Value analysis on property development company – Goodland Group Limited
1. Balance sheet analysis
Key value indicator:
Net current assets: $176,768k
Do note that out of the net asset of $236,880k, equity attributable to shareholders of the Group is 190,748 arising from its non-wholly owned subsidiaries in Malaysia (Banyan Housing Development Sdn Bhd and T-City Sdn Bhd). Hence, on the presumption minority interest impact is fully deducted against the net current asset, the revised net current asset is $130,636k. To stretch this even further, the amount will be $88,317k after deducting its non current liabilities.
Based on closing price of 24 cents at 15 September 2017, the market capitalisation of Goodland Group stands at $86,566k
This is 66.2% of the net current asset or 98% of current assets minus total current liabilities.
After taking into account the above, investors will be buying the non-current assets of $102,431k for free.
- RNAV adjustment on property assets
|Development properties held for sale
No adjustment to RNAV proposed on the development properties held for sale as a significant portion of the development properties relate to land in Perak, Malaysia whereby it is pending for sub-divided plots planning approval which give rise to greater uncertainty.
In the 30 September 2016 annual report, it was also disclosed that the Group recognised a write down in the value of two units of completed properties amounting to $1,712k (2015 – $801k) due to market conditions. However, given the uptick in recent land price, we expect these write down to be reversed in the current year.
For more information on T City, readers can refer to the official website: http://tcity.com.my/
|Property, plant and equipment (PP&E)
PP&E are the “ free”assets as noted in point number 1 and they are mainly used as office and also generating ancillary rental income.
||Approximate floor area (sqm)
||18 Roberts Lane Goodland Building
||3 Kim Chuan Lane
The amount recorded in the balance sheet for the 2 buildings is likely to be significantly lower than the market value of these freehold properties as the basis of accounting is recording them at cost less accumulated depreciation. From the 31 September 2016 annual report, it was noted that arising from the transfer of a unit of 18 Roberts Lane from PP&E to investment properties, a revaluation surplus reserve of $1,699,316 was recognised in the revaluation surplus reserve. Working backwards comparing the amount of asset being transferred of $2,215,638, this implies the transferred unit was originally carried at the books at $516,322. Taking the multiple of 3.3 ($1,699,316/$516,322) and applying to the freehold land and building, the fair value uplift on these asset is about $9 million.
- Status of development properties in Singapore
Based on the existing landbank in Singapore, it does seem the Group has limited visibility in earnings after the completion of the sales of its active development.
- Increased dividend a signal of turnaround as Company turn profitable
In a signal of recovery on operational performance, the Group has declared interim dividend twice in the current financial year. This is before any final dividend payable as the Group has a September year end.
For Q3 2017, the Group’s P&L also improved evident through a 50% increase in revenue growth, 106% increase in gross profit margin and turning profitable (profit of $2.8 million) from a loss ($3.6 million) in the corresponding period noted in prior year. The trailing dividend yield stands at 2.5%.
- Sustainability of earnings
The Q32017 results driven by The Citron Residences (a mixed use development not mentioned in point 3 as it is nearing completion) which will likely end its contribution by end 2017/ early 2018 as the project obtain TOP. The active development and landbank noted in point 3 will be the Group’s near term and mid term earnings catalyst.
Besides the Singapore projects, the other key revenue driver will be the successful execution on its property development projects in Malaysia which will bring together with it greater risk.
- Shareholder statistics
The Company has very limited free float with the top 20 shareholders holding 95.1% of the shares.
Valuation of Goodland Group looks compelling with market capitalisation less than current assets minus total liabilities. I would describe Goodland Group business model leaning more towards a boutique developer where they are seeking pockets of development opportunity among the big boys in Singapore while seeking new development opportunities in Malaysia.
Given the general turnaround in the real estate market in Singapore, the stock could inch closer towards its intrinsic value of about $200 million compared to its current market capitalisation of $86 million.
CK is vested in Goodland Group