Selangor Properties Bhd’s (SelProp) shares saw a good run-up yesterday, reaching its highest in more than three years as it is potentially poised to be one of the beneficiaries of the Greater Klang Valley mass rail transit (MRT) project.
SelProp, which settled at RM4.10 yesterday, had closed at RM4.16 on Aug 14, 2007.
Currently, the company has a 34-acre developable land bank and 1.2 million sq ft of office space in Pusat Bandar Damansara, where an MRT interchange could possibly be developed.
“SelProp is in a good position to bid for the MRT interchange at Pusat Bandar Damansara to be located on its site,” said HwangDBS Vickers.
The research firm said in its recent note that apart from having strategically located land bank in PBD, SelProp also has a strong balance sheet to leverage on.
SelProp’s cash and cash equivalent amounted to RM595.7 million as of Oct 31, against debts of RM397.5 million. This means that it was sitting on a net cash position of almost RM200 million.
SelProp has not undertaken an equity-based fund raising exercise over the past decade.
Though its earnings trend tends to be volatile, the company has been constantly paying cash dividends since its listing in 1987.
For the year ended Oct 31, SelProp posted a net profit of RM42.62 million, up 29.3% from RM33 million in FY09 due to a revaluation surplus of RM29.7 million on its investment properties. Earnings per share was 12.4 sen. Revenue, however, fell 37% to RM203.04 million from RM321.7 million.
In terms of price-earnings valuation, the stock can be considered pricey at 33 times FY10 ended Oct 31 earnings. This compares with its closest peers like Guocoland (M) Bhd, which is trading at a single PE.
Being often overlooked by analysts and institutional investors, SelProp shares also suffer from low trading liquidity. The group is majority owned by Kayin Holdings Sdn Bhd, which holds an equity interest of 66.3% interest in the property developer.
Be as it may, SelProp shares are clearly undervalued based on its shareholders’ fund of RM1.76 billion as at Oct 31.
With its book value at RM5.12 per share, SelProp shares are undervalued by some 23%, even when the counter reached RM4.10 yesterday.
Furthermore, some quarters are of the view that since some of SelProp’s assets are ripe for revaluation, the shares’ prevailing discount to its book value could become even wider.
HwangDBS, for one, estimates that SelProp is trading at a deep discount of 53% to its revised net asset value (RNAV) of RM7.31 per share, which has yet to include development profits for undeveloped land and redevelopment potential of existing old office buildings.
It expects SelProp to register the strongest RNAV growth over the next three to five years, with a 60% upside in its RNAV to hit RM11.71 per share by then. This is based on the assumption that land values appreciate to RM 1,300 per sq ft from RM600 per sq ft currently.
“Given its strategic land bank, attractive valuation and concentrated shareholding, SelProp could be a potential M&A (merger and acquisition) or joint venture target or privatisation candidate,” added the house.
It also noted that SelProp holds a 51% stake in education player Help International Corp Bhd, whose earnings have been expanding steadily, with a four-year compounded annual growth rate of 20%.
HwangDBS said SelProp’s further upside could also be driven by redevelopment works.
It noted that MRT and higher plot ratios under the Revised Draft KL Structure Plan should encourage high-end high density mixed developments in Pusat Bandar Damansara-Damansara Heights.
HwangDBS said Pusat Bandar Damansara should be more vibrant with the redevelopment of Johor Corp’s government offices and Guocoland’s RM2 billion Damansara City mixed development, which is slated for launch middle of the year. - by Isabelle Francis, theedgemalaysia.com
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