less than 0.2x RNAV. Furthermore, the company is paying out about 5% yield. Is Amara really undervalued? Think again..

Friend,
Why dont you share with us what you know?
What is the HK hotel group called?

[johnnydash]

I have been scouring the SGX to look for undervalued companies with great certainty in its earnings for the years to come. I chanced upon this little known, under-covered company. And what sets this company apart from other companies is the fact that it earnings is sustainable, even as it will be cyclical.

The investing community recently seems to be especially enamored with small cap companies, especially those that trades at low earnings multiple. The number of such companies that are truly undervalued, is in my opinion much smaller than the number of companies that have been touted as "undervalued". Many people including analysts are projecting recent good results in a straight line far into the future, failing to consider factors like benign operating environment, industry tail wind and whether companies have lasting competitive advantage. As surely as night follows day, so too will competition drive down profits towards the cost of capital. Sadly, a large number of such small caps do not have lasting competitive advantage and in my view things will get tough sooner or later. But I digress.

Back to Amara. It is trading at about 8 X P.E. Very low multiple. Is this sustainable? Probably yes. Earnings may fluctuate due to cyclical demand but if you look at room rates in Singapore over the decade, room rates have trended up and rates now are not at astronomical levels.(both are good) Will earnings be driven down by competitors? Theoretically, competitors may set up hotels, lots of it and drive down revenue. But practically hotels are viewed in a large part as investment and returns are supported by Cap Rates. In any case new hotels take time to be constructed and you can look to see if supplies of rooms in Singapore will experience significant growth. The answer is no. So low multiples, sustainable earnings. It potentially is undervalued.

Lets do a final test, are the prospects of the industry diminishing, and hence market is assigning such a low ratio. To answer this, we simply look at the valuation of the hotel companies in Singapore. There are about a dozen of them. All trades at at least high teens PE ratio, some in the twenties. The next closest hotel stock trades at about 16 times PE. Clearly, the prospects seem to be in no way diminishing. You can try it out yourself on any stock screener with a list of hotel stocks from SGX. Indeed Amara has to be undervalued(quite severely)

The fact that we can use PE to judge that Amara is undervalued speaks volume of the extent to which the market is unfairly valuing Amara. Most of the times, hotel stocks are undervalued from the asset perspective. And because cap rates of hotels are low, especially in Singapore, and especially in the current era of low interest rates, a hotel stock has to trade at such a huge discount to its asset value such that it will have a low PE multiple. Its no surprise therefore for me to find that it carries its hotel at historical cost, and investment property conservatively. And if we use the conservative estimates of valuation provided by the company, the assets is already worth $1.35.

Earlier in this thread some have called out value trap. Well, if we look at the charts up to a few months ago. Amara hit a high of 60 + cents. Less than a year before that, it hit 60 + cents as well. So at current level there is a decent 20% return as long as interest rotates back into the hospitality industry/ the stock.

Now if you think this is the end of the story, thats not all. Amara is on the way to completing a hotel in Bangkok and a mixed development in Shanghai! Both are scheduled for completion for this year and will add huge chunks to the stock value, and even more earnings. Things will then start to get ridiculous. Imagine a hotel stock that trades at 5-6 X PE. And if you do DCF, you will know that a company's fortunes(change in earnings or asset value) in the near term (3-5 years) contributes significantly to its intrinsic value. It seems like Amara is at a very sweet spot of being undervalued to begin with, plus tremendous growth coming up. Its like a cigar butt on steroids, with a dash of hash thrown in. (forgive the flowery language, its 2.30 am in the morning and I have to amuse myself as I finish my other work)

Now I'll reserve my judgement on these two developments, especially for Amara Shanghai; management has indicated that they wanted to start work on it since the Beijing olympics(yup you heard me right). But even if I apply a substantial discount, Amara still offers a mouth watering margin of safety.

(will start to accumulate)

[Boon]

I have been scouring the SGX to look for undervalued companies with great certainty in its earnings for the years to come. I chanced upon this little known, under-covered company. And what sets this company apart from other companies is the fact that it earnings is sustainable, even as it will be cyclical.

The investing community recently seems to be especially enamored with small cap companies, especially those that trades at low earnings multiple. The number of such companies that are truly undervalued, is in my opinion much smaller than the number of companies that have been touted as "undervalued". Many people including analysts are projecting recent good results in a straight line far into the future, failing to consider factors like benign operating environment, industry tail wind and whether companies have lasting competitive advantage. As surely as night follows day, so too will competition drive down profits towards the cost of capital. Sadly, a large number of such small caps do not have lasting competitive advantage and in my view things will get tough sooner or later. But I digress.

Back to Amara. It is trading at about 8 X P.E. Very low multiple. Is this sustainable? Probably yes. Earnings may fluctuate due to cyclical demand but if you look at room rates in Singapore over the decade, room rates have trended up and rates now are not at astronomical levels.(both are good) Will earnings be driven down by competitors? Theoretically, competitors may set up hotels, lots of it and drive down revenue. But practically hotels are viewed in a large part as investment and returns are supported by Cap Rates. In any case new hotels take time to be constructed and you can look to see if supplies of rooms in Singapore will experience significant growth. The answer is no. So low multiples, sustainable earnings. It potentially is undervalued.

Lets do a final test, are the prospects of the industry diminishing, and hence market is assigning such a low ratio. To answer this, we simply look at the valuation of the hotel companies in Singapore. There are about a dozen of them. All trades at at least high teens PE ratio, some in the twenties. The next closest hotel stock trades at about 16 times PE. Clearly, the prospects seem to be in no way diminishing. You can try it out yourself on any stock screener with a list of hotel stocks from SGX. Indeed Amara has to be undervalued(quite severely)

The fact that we can use PE to judge that Amara is undervalued speaks volume of the extent to which the market is unfairly valuing Amara. Most of the times, hotel stocks are undervalued from the asset perspective. And because cap rates of hotels are low, especially in Singapore, and especially in the current era of low interest rates, a hotel stock has to trade at such a huge discount to its asset value such that it will have a low PE multiple. Its no surprise therefore for me to find that it carries its hotel at historical cost, and investment property conservatively. And if we use the conservative estimates of valuation provided by the company, the assets is already worth $1.35.

Earlier in this thread some have called out value trap. Well, if we look at the charts up to a few months ago. Amara hit a high of 60 + cents. Less than a year before that, it hit 60 + cents as well. So at current level there is a decent 20% return as long as interest rotates back into the hospitality industry/ the stock.

Now if you think this is the end of the story, thats not all. Amara is on the way to completing a hotel in Bangkok and a mixed development in Shanghai! Both are scheduled for completion for this year and will add huge chunks to the stock value, and even more earnings. Things will then start to get ridiculous. Imagine a hotel stock that trades at 5-6 X PE. And if you do DCF, you will know that a company's fortunes(change in earnings or asset value) in the near term (3-5 years) contributes significantly to its intrinsic value. It seems like Amara is at a very sweet spot of being undervalued to begin with, plus tremendous growth coming up. Its like a cigar butt on steroids, with a dash of hash thrown in. (forgive the flowery language, its 2.30 am in the morning and I have to amuse myself as I finish my other work)

Now I'll reserve my judgement on these two developments, especially for Amara Shanghai; management has indicated that they wanted to start work on it since the Beijing olympics(yup you heard me right). But even if I apply a substantial discount, Amara still offers a mouth watering margin of safety.

(will start to accumulate)

Revenue (SGD, million)
FY2011 = 62.096
FY2012 = 90.258
FY2013 = 80.678
FY2014 = 75.900

Fair Value Gain on Investment Properties (SGD, million)
FY2011 = 25.361 (= 40.8% of revenue)
FY2012 = 11.321 (= 12.5% of revenue)
FY2013 = 11.524 (= 14.3% of revenue)
FY2014 = 18.997 (= 25.0% of revenue)

NPAT (SGD, million)
FY2011 = 33.673
FY2012 = 29.426
FY2013 = 26.798
FY2014 = 35.299

Comments:
1) Amara has 3 business segments: hotel business (around 60~65% of total revenue)/ property business (around 25~35% / F&B (around 3~5%)
2) Strictly speaking, each business segment should be analysed separately – Group revenue/profit not representative of its hotel business.
3) Amara has booked substantial amount of “fair value gain on investment properties” over the years in its Group revenue/profit – Group’s earnings multiple not representative of hotel business earning multiple.
4) Shanghai project is a mixed used development project – hotel, retail and office – by the time they finished, less than 30 years of land use right would be left.
5) Until further detail analysis has been carried out, I am not too sure on where its "hidden value" lies? It could either be in its hotel business or property business - it could be in both or none.
6) From the perspective of RNAV, it is undervalued. But from the perspective of operating profit/cash flow, after stripping out fair value gain on investment properties, I am not too sure.....................

(not vested)

[CCUV]

look at the dividend..........value suppressor.....it had been undervalued for as long as I can remember

[Boon]

look at the dividend..........value suppressor.....it had been undervalued for as long as I can remember

DPS for FY2014 = 1.2 cents
Share price = 53.5 cents
Dividend yield = 2.2%

"undervalued" from the perspective of dividend yield ? I don't think so.
"undervalued" from the perspective of P/RNAV? I do agree.
"undervalued" from the perspective of operating profit/cash flow, excluding fair value gain on investing properties? I am not too sure.

(not vested)

[grubb]

Why not buy Sino Hotels listed in HK? Or better yet, buy Sino Land. Bring your gf on a walk along Raffles Place and tell her that you own a piece of Fullerton Hotel..