Saturday, May 17, 2008
Results Brief: Shui On Construction (983) - part i
There's been a change in the business mix of SOC, as it has been selling down its Shui On Land (272) holdings. The SOL shares were part of the original attraction of buying SOC because SOL was itself undervalued in my view, and indirectly buying it via SOC gives an additional holding company discount.
But now SOL holdings is down from 17.5% to 9.5%, and further sales are likely for SOC to finance its other projects. So far SOC's has realised $2.8b proceeds and applied $1.8b in property projects, jointly invested with SOL and CCP (its 40% owned distressed property fund listed last year on AIM in London).
I found this perplexing. SOC sold downs SOL shares to co-invest with SOL? It's a similar case with CCP where the AIM listing proceeds were plough back into joint projects with CCP.
One guess is financing in China has gone really tight and therefore SOC had to put money back in. Or maybe those projects were so lucrative that SOC must lay its hands upon. I think the former is more likely though I don't doubt the viability of the projects. Business risk has risen as a property portfolio (via SOL/CCP) is replaced by individual investments.
With the above in mind. SOC now is a combination of China properties, cement, construction, and venture capital.
The property assets include 9.5% in SOL, 40% plus CB interest in CCP, and individual projects. As the SOL holdings are expendable, it's fair to use market price to value those shares. For interest in CCP and individual projects totalling $4b, 1.5x book value is about right given past completed projects of CCP were quite profitable, which should balance out the relatively unknown quality of SOC's new projects. If the property market does get from bad to worse, then CCP should get more buying opportunities (as it's a distressed property fund), which means it isn't totally bad for SOC.
There's a fund management component in the CCP business where SOC earns both management and performance fee out of the minority shareholders (~$3b invested). However I don't see much contribution yet as it only started out in the 2nd half of last year. As SOC are committed to these projects anyway, via CCP or co-investment, this is a nice side business with no incremental cost but upside. Last time I attached as much as over $1b for this part, maybe too aggressive as I overestimated the fund size, but $500m of capitalization should be attainable.
Construction business provided too little contribution although it's improving, and venture capital investments are just too remote for me (even profits are mostly accounting profit). So I won't spend more time here.
Up to now the combined value is about $10b.
DISCLOSURE: I hold 983 at time of writing.
But now SOL holdings is down from 17.5% to 9.5%, and further sales are likely for SOC to finance its other projects. So far SOC's has realised $2.8b proceeds and applied $1.8b in property projects, jointly invested with SOL and CCP (its 40% owned distressed property fund listed last year on AIM in London).
I found this perplexing. SOC sold downs SOL shares to co-invest with SOL? It's a similar case with CCP where the AIM listing proceeds were plough back into joint projects with CCP.
One guess is financing in China has gone really tight and therefore SOC had to put money back in. Or maybe those projects were so lucrative that SOC must lay its hands upon. I think the former is more likely though I don't doubt the viability of the projects. Business risk has risen as a property portfolio (via SOL/CCP) is replaced by individual investments.
With the above in mind. SOC now is a combination of China properties, cement, construction, and venture capital.
The property assets include 9.5% in SOL, 40% plus CB interest in CCP, and individual projects. As the SOL holdings are expendable, it's fair to use market price to value those shares. For interest in CCP and individual projects totalling $4b, 1.5x book value is about right given past completed projects of CCP were quite profitable, which should balance out the relatively unknown quality of SOC's new projects. If the property market does get from bad to worse, then CCP should get more buying opportunities (as it's a distressed property fund), which means it isn't totally bad for SOC.
There's a fund management component in the CCP business where SOC earns both management and performance fee out of the minority shareholders (~$3b invested). However I don't see much contribution yet as it only started out in the 2nd half of last year. As SOC are committed to these projects anyway, via CCP or co-investment, this is a nice side business with no incremental cost but upside. Last time I attached as much as over $1b for this part, maybe too aggressive as I overestimated the fund size, but $500m of capitalization should be attainable.
Construction business provided too little contribution although it's improving, and venture capital investments are just too remote for me (even profits are mostly accounting profit). So I won't spend more time here.
Up to now the combined value is about $10b.
DISCLOSURE: I hold 983 at time of writing.
Subscribe to Posts [Atom]