Our filter for the privatisation story on Page 10 threw up a handful of very undervalued real estate companies of which Sinarmas Land A26 and GuocoLand F17 were the top two.
GuocoLand’s fundamentals have been covered extensively. Its net profit in 1HFY2024 ended December 2023 rose 12% to $66.2 million on the back of a 61% rise in revenue to $1.07 billion. This is because revenue includes residential units (excluding executive condos) sold which is recorded based on the percentage of completion.
GuocoLand has also built up a portfolio of investment properties including Guoco Tower, Guoco Midtown and 20 Collyer Quay which have high committed occupancies of more than 90%. Since some 75% of GuocoLand’s assets are in Singapore, it may not suffer fair value revaluation declines like some of its peers, despite its interest expense rising by 87% in 1HFY2024.
In recent weeks, Malaysian billionaire Quek Leng Chan, who owns some 71% of GuocoLand, has been buying shares in the company. His most recent purchase was on March 26 at $1.54. This is unlike the other stocks with P/NAV below 0.5 times.
GuocoLand’s technicals look pretty solid too. From a longer-term perspective, GuocoLand’s 50- and 100-day moving averages have made a positive cross and turned up. More interesting is the break above the top of a base formation at $1.49 on March 27, accompanied by a surge in volume. The breakout indicates an upside of $1.80. Since the breakout, prices have consolidated, holding above the breakout level of $1.59, suggesting that the upside remains valid.
Stocks rarely have their fundamentals and technicals aligned but this is exactly the case with GuocoLand.
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The top undervalued stock in our list of privatisation candidates is unexpectedly Sinarmas Land, which has been somewhat sidelined by investors. This is evident in the continuous downtrend since May last year. On April 8, Sinarmas Land touched a low of 13 cents on very heavy volume. So far, the least negative aspect of the chart of Sinarmas Land is its oversold condition, with short-term and medium-term momentum at the low end of their range.
Since our model looks at price growth versus value growth, Sinarmas Land shows up on the radar. In FY2023 ended December 2023, net profit fell by 20% to $272.5 million. Its interest coverage ratio was around 3.8 times and the company was in a net cash position. Moreover, both Sinarmas Land’s operating cash flow and free cash flow are positive, albeit at lower levels than FY2022. Sinarmas Land had an impairment of $71.7 million which is captured in its net profit. Most of the company’s earnings are derived from property development in Indonesia, with 84% of revenue from development sales. The remaining 16% comprises investment income from rents, building management fees and service concession agreements.
Sinarmas Land is owned by the Widjaja family and brothers Franky and Muktar are its respective chairman and CEO. Muktar’s daughter is an executive director too.
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Unlike GuocoLand though, Sinarmas Land’s fundamentals have an edge over its technicals.
