SIM LIAN GROUP LTD STOCK ANALYSIS
PREPARED BY MELVIN ANG (2 MARCH 2014)
BACKGROUND
Sim Lian is a residential (luxury private condo and
executive condo) and commercial property developer in Singapore (A Treasure
Trove, The Tampines Trilliant, UB.One, Clover by the Park, Rochelle at Newton,
The Lincoln Residences and Executive Condos) and Malaysia (KL Trillion in the
heart of KL , Taman Bukit Bayu, Desa Baiduri in Johor). Its construction
business also involves in BTO projects from HDB.
CONSISTENT EARNING
POWER
Sim Lian ($0.82) has a consistently high ROE of more than
15% since 2003. 10 year ROE averages at 25% and 5 year ROE averages at 29%.
Compare this result to the much larger players in the property sector such as
City Development ($9.33) and CapitaLand ($2.82) which has a 5 year ROE average
of 10% and 7% respectively. Take a look at the consistent earning power of Sim
Lian in the table below.
Sim Lian has a huge potential upside movement since it is a small market cap
company at 800 million that grows at 27% on average per annum for past 5 years.
The high growth will result in acceleration of earnings that will consequently drives
the stock price up. The return on capital is a healthy 20% in 2013.
LOW DEBT
Sim Lian did not over leverage to sustain its high growth. In
fact, debt to equity declines from 2.69 in 2009 to only 0.4 in 2013. Total debt
decreased from $546.2 million in 2009 to $319.1 million in 2013. In fact, its
cash on hand has risen from $69 million in 2009 to $343 million in 2013. Cash
per share is 0.34. This means that at current market price of 0.89, you are
actually only paying 0.55 (0.89-0.34) for 0.89 per share.
BUSINESS
ENVIRONMENT
Despite several cooling measures by the government that are mostly
targeted on second home buyers, the very low interest rate environment, continued
income growth and increasing population in Singapore will continue to guarantee
the buoyancy of the property market in the future. In fact, interest loan for
housing has gone down from 5.40% in 2004 to 3.02% in 2013. To hedge against
future market uncertainties, Sim Lian is making a concerted effort to expand
their portfolio to include more
mixed-use commercial and residential properties especially into the executive
condo opportunities (about 80% of Singaporeans live in HDB), as well as
capitalise on investment opportunities. In the long run, demand for housing
will always be there in Singapore.
EXCELLENT
MANAGEMENT
Sim Lian is a family business with the family owning 78% of
all outstanding shares. When management owns stock, then rewarding the
shareholders becomes a first priority, whereas when management simply collects
a paycheck, then increasing salaries becomes a first priority. This is good
news since common stockholders could either profit from privatization or from
excellent management that thinks and acts like a business owner.
OTHER FINANCIAL
RATIOS
Current P/E is only 4.64. Compare this to City Developments
and CapitaLand's P/E of 13 and 15 respectively, Sim Lian looks like a really
good bargain. Moreover, the P/B is 0.90. P/B below 1.00 usually indicates an undervalue
stock.
DOWNSIDE
Currently, only 12.4% of the outstanding shares are in
public hands. This means low liquidity and low volume movement. Thus, potential
investors are advised to have a long term holding in mind with this stock.
TARGET PRICE
$1.30 per share.
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