Saturday, June 16, 2007
Latest on Shui On Construction (983)
Well I'm surprised to have time to keep track of developments in the HK market and to write while on vacation. Yes my holiday so far is really dull! However somehow I can't open any PDF file and hence much of the HKEX data is unavailable, so all figures used here are rough.
This post isn't really an update on SOC though it has listed its distressed property unit on the AIM in London. But because it's as expected there's nothing to add for now. Those who are unfamiliar can check my posts in April about SOC and my investment rationale. Rather, this post is prompted by announcement of the merger of TCC and Chiahsin Cement. I always keep a close watch at corporate activities as those are orginated by insiders who are more informed and thus whose actions and reasons are usually well thought out, thereby saving my time and energy!
I don't know much about either company other than they, together with the industry as a whole, seem to be turning around after some bad years. I don't expect one to vary significantly from the others as cement is a pretty homogenous product. The merger puts a value on CC at about $3b, against a turnover of $1b. For reference, the industry leader Anhui Cement is trading at $69b against a turnover of $15b, higher but understandable given the difference in size. P/E isn't used here as it's usually irrelevant in turnaround situations.
Using this latest acquisition price (3x turnover) as the benchmark for SOC's cement operation gives a value of $4.5b, double of my last conservative estimate. Apply the same method to value other parts of SOC: Shui On Land ($5.2b), construction ($0.4b), distressed property ($2.5b), less corporate debt ($3b), SOC in total should be worth $9.6b. Current capitalization (including convertible bond) is only $7b.
The current price is very attractive because you get exposure to both the housing and building materials market. Plus there's upside potential from 1st Shui On Land (which is also undervalued at current price), and 2nd SOC itself, a rare double double opportunity I'd say.
DISCLOSURE: I hold 983 at time of writing.
This post isn't really an update on SOC though it has listed its distressed property unit on the AIM in London. But because it's as expected there's nothing to add for now. Those who are unfamiliar can check my posts in April about SOC and my investment rationale. Rather, this post is prompted by announcement of the merger of TCC and Chiahsin Cement. I always keep a close watch at corporate activities as those are orginated by insiders who are more informed and thus whose actions and reasons are usually well thought out, thereby saving my time and energy!
I don't know much about either company other than they, together with the industry as a whole, seem to be turning around after some bad years. I don't expect one to vary significantly from the others as cement is a pretty homogenous product. The merger puts a value on CC at about $3b, against a turnover of $1b. For reference, the industry leader Anhui Cement is trading at $69b against a turnover of $15b, higher but understandable given the difference in size. P/E isn't used here as it's usually irrelevant in turnaround situations.
Using this latest acquisition price (3x turnover) as the benchmark for SOC's cement operation gives a value of $4.5b, double of my last conservative estimate. Apply the same method to value other parts of SOC: Shui On Land ($5.2b), construction ($0.4b), distressed property ($2.5b), less corporate debt ($3b), SOC in total should be worth $9.6b. Current capitalization (including convertible bond) is only $7b.
The current price is very attractive because you get exposure to both the housing and building materials market. Plus there's upside potential from 1st Shui On Land (which is also undervalued at current price), and 2nd SOC itself, a rare double double opportunity I'd say.
DISCLOSURE: I hold 983 at time of writing.
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