If you haven?t heard, the construction and property development outfit Sim Lian Group Ltd (SGX: S05) had announced a privatization offer earlier this week.
Its controlling shareholders have offered to buy up shares of the company that they don?t yet own for S$1.08 apiece. At that price, Sim Lian is valued at just 10 times trailing earnings and 0.8 times tangible book value.
The low valuation that Sim Lian has in the takeover offer (I?ve shared in a separate article why those look like low valuations to me) got me thinking: Are there other property companies with low valuations?
In fact, there…
Its controlling shareholders have offered to buy up shares of the company that they don’t yet own for S$1.08 apiece. At that price, Sim Lian is valued at just 10 times trailing earnings and 0.8 times tangible book value.
The low valuation that Sim Lian has in the takeover offer (I’ve shared in a separate article why those look like low valuations to me) got me thinking: Are there other property companies with low valuations?
Source: S&P Global Market Intelligence
Wing Tai Holdings is a property developer and owner. But, the company also has a strong retail business; it distributes for popular retail brands such as Adidas, Topshop, and G2000.
The company also has a strong asset base with investment properties and huge cash holdings – the value of these are easy to figure out. It is the company’s large investments in associates and joint ventures – these includes stakes in more property companies and partnerships with retailers such as Uniqlo and G2000 Apparel – that is more ambiguous and harder to quantify.
Right now, Wing Tai Holdings’ investments in associates and joint ventures are given an accounting value of S$1.55 billion (as of 31 March 2016), but the true value of these might not be similar. According to S&P Global Market Intelligence, Wing Tai currently has S$5.015 billion in total assets and S$3.15 billion in tangible book value.
So while the company does seem to be trading well below its net tangible assets, it might not be that simple to justify the company as being truly undervalued given the different types of assets within its asset base.
OUE on the other hand, has a much cleaner balance sheet. A huge proportion of its total assets are made up of its investment properties – to the point, OUE has total assets of S$8.18 billion (as of 30 June 2016), of which S$5.63 billion are the investment properties. Some of these investment properties reside in the real estate investment trust sponsored by OUE, OUE Commercial REIT (SGX: TS0U).
So, OUE has a more transparent balance sheet that gives investors a plain view on its key assets, the investment properties. But, the company does have quite a high level of debt. At the end of June 2016, the company has a net debt to equity ratio of around 67%. This is certainly something investors need to take note of as well.
Both Wing Tai Holdings and OUE are trading significantly below their net tangible book values. But, that does not necessarily mean that they are undervalued. It is important for investors to understand what assets these companies hold and what the possibilities are that the full value of these assets can be extracted or recognised in the future.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned above.