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KUALA LUMPUR: Investors following recent developments in Ho Hup Construction Co Bhd would be wondering whether the company’s share is really worth its current trading price of almost RM2, or four times higher compared to a month ago.
Some would doubt that it is, and believe that it is largely “hype”, fuelled by the tussle between two opposing shareholders — Datuk Vincent Lye and Datuk Low Tuck Choy. The former is deputy executive chairman of Ho Hup while the latter is a former managing director of the company.
The “excitement” was also driven by speculations that the tussle could have drawn in a third party, or even fourth, into supporting either side by mopping up shares in the market, thereby contributing to large trading volumes in Ho Hup shares.
Interestingly, Ho Hup’s rally had also spilled over to Magna Prima Bhd, which has had dealings with Ho Hup in terms of land transactions. Magna has seen its share price gaining 34% since early December 2009 to RM3.70 on Jan 6.
“How else to explain the Ho Hup’s rally other than the Lye-Low tussle? Before this, the stock had actually plunged to as low as 34 sen two months ago (from 60 sen), after it proposed a restructuring scheme that calls for a 95% capital reduction and shares placement that will significantly dilute present shareholdings,” said a dealer.
Those who bet on Ho Hup might believe that it is still early to worry about whether such “painful” restructuring scheme would go through. The scheme is still being deliberated by Bursa Malaysia and even if it is tabled in an EGM, it requires 75% shareholders’ approval, which can be a tall order.
But despite all these presumptions contributing to the stock’s rally, one cannot ignore the fact that there is significant value to be unlocked in Ho Hup, given its valuable landbank in Bukit Jalil.
“If the current stalemate in Ho Hup’s operations, caused by the shareholders’ tussle, could be resolved with a strong shareholder and management emerging, the company would have much to offer,” said a market observer.
By gaining another 23 sen to close at RM1.99 on Jan 6, Ho Hup’s stock had surged 141% over the last five trading days and 400% over the past one month. It could easily be the best performing stock on Bursa during these periods.
The current price, which was last seen in June 2004, gives Ho Hup a market value of RM203 million. Compared to its negative shareholders fund of RM5.55 million as of Sept 30, 2009, it would suggest that the stock is grossly over-valued.
However, shareholders fund is not the only yardstick in a company’s stock valuation. And in this case, Ho Hup’s shareholders fund did not reflect the fair market value of the company’s land bank, which had not been revalued for years.
According to Ho Hup’s 2008 annual report, the company owned 153 acres of freehold land in Bukit Jalil as at Dec 31, 2008, which was carried at a net book value of RM146.4 million or about RM22 per sq ft. If these tracts of land were carried at RM50 per sq ft, based on recent transaction prices of land in the vicinity, there could be a surplus of about RM187 million to reverse Ho Hup’s current negative shareholders fund of RM5.5 million.
Nevertheless, that was without taking into account the changes in Ho Hup’s land bank over the past one year and the fact that not all parcels in Bukit Jalil could fetch RM50 per sq ft.
“A better way to establish how Ho Hup’s stock should be valued is by looking at the earnings potential of its 60-acre development in Bukit Jalil called Jalil Park City, which management said will kick-start this year,” said a dealer.
According to Ho Hup’s management, the 60-acre project could generate a total gross development value (GDV) of about RM1.6 billion, with a gross margin of about 30% or RM480 million over an eight-year period. At a glance, the potential profit to be tapped from this project is much more than Ho Hup’s present market value or its present total liabilities of RM252.9 million.
However, Ho Hup is currently facing problems kick-starting the Jalil Park City project. The company is having a liquidity crunch because its total current assets, including cash and receivables, amounted to only RM84.5 million as at Sept 30, versus its total liabilities of RM252.9 million, including borrowings and payables that fall due within a year.
To repay borrowings and creditors, Ho Hup had been disposing of smaller parcels of land to raise cash and recently, management said it had obtained bank facilities amounting to RM120 million to start the 60-acre project, with the collateral being the landbank in Bukit Jalil.
In a nutshell, Ho Hup’s future lies in its Bukit Jalil landbank and particularly the Jalil Park City development for near-term cash flow. But while the potential of the development sounds attractive, the question is execution and how soon can the project start generating positive cash flow for the company.
The answer, hopefully, becomes more certain after the showdown between Lye and Low at an EGM to be held next month.
This article appeared in The Edge Financial Daily, Jan 7, 2010.
Some would doubt that it is, and believe that it is largely “hype”, fuelled by the tussle between two opposing shareholders — Datuk Vincent Lye and Datuk Low Tuck Choy. The former is deputy executive chairman of Ho Hup while the latter is a former managing director of the company.
The “excitement” was also driven by speculations that the tussle could have drawn in a third party, or even fourth, into supporting either side by mopping up shares in the market, thereby contributing to large trading volumes in Ho Hup shares.
Interestingly, Ho Hup’s rally had also spilled over to Magna Prima Bhd, which has had dealings with Ho Hup in terms of land transactions. Magna has seen its share price gaining 34% since early December 2009 to RM3.70 on Jan 6.
“How else to explain the Ho Hup’s rally other than the Lye-Low tussle? Before this, the stock had actually plunged to as low as 34 sen two months ago (from 60 sen), after it proposed a restructuring scheme that calls for a 95% capital reduction and shares placement that will significantly dilute present shareholdings,” said a dealer.
Those who bet on Ho Hup might believe that it is still early to worry about whether such “painful” restructuring scheme would go through. The scheme is still being deliberated by Bursa Malaysia and even if it is tabled in an EGM, it requires 75% shareholders’ approval, which can be a tall order.
But despite all these presumptions contributing to the stock’s rally, one cannot ignore the fact that there is significant value to be unlocked in Ho Hup, given its valuable landbank in Bukit Jalil.
“If the current stalemate in Ho Hup’s operations, caused by the shareholders’ tussle, could be resolved with a strong shareholder and management emerging, the company would have much to offer,” said a market observer.
By gaining another 23 sen to close at RM1.99 on Jan 6, Ho Hup’s stock had surged 141% over the last five trading days and 400% over the past one month. It could easily be the best performing stock on Bursa during these periods.
The current price, which was last seen in June 2004, gives Ho Hup a market value of RM203 million. Compared to its negative shareholders fund of RM5.55 million as of Sept 30, 2009, it would suggest that the stock is grossly over-valued.
However, shareholders fund is not the only yardstick in a company’s stock valuation. And in this case, Ho Hup’s shareholders fund did not reflect the fair market value of the company’s land bank, which had not been revalued for years.
According to Ho Hup’s 2008 annual report, the company owned 153 acres of freehold land in Bukit Jalil as at Dec 31, 2008, which was carried at a net book value of RM146.4 million or about RM22 per sq ft. If these tracts of land were carried at RM50 per sq ft, based on recent transaction prices of land in the vicinity, there could be a surplus of about RM187 million to reverse Ho Hup’s current negative shareholders fund of RM5.5 million.
Nevertheless, that was without taking into account the changes in Ho Hup’s land bank over the past one year and the fact that not all parcels in Bukit Jalil could fetch RM50 per sq ft.
“A better way to establish how Ho Hup’s stock should be valued is by looking at the earnings potential of its 60-acre development in Bukit Jalil called Jalil Park City, which management said will kick-start this year,” said a dealer.
According to Ho Hup’s management, the 60-acre project could generate a total gross development value (GDV) of about RM1.6 billion, with a gross margin of about 30% or RM480 million over an eight-year period. At a glance, the potential profit to be tapped from this project is much more than Ho Hup’s present market value or its present total liabilities of RM252.9 million.
However, Ho Hup is currently facing problems kick-starting the Jalil Park City project. The company is having a liquidity crunch because its total current assets, including cash and receivables, amounted to only RM84.5 million as at Sept 30, versus its total liabilities of RM252.9 million, including borrowings and payables that fall due within a year.
To repay borrowings and creditors, Ho Hup had been disposing of smaller parcels of land to raise cash and recently, management said it had obtained bank facilities amounting to RM120 million to start the 60-acre project, with the collateral being the landbank in Bukit Jalil.
In a nutshell, Ho Hup’s future lies in its Bukit Jalil landbank and particularly the Jalil Park City development for near-term cash flow. But while the potential of the development sounds attractive, the question is execution and how soon can the project start generating positive cash flow for the company.
The answer, hopefully, becomes more certain after the showdown between Lye and Low at an EGM to be held next month.
This article appeared in The Edge Financial Daily, Jan 7, 2010.
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