Pariah Company or Fallen Angel ?
Publish date: Thu, 6 Mar 2014, 04:03 PM
Blogging about this company might be difficult for other people, but easy for me. This is because past two weeks I had spent a lot of time debating this company with other forumners at the Ivory thread, so I had most of the detils at my finger tips. Only few days ago I finally figured out how to use the blog function. So I cut and paste the information here for wider audience.
First of all, I would like to declare that I have exposure in Ivory. Please be mindful of that when you read my article. As a result of that exposure, I would be more inclined to view things positively when come to Ivory. Please don't treat my article as a rallying call for action, just use it as reference material.
(1) Ivory's Background
Ivory is a Penang based property development company. It is just an ordinary company, if not because of its property development project in Bayan Baru (Penang) called Penang World City. In 2011, Ivory successfully tendered for the land at a cost of RM1 billion (instalment to be paid to Penang government over 5, 6 years).
The land, loacted near USM, face the sea directly. In 2012, Ivory entered into JV agreement with Tropicana Corp Berhad (Trop holds 55%, ivory holds 45%). The JV company is called Tropicana Ivory Sdn Bhd. GDV of RM10 billion to be developed over 8 years. Based on 45%, Ivory's share is RM4.5 billion. Divided over 8 years, annual revenue is RM500m. Assumed net margin of 15%, annual net profit of RM75m.
(2) Recovering From Past Two Years Poor Performance ?
Ivory has other existing projects. It seemed that they have natural capacity to generate approximately RM30m net profit per annum. However, for FY2012 and FY2013, they reported unsatisfactory results. This has caused analysts and investors to give up on them (there are allegations of mismanagement, which nobody is able to prove).
However, in the recent two consecutive quarters, they had turned around. (RM8m net profit in latest quarter, RM2m net profit in september 2013 quarter, which if stripped off JV Co and assocaite company losses, would also yield more or less RM8m net profit).
In view of the improving prospects (cough cough, maybe it is too early to say, hopefully they don't mess up next few quarters), and the coming onstream of the Mother of All Big Profit (Penang World City), maybe it is time to take a closer look.
We are potentially looking at net profit of RM30m + RM75m = RM100m ultimately. Divided by 450m shares, EPS of 22 sen. Share price 62 sen now.
(3) Progress at Penang World City
As at todate, phase 1 (RM620m GDV, priced at RM700+ psf) launched in March 2013, has sold 97%. Launching RM122m in Q1 2014 and RM636m in 2H 2014. Total GDV launched by end 2014 would be RM1.38 billion. Please note they only own 45%.
(4) Gearing an Issue ?
Ivory has RM300m + borrowings. Due to their small shareholders' funds of RM379m, gearing ratio looked high. But a search of FY2012 annual report indicated that there is zero borrowings at company level.
I suspect most of them are project debts as banks usually dont simply lend to property development company without ascertaining source of repayment. If it is indeed project debts, then it should be self liquidating when the projects are completed. (this is one part that required more monitoring and research going forward)
(5) Bidding for Plaza Rakyat
Ivory has successfully bidded for Plaza Rakyat abondoned project at Pudu Raya recently (pending fulfilment of conditions precedent). Of course it is potentially very lucrative. However, I have mixed feeling as their gearing is already a bit high. Ivory has mentioned in the announcement that they might resort to equity. Placement or rights issue ? Lets wait and see.
(6) Potential Speculative Angle ?
Major shareholder Datuk Lau owns more than 50%. As such, Ivory is in position to place out new shares (no worry of losing control). PLC which wishes to undertake placement usually ram up their share price. So is this one possibility ? (please dont take this point too seriously. Please treat it as gossip)
(7) Buying Back From The Market
Datuk Lau has been buying back shares. But it is done Off Market. Is this genuine topping up of position or he is merely consolidating his holdings (owned by proxies) ? we dont know
Is this a mismanged company the owner of which will continue to exploit minority shareholders going forward ?
Or is this a company that has great potential and the past two years poor performance was merely a result of gestation period for mega project Penang Word City (advertising and promotional expenses incurred, additional headcounts to cope of business expansion, but yet to benefit from its revenue ? and the revenue and profit is beginning to show up over next few quarters ?)
Maybe you should keep it at your watchlist ? I leave it to you to decide
Have a nice day.