RHB Analyst on 18 Oct 2016
TP: RM3.50 (from RM3.10)
Reason: Solid earnings visibility & undemanding valuation
After taken into consideration of Kwasa Land and Multiple Proposals and Proposed Dividend of 7 sen.
WHAT IS HAPPENING?
Construction order book: RM656 million
Unbilled sales: RM232 million
Kwasa Land: Awaiting detail agreement (Kwasa Land portion is RM165m, Gadang taking the developer responsibility)
Multiple Proposals: Positive event
MRT2: Likely, as announced by CEO of MRT.
Capital City 21: Gadang only provide land, and its share of profit is 16.7% of GDV. Gadang does not take up responsibility of a developer.
WHY SO HOT LATELY?
Multiple reasons. Some are fundamental reasons and some are sentiment reasons.
INFORMATION ONLY
Largest portfolio for Mr Fong Siling with 5m shares. At RM3.10 today, his market value is about RM16m. Most of his investments' market value is below RM5m. Mr Fong always does his homework. Of course, that does not mean he is 100% right. The fact that he is in the Top 30 list of shareholders, only gave some confident but not assurance (because we do not know when is he selling).
WHAT MY FUND MANAGER SAID
They bought in below RM1.50 and I believe they took up the PP at RM1.85. Nothing wrong if they trim a bit of its shareholding. Of course, I don't always listen to them. They talk about how great is Kossan, but they never kept that long.
ARE YOU WORRIED IF DIRECTOR SELLING?
1. Tan Sri sold 5,500,000 shares @ RM2.90 in Sep.
2. Another director sold about 50,000 (he has about 300,000+ shares)
3. I suggest, those who wants to know, ask them during the coming EGM, 3 Nov 2016, I think.
4. However, I did see a trend of Tan Sri selling and buying over the years. Not sure his "intention" but I believe, he will not harm his own company as he is the largest shareholder. Perhaps, someone's birthday around the corner.
5. So, if worry, don't touch it. What is the point of buying something and worry being "cheated"
WHAT DO I THINK?
1. 9MW Hydro Electric - Investment is about RM80m, contributing in FY2019
2. They have 4 water concessionnaires - invested about RM70m, contributing and increasing capacity
3. Plantation, in Sabah - one of the analyst gave a DCF of about RM41m (EV of USD7,500 x 3.80 x area) - fully paid.
4. Construction: RM656m, 1.5x visibility (before Kwasa Land deal), likely get MRT2, hopefully KVLRT3, etc
5. Property: Unbilled sales RM323m, 1.5x visibility (before Kwasa Land), Updated GDV: about RM6 billion (some of its property are landed, some are JV (so less holding cost), some are affordable homes.
6. Again, the horizon I looked at is about 2-3 years, unlike analyst only 1 year. I believe they can achieve average next 3 years at about RM110m.
7. I normally use rule of thumb. Sometime, my thumb does get burned. Sometime I look at how much capital they have invested, do a 6-8 year payback period, then calculate the DCF roughly. Of course, I also see their profit margin.
8. I will give it a PE of 7-14 for the range for 1-3 years. So, analyst view of PE10x, not very extreme.
DOES IT PASS YOUR OWN CHECKLIST WITH FLYING COLOURS?
1. Financials
2. Management
3. Business Model (competitive advantage)
Part 4 will be coming. After "visiting the management".
GADANG (9261) - SOS Is Gadang still a gem at RM3.10? Part 3
http://klse.i3investor.com/blogs/sosfinance/106832.jsp
