A deeper look into its deep value
Main highlights:
- Based on my assumptions and rough estimates, fully diluted RNAV is RM4.34. Applying a conservative 50% discount, the stock has a fair value of RM2.17.
- Symlife should start to progressively reflect its true value after FY16 in view of two positive catalysts in 2017-18.
- Main catalyst will be the announcement of the Sg. Long land development's launch (slated for 2017/18). If valued at RM50 psf, the Sg. Long land is worth RM900mil (3.9x market cap). GDV for this development was previously estimated at RM8bn (>30x market cap).
- The other catalyst will be a jump in profits (and as a result probably higher dividends) driven by its record high unbilled sales of over RM700mil (about 2.5x FY15 revenue). Upcoming/future launches of around RM2bn in GDV (excluding Sg. Long development and ongoing projects) to support earnings.
- Despite the subdued property market, Symlife's high-end projects (first phase of Star Residences and TWY) achieved high take-up rates of more than 80%.
The delay of the Sungai Long development and management's guidance for lower sales in FY16 may come as a disappointment to some who follow Symphony Life (Symlife) closely.
But for some investors who are more forward looking, Symlife still remains an attractive property stock to be invested in.
After FYE Mar 2016, about 7 months from now, the stock could start to progressively reflect its true/intrinsic value, in view of the positive catalysts that's about to come in 2017-18.
The main catalyst would be the announcement of the Sg. Long development's launch (which should draw interest of institutional investors to the stock).
The other catalyst would be a jump in profits (and as a result, probably higher dividends) driven by unbilled sales of over RM700mil (the highest ever recorded by Symlife; ~2.5x FY15 revenue).
Much of this sales weren’t reflected in recent quarters and won’t be in the remaining ones of FY16 because Symlife’s recent launches were mostly high rise developments which construction works are now only at the foundation level.
As profits are recognized using the stage of completion method, the bulk of the unbilled sales will only be recognized at further stages of the developments' construction, from FY17 onwards.
Sg. Long development – the main catalyst
The Sg. Long development is now slated to be launched in 2017/2018. The land area for development has now been reduced to 400 acres after around 20 acres was acquired for the EKVE.
With less land, the previously estimated GDV of RM8bn should also be lower now. If we assume a proportional GDV to land area decrease, the GDV would be roughly 5% (20/420 acres) lower at RM7.6bn (but still over 30x Symlife's current market cap)
On the bright side, the EKVE cutting through the development could serve as a positive due to better accessibility/connectivity
Figure 1: Information on the Sg. Long land
Source: Symlife’s IMTN Programme Information Memorandum (dated 16 May 2013)
Location of the Sg. Long land
From the info memo (Figure 1), location details are:
To the south of the Sg. Long land:
- Bandar Mahkota Cheras
- Bandar Sungai Long
- Taman Cheras Vista
- Taman Vista
- Taman Desa Budiman
To the north of the Sg. Long land:
- Taman Bukit Sekawan
- Taman Sri Nanding
- Taman Cempaka
- Taman Perkasa
- Taman Dusun Nanding
- Kampung Sungai Serai
Based on this info, I believe the land is located somewhere inside the orange circle in Figure 2. Google Maps link: https://goo.gl/maps/twA50
Figure 2: Sg. Long land indicative location
Source: Google Maps, www.mapcustomizer.comThe location looks about right judging from the quarry terrain (currently the land is being used for quarry operations, Symlife in FY12 paid about RM143mil to extend the lease of the land to 99 years and to convert the land status to make it ready for property development).
Potential value
Since the land is close to Bandar Sungai Long, which was developed by SHL Consolidated Bhd, land prices in that area could serve as a good indication to what Symlife's Sg. Long land is worth.
PublicInvest Research, in a non-rated report on SHL, indicated the market value/price of land in Bandar Sg. Long was RM130 per sq ft. (The report can be found here on bursamarketplace.com)
Figure 3: Extracts from PublicInvest Research report on SHL
Source: PublicInvest Research non-rated report on SHL (dated 22 Jul 2014)If we use the RM130 psf as guidance, Symlife’s 400-acre (17,424,000 sq ft) land could be worth RM2.27bn, or about RM7.30 per share.
In a July 2015 article by The Edge Property on Bandar Sungai Long (link to article), there was a mention that “the value of residential land in the township is between RM150 and RM300 psf now.”
Another way I would value the land is to use the NPV method.
As a rough estimate, if we evenly spread out the RM7.6bn GDV over a 10 year development period (RM760mil/year), assume net margins of 20% (net profit of RM152mil/year), use a WACC of 11%, we would get an NPV of RM895mil, which comes to about RM51 psf. Based on this, the land is worth RM2.89 per share.
Potential value of Symlife stock
Many of Symlife's properties have not been revalued for some time and hence are carried at low net book values (see Figure 4).
Figure 4: Properties owned by Symphony Life
Source: Company annual report
What could Symlife's RNAV be if we were to value the properties at current market prices?
For my own entertainment, I made some guesstimates to the values of the properties to see what RNAV Symlife could potentially have (see Figure 5). Note that these are just my own estimates and not the market prices. I feel my estimates are conservative, but actual market prices could be lower or higher.
Figure 5: Hypothetical revaluation of Symphony Life properties
*Based on my own assumptions/estimates.
**Based on my own assumptions/estimates.
Assuming full conversion of the warrants, I arrived at a fully diluted RNAV per share of RM4.34***. Based on this figure, Symlife shares (at RM0.755) are trading at a discount of 83% to its FD RNAV.
(***Updated 13 Sep 2015: lowered from RM4.75 after some tweaking – no surplus for properties not for development)
Note: For recently added properties, I used back the same net book values. Some of the properties could be under a subsidiary which is not wholly-owned, so Symlife's effective ownership of the properties could be less than 100% and if so should account for less in the RNAV. But most importantly, the Sg. Long land is definitely 100%-owned by Symlife. For the Sg. Long land, I should be using 400 acres instead of 420 acres (I don't know what price the 20 acres will be acquired for), but for the sake of convenience, I'm following the acreage as per annual report.
I also have not included some active developments which lands are not owned by Symlife. Including the DCFs from these projects would increase the RNAV. E.g., Star Residences was not included in the RNAV. This 50:50 JV project has a GDV of RM2.8bn and a 6-year development period. As a rough estimate, if we assume net margins of 20%, use a discount rate of 11%, the NPV would be about RM395mil. Symlife's 50% stake of this would then be worth RM197.5mil or RM0.47 per share (fully diluted).
What would be an appropriate discount to RNAV?
I believe Symlife should trade at a discount to RNAV similar to smaller cap property stocks that are more toward the affordable to mid-market segment. Property players in this segment are less affected by the current property market slowdown.
My rationale for this is that the Sg. Long development, once launched, will be more toward the mid-market segment; the development should also make up most of Symlife’s GDV in the future.
Given the location and target market of the Sg. Long development, there shouldn’t be concerns of oversupply or over competition, unlike regions such as Iskandar Malaysia now.
Market sentiment toward affordable to mid-market housing developers that don’t have heavy exposure to the Johor market seems to be relatively more favourable (in terms of discount to RNAV) than those that do.
As a benchmark, Hua Yang, with a market cap of about RM486mil, is currently trading at 48% discount to RNAV*. Hua Yang's dividend yields are close to 7% and its net gearing levels are ~0.6x. Matrix Concepts (~RM1.3bn market cap) is trading at 34% discount to its FD RNAV*. Matrix's DY is ~6%, while net gearing is relatively lower at ~0.1x. (*based on Kenanga Research's RNAV estimates). Both trade above book value.
Symlife has a market cap of ~RM230mil. Its net gearing is 0.4x, DY ~6.6%, and its stock trades at less than 0.4x P/BV currently.
It is also worth noting that while many developer’s high-end projects are experiencing poor take up rates, Symlife’s higher-end projects such as its TWY@Mont Kiara and Star Residences in the KLCC area have achieved good take-up rates of more than 80%.
In my view, for Symlife shares to trade at 50% discount or less to its RNAV would be fair and reasonable.
Future/upcoming launches
Tijani Signal Hill, Kota Kinabalu (est. GDV RM450mil)
Sunway (est. GDV RM400mil)
Subang Airport Road, Subang (est. GDV RM200mil)
Assuming full conversion of the warrants, I arrived at a fully diluted RNAV per share of RM4.34***. Based on this figure, Symlife shares (at RM0.755) are trading at a discount of 83% to its FD RNAV.
(***Updated 13 Sep 2015: lowered from RM4.75 after some tweaking – no surplus for properties not for development)
Note: For recently added properties, I used back the same net book values. Some of the properties could be under a subsidiary which is not wholly-owned, so Symlife's effective ownership of the properties could be less than 100% and if so should account for less in the RNAV. But most importantly, the Sg. Long land is definitely 100%-owned by Symlife. For the Sg. Long land, I should be using 400 acres instead of 420 acres (I don't know what price the 20 acres will be acquired for), but for the sake of convenience, I'm following the acreage as per annual report.
I also have not included some active developments which lands are not owned by Symlife. Including the DCFs from these projects would increase the RNAV. E.g., Star Residences was not included in the RNAV. This 50:50 JV project has a GDV of RM2.8bn and a 6-year development period. As a rough estimate, if we assume net margins of 20%, use a discount rate of 11%, the NPV would be about RM395mil. Symlife's 50% stake of this would then be worth RM197.5mil or RM0.47 per share (fully diluted).
What would be an appropriate discount to RNAV?
I believe Symlife should trade at a discount to RNAV similar to smaller cap property stocks that are more toward the affordable to mid-market segment. Property players in this segment are less affected by the current property market slowdown.
My rationale for this is that the Sg. Long development, once launched, will be more toward the mid-market segment; the development should also make up most of Symlife’s GDV in the future.
Given the location and target market of the Sg. Long development, there shouldn’t be concerns of oversupply or over competition, unlike regions such as Iskandar Malaysia now.
Market sentiment toward affordable to mid-market housing developers that don’t have heavy exposure to the Johor market seems to be relatively more favourable (in terms of discount to RNAV) than those that do.
As a benchmark, Hua Yang, with a market cap of about RM486mil, is currently trading at 48% discount to RNAV*. Hua Yang's dividend yields are close to 7% and its net gearing levels are ~0.6x. Matrix Concepts (~RM1.3bn market cap) is trading at 34% discount to its FD RNAV*. Matrix's DY is ~6%, while net gearing is relatively lower at ~0.1x. (*based on Kenanga Research's RNAV estimates). Both trade above book value.
Symlife has a market cap of ~RM230mil. Its net gearing is 0.4x, DY ~6.6%, and its stock trades at less than 0.4x P/BV currently.
It is also worth noting that while many developer’s high-end projects are experiencing poor take up rates, Symlife’s higher-end projects such as its TWY@Mont Kiara and Star Residences in the KLCC area have achieved good take-up rates of more than 80%.
In my view, for Symlife shares to trade at 50% discount or less to its RNAV would be fair and reasonable.
Future/upcoming launches
Tijani Signal Hill, Kota Kinabalu (est. GDV RM450mil)
- 10-acre JV development located in the prestigious Signal Hill area of Kota Kinabalu
- Two towers of condominiums of various sizes and 12 units of 3-storey landed luxury villas.
- Expect to be able to launch in 1H16. Phase 1 GDV RM150mil.
- 51% stake via Brilliant Armada Sdn Bhd.
- On a 2-acre land adjacent to the Sunway South Quay development.
- About 600 mainly small unit apartments targeted for students, parents of students and investors due to its proximity to several established universities and medical centres.
- JV project arising from the purchase of 3.2-acre land from Kwasaland by the landowner and is part of the huge RRI land development.
- Mixed development concept with retail and residential components that is expected to do well due to its visibility along Jalan Lapangan Terbang Subang.
- 51% stake via Vital Capacity Sdn Bhd.
Mont Kiara 2, Kuala Lumpur (est. GDV RM400mil)
Section U10, Shah Alam (est. GDV RM300mil)
* * * * * * * * *
"Despite the challenges, through a combination of innovative products that created some excitement in an otherwise subdued market and competitive pricing, we recorded our highest ever sales of just over RM700 million for the financial year ended 31 March 2015 (FY2015). This has built a solid foundation of unbilled sales that will contribute positively to future earnings of the Group."
– Symphony Life 2015 Annual Report
- On 2.2-acre of land located across Jalan Segambut from TWY@Mont Kiara.
- Concept will be different from TWY@Mont Kiara but will continue to include innovative features that would differentiate its product in this mature location.
- JV project located within a rapidly growing corridor along the Shah Alam-Batu Arang highway with notable developments such as Sunway Alam Suria, Cahaya SPK and Nusa Rhu in its immediate vicinity.
- The 25-acre residential development will consist of 444 units of townhouses and terrace houses.
- 3 years development period.
51G, Kuala Lumpur (est. GDV RM360mil)
- On 1-acre land at Persiaran Gurney.
- Luxurious condominium project with a private car port in each of its 71 units and a 26-feet wide driveway on each floor which enables residents to drive into their units.
- 50% stake via 51G Development Sdn Bhd.
* * * * * * * * *
"Despite the challenges, through a combination of innovative products that created some excitement in an otherwise subdued market and competitive pricing, we recorded our highest ever sales of just over RM700 million for the financial year ended 31 March 2015 (FY2015). This has built a solid foundation of unbilled sales that will contribute positively to future earnings of the Group."
– Symphony Life 2015 Annual Report
