Thanks for an interesting idea and good write-up. As you asked for the accounting discussion in the article, here we go :-)
I will respectfully challenge the treatment of the deferred revenue for your adjusted book value. I do agree that deferred revenue is the best liablity one can possibly have because it will disappear by itself as the company performs its services and and transform into actual revenue.
That being said, I think that just adding the deferred revenue to the book value is not accurate because there will also be costs associated with this revenue. It would be more reasonable, in my view, to multiply the deferred revenue with an net income margin and add the product to the actual book equity.
Does not change the overall thesis overall, still very attractive.
As many have stated here be careful with singapore leasehold properties. You mentioned "Hmm...are you sure about that? I doubt they would be forced to give back PP&E for free, especially the hotel."
Yes 100%. The gov can just ask for the land back and are under no obligation to compensate. Owners can try to ask for an extension but both the approval and cost for this is up to SLA (singapore land authority)
This could be why the valuation is cheap. Also ive seen this 'value trap' before in SGX listed companies. Look at Haw Par. Singaporean promotors don't really care about minority shareholders. As long as business is generating cash, they are fine.
It's unquestionably cheap, well found, well written & thank you.
Any sense for what % of revenues are berthing fees (contracted) vs. likely-more-cyclical F&B&Ents? Accounts suggest 1/4 is "membership & mgmt fees" which as you say were largely pre-sold, 3/4 is "sale of goods & services" but I don't know whether some of the berthing/subscription fees are in the bigger category (e.g. selling water & power to boats, that's analogous to berthing fees). There's no visible price increases in the membership line, so if they are raising prices it must be in the other line. Revenue CAGR 2018/19 to 2022 was "only" about 6%, though I am sure with Covid it was hard/impossible to put rises through.
In most of these cases, they give back the buildings etc. to the govt at the end of the concession so there's no meaningful assets to 'sell' to any bidder that beats them. They depreciate their buildings & leasehold to the end of the concession, which supports this assumption. I agree with your base case that they'll have to pay fair value for the extension from 2034.
Does anyone know anything about the controlling guy/family and their treatment of minorities? 5c divi is a great sign, but it would be horrible if he just continues to stack up cash then creeping buyback/takeunder.
I suspect they will find another port or two to build, spend USD$50m on it which takes out the cash-backing, and make like 12% IRR on the spend. Which I'd rather they did not do, but the owner is absolutely not in need of cash and seems to have wanted to build a marina empire.
It makes me think of the analysis of SMTPC, a tunnel in the south of France, by Pascal Quiry.
They both have leases that expire in around 10 years with uncertainties concerning the renewal, and they both have recurring cash flows.
I think there is more optionalities here, especially with third parties management, but the distribution of cash flows seems to be more predictable with SMTPC.
Wonderful idea & a beautiful write-up David. I loved your insight on adjusting the book value (Another reason why it might not screen directly on net-net screens).
Beware! Aiming for ROE > COC is an indication of deploying net cash or alike for higher (shareholder) returns. Referring to 'return on capital employed' is not such an indication, since the cash is non-deployed, right ?
Good write-up nonetheless!!! Looked at it earlier after reading some writeups, and buying at recent ex-divi would have indeed be nice, which indicates the stock trades on dividend-yield?
Thanks for an interesting idea and good write-up. As you asked for the accounting discussion in the article, here we go :-)
I will respectfully challenge the treatment of the deferred revenue for your adjusted book value. I do agree that deferred revenue is the best liablity one can possibly have because it will disappear by itself as the company performs its services and and transform into actual revenue.
That being said, I think that just adding the deferred revenue to the book value is not accurate because there will also be costs associated with this revenue. It would be more reasonable, in my view, to multiply the deferred revenue with an net income margin and add the product to the actual book equity.
Does not change the overall thesis overall, still very attractive.
As many have stated here be careful with singapore leasehold properties. You mentioned "Hmm...are you sure about that? I doubt they would be forced to give back PP&E for free, especially the hotel."
Yes 100%. The gov can just ask for the land back and are under no obligation to compensate. Owners can try to ask for an extension but both the approval and cost for this is up to SLA (singapore land authority)
This could be why the valuation is cheap. Also ive seen this 'value trap' before in SGX listed companies. Look at Haw Par. Singaporean promotors don't really care about minority shareholders. As long as business is generating cash, they are fine.
Ugggh my broker doesn't offer it! They do bigger Singaporean stocks so maybe they'll add it.
Great find!
It's unquestionably cheap, well found, well written & thank you.
Any sense for what % of revenues are berthing fees (contracted) vs. likely-more-cyclical F&B&Ents? Accounts suggest 1/4 is "membership & mgmt fees" which as you say were largely pre-sold, 3/4 is "sale of goods & services" but I don't know whether some of the berthing/subscription fees are in the bigger category (e.g. selling water & power to boats, that's analogous to berthing fees). There's no visible price increases in the membership line, so if they are raising prices it must be in the other line. Revenue CAGR 2018/19 to 2022 was "only" about 6%, though I am sure with Covid it was hard/impossible to put rises through.
In most of these cases, they give back the buildings etc. to the govt at the end of the concession so there's no meaningful assets to 'sell' to any bidder that beats them. They depreciate their buildings & leasehold to the end of the concession, which supports this assumption. I agree with your base case that they'll have to pay fair value for the extension from 2034.
Does anyone know anything about the controlling guy/family and their treatment of minorities? 5c divi is a great sign, but it would be horrible if he just continues to stack up cash then creeping buyback/takeunder.
I suspect they will find another port or two to build, spend USD$50m on it which takes out the cash-backing, and make like 12% IRR on the spend. Which I'd rather they did not do, but the owner is absolutely not in need of cash and seems to have wanted to build a marina empire.
"The main appeal of it is that more than 90% of its business comes from owning (lease expires in 2034) and operating one of Asia's best marinas"
This confuses me a bit. Are we equating an 11 year lease with ownership? Lease assets and blue chip land assets are very different in my mind.
Hi
Thank you very much for this analysis.
It makes me think of the analysis of SMTPC, a tunnel in the south of France, by Pascal Quiry.
They both have leases that expire in around 10 years with uncertainties concerning the renewal, and they both have recurring cash flows.
I think there is more optionalities here, especially with third parties management, but the distribution of cash flows seems to be more predictable with SMTPC.
The analysis of Pascal Quiry is available here in french : https://www.actionnairesminoritairessmtpc.fr/
Wonderful idea & a beautiful write-up David. I loved your insight on adjusting the book value (Another reason why it might not screen directly on net-net screens).
Keep up the fantastic work.
Beware! Aiming for ROE > COC is an indication of deploying net cash or alike for higher (shareholder) returns. Referring to 'return on capital employed' is not such an indication, since the cash is non-deployed, right ?
Good write-up nonetheless!!! Looked at it earlier after reading some writeups, and buying at recent ex-divi would have indeed be nice, which indicates the stock trades on dividend-yield?