Friday, November 09, 2007
Something Else
Those Annoying Faxes
You are extremely lucky if you haven't received one yet. I got at least one marketing fax everyday and sometimes several a day. I used to think only companies using commercial lines would suffer, but this is apparently not the case. My brother used to receive plenty so he eventually threw away his fax machine. Now he still gets the long 'beep' calls just as frenquently.
Taking his lesson, when I applied for my residential line, I didn't tell PCCW that this would be a fax line. I also specifically asked that the telephone number assigned not to be a recycled commercial number. They got me a new number but guess what, the damn fax still arrives at my door everyday.
I eventually got really pissed off and started my 'call-back' campaign, i.e. calling back each company and asking them to stop sending faxes to me , in a gentle manner of course.
This campaign started two months ago and here's the preliminary findings.
(1) I'm still receiving offers to have my computer/printer fixed.
(2) 99% of the telephone operators are female.
(3) 0% of them would identify the name of the company when answering the phone. I heard only 'wei' or 'hello' 100% of the time.
(4) Sometimes I heard multiple phone ringing in the background which suggested I might be talking to a 'call centre'.
(5) I suspect sometimes I talk to the same operator twice on the same day. And I suspect she might recognize me too.
I also have the burning desire to know why the faxes are all about fixing computer/printer but not refridgerators, microwave, or DVD players? If there's enough variety then I might eventually find one useful.
The campaign shall continue and I'll post another update again.
One Life, One Love, One Gift
You are happy your friend has finally found the 'one' and settled down. You happily pay your due to attend the banquet, wishing them happy for the rest of their lives. Yet afterward you find yourself stuck with their token gift for the rest of your life too, which you have least expected.
What am I talking about? I'm talking about those little gifts you receive that hold tremendous value to your hosts but little value to anyone else. Take for example a couple of cute ceremic bride and groom with names and the wedding date etched on it. Some were even made to look like the couple themselves! How am I gonna do with it afterward? Do I need to display it in home so that I won't forget to call during anniversary, or so I can remember this happy day too for the rest of my life? Gosh my long term memory will be really running short if I have to remember so many happy days, and in some of those days I might just be drunk and had no memory.
Other times it's a cute car, a cute box, or cute anything, but the common theme is there's no real use. And I can't even re-gift it because it's got names on it. So in the end I had to secretly discard it. It's a waste of money and natural resources, not to mention those gifts may contain excess lead in paint which can be harmful to small children!
If any of you is planning a banquet please seriously DROP the idea of token gift, or simply give out chocolate instead. You guests will appreciate it immensely.
DISCLOSURE: I'm married and have nothing against marriage, just the gifts.
You are extremely lucky if you haven't received one yet. I got at least one marketing fax everyday and sometimes several a day. I used to think only companies using commercial lines would suffer, but this is apparently not the case. My brother used to receive plenty so he eventually threw away his fax machine. Now he still gets the long 'beep' calls just as frenquently.
Taking his lesson, when I applied for my residential line, I didn't tell PCCW that this would be a fax line. I also specifically asked that the telephone number assigned not to be a recycled commercial number. They got me a new number but guess what, the damn fax still arrives at my door everyday.
I eventually got really pissed off and started my 'call-back' campaign, i.e. calling back each company and asking them to stop sending faxes to me , in a gentle manner of course.
This campaign started two months ago and here's the preliminary findings.
(1) I'm still receiving offers to have my computer/printer fixed.
(2) 99% of the telephone operators are female.
(3) 0% of them would identify the name of the company when answering the phone. I heard only 'wei' or 'hello' 100% of the time.
(4) Sometimes I heard multiple phone ringing in the background which suggested I might be talking to a 'call centre'.
(5) I suspect sometimes I talk to the same operator twice on the same day. And I suspect she might recognize me too.
I also have the burning desire to know why the faxes are all about fixing computer/printer but not refridgerators, microwave, or DVD players? If there's enough variety then I might eventually find one useful.
The campaign shall continue and I'll post another update again.
One Life, One Love, One Gift
You are happy your friend has finally found the 'one' and settled down. You happily pay your due to attend the banquet, wishing them happy for the rest of their lives. Yet afterward you find yourself stuck with their token gift for the rest of your life too, which you have least expected.
What am I talking about? I'm talking about those little gifts you receive that hold tremendous value to your hosts but little value to anyone else. Take for example a couple of cute ceremic bride and groom with names and the wedding date etched on it. Some were even made to look like the couple themselves! How am I gonna do with it afterward? Do I need to display it in home so that I won't forget to call during anniversary, or so I can remember this happy day too for the rest of my life? Gosh my long term memory will be really running short if I have to remember so many happy days, and in some of those days I might just be drunk and had no memory.
Other times it's a cute car, a cute box, or cute anything, but the common theme is there's no real use. And I can't even re-gift it because it's got names on it. So in the end I had to secretly discard it. It's a waste of money and natural resources, not to mention those gifts may contain excess lead in paint which can be harmful to small children!
If any of you is planning a banquet please seriously DROP the idea of token gift, or simply give out chocolate instead. You guests will appreciate it immensely.
DISCLOSURE: I'm married and have nothing against marriage, just the gifts.
Thursday, November 08, 2007
SOHO China (410): Where's my money? final words
In my previous posts, I've left out one very important factor from the calculation, i.e. the tax effect and especially that of the Land Appreciation Tax. Currently SOHO is providing 2-3% on sales as provision for LAT, said to be common practice in BJ, and auditors have no particular complain about it, so neither should I. But I figure if anyone buying SOHO is not buying simply assets or business but Pan, he should have confidence Pan will find a way out if tax becomes a problem, just as he has confidence Pan will find good land at good prices and erect magnificent buildings on it.
But my money isn't with SOHO or Pan. I did subscribe to the IPO but I don't hold any now. I don't have anything against SOHO or Pan strongly but just that I'm a cautious person and prefer a safer bet. In this case my preference is with Shui On Land (272), a company with a similar business, cheaper valuation, but more importantly better execution in my view.
SOL is also in the city redevelopment business and its owner Vincent Lo is also well connected in Shanghai. SOL also has good city center projects in Shanghai because of Lo and the 'Xintiandi' project is a success. Well the architecture for sure has a lower 'WOW' factor than that of SOHO, but 'Xintiandi' nonetheless has become a brand that can be leveraged.
But don't mistake 'wow' for margin, for SOL has an even higher gross margin of 70% (vs. 50% of SOHO). I don't believe this margin will sustain because land prices have gone up a lot, but SOL does have the advantage of having secured most of its land supply some time ago, for city redevelopment is by definition a long term project.
What I like better about SOL is that it has successfully reached out to other cities with the 'Xintiandi' brand, in at least Xihu, Wuhan, and Chongqing. In technical terms I'd say its business model of city redevelopment is proven scalable, thus lessening the need for connections to get good land. Bear in mind in redevelopment the land is usually prime. Not to mention this also means having a much larger landbank of 10 times the size. Earnings sustainability is therefore lesser a concern.
Another area which I think SOL did better was in the management of retail and commercial tranche of its projects, whereas SOHO has sold off everything and will only start keeping some in future projects. The rental from shops and offices provides continuous cashflow which helps smooth out the volatility of the residential market. Plus investment properties will also rise in value, slowly but steadily. This means less aggressive use of funds but is more comforting for a conservative investor looking for the long run.
SOL is where my money is at.
DISCLOSURE: I hold 272 and no 410 at time of writing.
But my money isn't with SOHO or Pan. I did subscribe to the IPO but I don't hold any now. I don't have anything against SOHO or Pan strongly but just that I'm a cautious person and prefer a safer bet. In this case my preference is with Shui On Land (272), a company with a similar business, cheaper valuation, but more importantly better execution in my view.
SOL is also in the city redevelopment business and its owner Vincent Lo is also well connected in Shanghai. SOL also has good city center projects in Shanghai because of Lo and the 'Xintiandi' project is a success. Well the architecture for sure has a lower 'WOW' factor than that of SOHO, but 'Xintiandi' nonetheless has become a brand that can be leveraged.
But don't mistake 'wow' for margin, for SOL has an even higher gross margin of 70% (vs. 50% of SOHO). I don't believe this margin will sustain because land prices have gone up a lot, but SOL does have the advantage of having secured most of its land supply some time ago, for city redevelopment is by definition a long term project.
What I like better about SOL is that it has successfully reached out to other cities with the 'Xintiandi' brand, in at least Xihu, Wuhan, and Chongqing. In technical terms I'd say its business model of city redevelopment is proven scalable, thus lessening the need for connections to get good land. Bear in mind in redevelopment the land is usually prime. Not to mention this also means having a much larger landbank of 10 times the size. Earnings sustainability is therefore lesser a concern.
Another area which I think SOL did better was in the management of retail and commercial tranche of its projects, whereas SOHO has sold off everything and will only start keeping some in future projects. The rental from shops and offices provides continuous cashflow which helps smooth out the volatility of the residential market. Plus investment properties will also rise in value, slowly but steadily. This means less aggressive use of funds but is more comforting for a conservative investor looking for the long run.
SOL is where my money is at.
DISCLOSURE: I hold 272 and no 410 at time of writing.
Thursday, November 01, 2007
SOHO China (410): Where's my money? part ii
Before I start on Tiananmun South, the final piece of the valuation puzzle, let me add something about Sanlitum SOHO.
The site, vacant now, is valued at $7.9 billion at 30 Jun 2007. This I already told you yesterday. So here's something new for today. SOHO mentioned in the prospectus that it acquired this site via private negotiation in 2006 and nothing more. I had to look at the footnotes of the valuation report in the appendix to find out SOHO purchased it at only $2.15 billion six months ago in Dec 2006. The seller was BJ Tongying Property Development. If you happen to know more about this company please enlighten me.
During Jan to Jun 07, SOHO spent $1.1 billion on infrastructure of the land. Also during this time land price in BJ has surged so fast that there's an immediate windfall gain of $4.65 billion (i.e. $7.9 billion - $2.15 billion - $1.1 billion), or 143% on cost even before construction permit was issued! I can only say 'winner takes all' and feel apathy for the seller, for I have much experience to share.
The above brings out the nature of SOHO's profit which relies much on land appreciation than anything else, which makes it not so different from other land developers as Pan may claim. The other point is the 100% margin on future development cost I assumed in my calculation yesterday was probably too high, since SOHO had already made a killing on land price and past overall gross profit was only about 50%. But I'd leave the calculation as it is because in all likelihood the land will continue to appreciate, though by what extent I do not know.
Now I turn my attention to Tiananmun South.
It was city center redevelopment project similar to what we have here in Graham Street, Central, and Kwun Tong, except in bigger scale. There's a total of 44 parcels of land totaling 127,000 sqm of site area and 360,000 sqm of planned GFA. The site includes 12 heritage sites where extensive conservation work will be carried out. The project owner is a company named BJ Tianjie, wholly owned by the State Owned Asset Supervision and Administration Commission (SASAC) at the beginning. The role of BJ Tianjie functions sort of like the City Redevelopment Council we have in Hong Kong, i.e. to relocate and rebuild. Relocation started in 2004 and now all land has been cleared for development. A total of $3.6 billion was incurred in relocation and pre-development, which was financed by a combination of equity put up by SASAC and bank loans.
Pan owns 49% of BJ Tianjie (with SASAC owning 51%) which holds the right to develop 33 out of the 44 parcels of land in the project. Although the interest is a minority one, Pan will be entitled to 100% profits earned from the 33 parcels of land after repaying all bank loans of BJ Tianjie and capital put forth by SASAC (i.e. a total sum of $3.6 billion). For simplicity you can treat it like a wholly owned project. The remaining 11 parcels of land will be put out for tender early next year. Agreements have been reached whereby Pan's 49% interest in BJ Tianjie will be injected into SOHO, pending the necessary regulatory approval. In fact, the main reason of listing is to raise enough funding to develop this project.
How much is the land worth now? Well according to the valuer just the 33 parcels are worth $12.3 billion! If these parcels are sold today there'll be immediate gain of $8.7 billion ($12.3 billion - $3.6 billion) already. In addition, there's a further development profit of up to $4 billion, if I apply the same 100% profit margin on development cost.
If you wonder why or when Pan's name showed up in the picture all of a sudden? That's a good question to ask. But you won't get an easy answer unless you search deep into the footnotes of the accountant's report in the appendix. There you'd find Pan acquired his 49% interest in BJ Tianjie from SASAC at $144 million in Mar 07. Yes, only half an year ago in Mar 07 and for only $144 million. Pan subsequently put in $500m as shareholder's loan. In simple math Pan/SOHO put up $644 million and is ready to reap $8.7 billion home.
But why Pan? Why would SASAC spend 3 years clearing up the site, bargaining hard with the local residents, and then just pass the development right of this highly valuable downtown site to Pan at giveaway price, without any public auction?
I definitely smell Cyberport dejevu here! don't you?
The timing of events is more suspicious because SOHO was trying hard to get listed at that time and landbank wasn't big enough.
Now it becomes clear why the tycoons* are all so eager to buy into SOHO, for one should never challenge their collective wisdom. My guess is it's nothing but raw capitalism. Pan has excellent connections in BJ which can get him excellent land, and tycoons are buying those connections. In all fairness Pan and SOHO have done excellent marketing and worked hard enough in past projects to earn their special status now.
And we all know having a status can be very advantageous, even in a communist country.
To answer the very 1st question of where's my money, here's the breakdown.
Valuation of current projects: $17.5 billion
Less all liabilities net of cash and minority interest: aprox. ($6.5 billion)
Add Sanlitum profit: $3.55 billion on land + $1.1 billion on development
Add Tiananmun south profit: $8.9 billion on land + $4 billion on development
Add IPO proceeds: $11.4 billion
Total: $40 billion
Mkt value: $52 billion
Premium is now only 30%. Of course it's a lot fairer than those absurd valuation of other property counters. More importantly I dare not to underestimate Pan's continual ability to get good deals and the tycoon's trust in him.
So don't fancy the world renowned architects, beautiful buildings, Pan's charisma, or the SOHO brand, because those are just icings on the cake and you're missing the picture! You're buying not what's written in, but rather what's NOT written in the prospectus.
* BTW, I mistyped 'tycoon' effect as 'typhoon' effect in my last post. I'm sorry if I've confused you.
DISCLOSURE: I don't hold 410 at time of writing.
The site, vacant now, is valued at $7.9 billion at 30 Jun 2007. This I already told you yesterday. So here's something new for today. SOHO mentioned in the prospectus that it acquired this site via private negotiation in 2006 and nothing more. I had to look at the footnotes of the valuation report in the appendix to find out SOHO purchased it at only $2.15 billion six months ago in Dec 2006. The seller was BJ Tongying Property Development. If you happen to know more about this company please enlighten me.
During Jan to Jun 07, SOHO spent $1.1 billion on infrastructure of the land. Also during this time land price in BJ has surged so fast that there's an immediate windfall gain of $4.65 billion (i.e. $7.9 billion - $2.15 billion - $1.1 billion), or 143% on cost even before construction permit was issued! I can only say 'winner takes all' and feel apathy for the seller, for I have much experience to share.
The above brings out the nature of SOHO's profit which relies much on land appreciation than anything else, which makes it not so different from other land developers as Pan may claim. The other point is the 100% margin on future development cost I assumed in my calculation yesterday was probably too high, since SOHO had already made a killing on land price and past overall gross profit was only about 50%. But I'd leave the calculation as it is because in all likelihood the land will continue to appreciate, though by what extent I do not know.
Now I turn my attention to Tiananmun South.
It was city center redevelopment project similar to what we have here in Graham Street, Central, and Kwun Tong, except in bigger scale. There's a total of 44 parcels of land totaling 127,000 sqm of site area and 360,000 sqm of planned GFA. The site includes 12 heritage sites where extensive conservation work will be carried out. The project owner is a company named BJ Tianjie, wholly owned by the State Owned Asset Supervision and Administration Commission (SASAC) at the beginning. The role of BJ Tianjie functions sort of like the City Redevelopment Council we have in Hong Kong, i.e. to relocate and rebuild. Relocation started in 2004 and now all land has been cleared for development. A total of $3.6 billion was incurred in relocation and pre-development, which was financed by a combination of equity put up by SASAC and bank loans.
Pan owns 49% of BJ Tianjie (with SASAC owning 51%) which holds the right to develop 33 out of the 44 parcels of land in the project. Although the interest is a minority one, Pan will be entitled to 100% profits earned from the 33 parcels of land after repaying all bank loans of BJ Tianjie and capital put forth by SASAC (i.e. a total sum of $3.6 billion). For simplicity you can treat it like a wholly owned project. The remaining 11 parcels of land will be put out for tender early next year. Agreements have been reached whereby Pan's 49% interest in BJ Tianjie will be injected into SOHO, pending the necessary regulatory approval. In fact, the main reason of listing is to raise enough funding to develop this project.
How much is the land worth now? Well according to the valuer just the 33 parcels are worth $12.3 billion! If these parcels are sold today there'll be immediate gain of $8.7 billion ($12.3 billion - $3.6 billion) already. In addition, there's a further development profit of up to $4 billion, if I apply the same 100% profit margin on development cost.
If you wonder why or when Pan's name showed up in the picture all of a sudden? That's a good question to ask. But you won't get an easy answer unless you search deep into the footnotes of the accountant's report in the appendix. There you'd find Pan acquired his 49% interest in BJ Tianjie from SASAC at $144 million in Mar 07. Yes, only half an year ago in Mar 07 and for only $144 million. Pan subsequently put in $500m as shareholder's loan. In simple math Pan/SOHO put up $644 million and is ready to reap $8.7 billion home.
But why Pan? Why would SASAC spend 3 years clearing up the site, bargaining hard with the local residents, and then just pass the development right of this highly valuable downtown site to Pan at giveaway price, without any public auction?
I definitely smell Cyberport dejevu here! don't you?
The timing of events is more suspicious because SOHO was trying hard to get listed at that time and landbank wasn't big enough.
Now it becomes clear why the tycoons* are all so eager to buy into SOHO, for one should never challenge their collective wisdom. My guess is it's nothing but raw capitalism. Pan has excellent connections in BJ which can get him excellent land, and tycoons are buying those connections. In all fairness Pan and SOHO have done excellent marketing and worked hard enough in past projects to earn their special status now.
And we all know having a status can be very advantageous, even in a communist country.
To answer the very 1st question of where's my money, here's the breakdown.
Valuation of current projects: $17.5 billion
Less all liabilities net of cash and minority interest: aprox. ($6.5 billion)
Add Sanlitum profit: $3.55 billion on land + $1.1 billion on development
Add Tiananmun south profit: $8.9 billion on land + $4 billion on development
Add IPO proceeds: $11.4 billion
Total: $40 billion
Mkt value: $52 billion
Premium is now only 30%. Of course it's a lot fairer than those absurd valuation of other property counters. More importantly I dare not to underestimate Pan's continual ability to get good deals and the tycoon's trust in him.
So don't fancy the world renowned architects, beautiful buildings, Pan's charisma, or the SOHO brand, because those are just icings on the cake and you're missing the picture! You're buying not what's written in, but rather what's NOT written in the prospectus.
* BTW, I mistyped 'tycoon' effect as 'typhoon' effect in my last post. I'm sorry if I've confused you.
DISCLOSURE: I don't hold 410 at time of writing.
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