The world-renowned investor, Warren Buffett, counts Benjamin Graham as his investing mentor. Graham is often touted to be the father of the value investing discipline, where its practitioners aim to purchase a stock for less than its intrinsic value.
That happens when we purchase a dollar worth of assets for 50 cents. And in doing so, we also give ourselves a margin of safety of 50% – this “safe distance” can help to minimise the downside risk of the investment.
With the concept of buying assets below their worth in mind, let’s look at three property-related companies that are selling for below their book values (a company’s book value is its total assets minus its total liabilities).
Company 1: Hongkong Land Holdings Limited (SGX: H78)
Hongkong Land is a property investment, management, and development group with properties in countries such as Hong Kong, Singapore, and China. Currently, the company owns and manages more than 850,000 square metres of prime office and luxury retail properties across Asia.
Hongkong Land has two business segments, namely, investment properties and development properties. As of 31 December 2017, 90% of its gross assets were from the investment properties business while the remaining 10% came from the development properties segment.
Ben Keswick, the chairman of Hongkong Land, shared some positive comments about the company’s future in its latest earnings update (for the second half of 2017):
“The strong contribution from the Group’s investment properties to underlying profit is expected to be maintained in 2018, while further improvements are anticipated from the Group’s development properties in mainland China and Singapore.”
Hongkong Land shares ended last Friday’s trading session at US$7.21 apiece. With a book value per share of US$15.63 (as of 31 December 2017), the company has a price-to-book ratio of just 0.46.
Company 2: SingHaiyi Group Ltd (SGX: 5H0)
SingHaiyi derives income through property development, property investment, property management, and real estate fund management activities. Its geographical markets are mainly in Singapore and the US.
For its fiscal year ended 31 March 2018 (FY2018), SingHaiyi’s revenue ballooned more than 10 times to S$458.8 million, up from S$44.2 million a year ago. Meanwhile, net profit for the same period rose 30% to S$40 million.
Looking ahead, SingHaiyi mentioned the following:
“With the recent land acquisitions, the Group is in a strong position to capitalise on Singapore’s recovering property sector over the next few years.
In the US, the real estate market remains reasonably stable, and the Group remains focused on delivering its pipeline of development projects.
Moving forward, the Group will continue to explore suitable additions to its existing land bank, while pursuing opportunities to deliver growth and strengthen its earnings base through yield-accretive acquisitions and quality property developments.”
SingHaiyi’s shares closed at a price of S$0.099 apiece last Friday. The company’s latest book value of S$0.1522 per share (as of 31 March 2018) gives it a price-to-book ratio of 0.65.
Company 3: UOL Group Limited (SGX: U14)
UOL has an extensive portfolio of development and investment properties, hotels, and serviced suites. Its portfolio also includes the properties that are held under its listed subsidiary, United Industrial Corporation Ltd (SGX: U06).
There are three main segments with UOL’s business, and they are property development, hotel operations, and property investments. Some of the assets under the property investments segment include Novena Square, Clifford Centre, and United Square; these are all located in Singapore.
For 2018’s first quarter, UOL’s revenue surged 89% year-on-year to S$661 million, but its net profit slipped by 8% to S$73.8 million.
Looking ahead for the rest of the year, UOL commented in its latest earnings update:
“Based on Ministry of Trade and Industry’s advance estimates, Singapore’s GDP grew by 4.3% on a year-on-year basis in the first quarter of 2018. Prices of private residential properties in Singapore are trending upwards, with prices increasing by 3.9% in first quarter 2018. Steady demand together with decreasing supply should support office rents. Notwithstanding growth in retail sales, retail rents remain under pressure with competition from ecommerce.
Economic and political uncertainties could weigh on the London property market although leasing activities remain steady in Midtown where the Group owns two properties.
Improvements in the global economic outlook should benefit the Group’s hotels in the Asia Pacific though trading conditions for the Group’s hotels in Myanmar and China remain challenging.”
Last Friday, UOL’s shares closed the trading session at a price of S$7.56 each. With a book value per share of S$11.38 (as of 31 March 2018), UOL carried a price-to-book ratio of 0.66.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Hongkong Land Holdings Limited. Motley Fool Singapore contributor Sudhan P owns shares in Hongkong Land Holdings Limited.