PJ Dev

The Sleeping Beauty Has Awakened

Publish date: Sat, 26 Apr 2014, 11:40 AM 

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PJDev used to be a sleepy counter. It consistently reports good earnings but market just simply ignored it.

I bought the stock in 2011 and it only started delivering some profit in 2014. 

Tan Sri Ong Leong Huat is the controlling shareholder of PJDev.

Many i3 members are very fond of this stock. I hope this article could help everybody to have a better understanding of the company.

(PJDev share price)

(PJDev-WC share price)

1. Background Info on PJDev

Based on share price of RM1.58 and 456 mil shares, PJDev has market cap of RM720 mil. 

The group rerported net profit of RM83 mil over past twelve months. As such, current share price translates into PE multiple of 8.7 times.

The group has borrowings of RM450 mil, cash of RM129 mil. Based on net assets of RM987 mil, net gearing is 0.33 times only.

PJDev recently announced sale of two properties which will bring in RM406 mil cash and generate gain of RM154 mil. 

Factoring in the above, net assets will increase to RM1,141 mil, loans let's say remain at RM450 mil, cash will increase to RM535 mil. The group will be in net cash position. Please refer to Section 5 below for further information. 

2. Principal Business Activities

The group is principally involved in the following business activities :-

(Property Development Division)

This division contributed almost 50% of the group's net profit. Please refer to sections below for further details.

(Cable Division)

Subsidiary company Olympic Cable Company manufactures power utility cable since 1968. It ws acquired by PJDev in 1990. 

It also has manufacturing facility in Vietnam, under OVI Cable (Vietnam).

(Hotels & Leisure Division)

Swiss Garden hotel chain with various hotels all over Malaysia.

SGI Vacation Club provides access to 6 resorts in Malaysia. Vacation ownership scheme and time share membership.

(Building Material Division)

Acotec prefabricated wall panel for building construction.

3. Segmental Breakdown

The following tabel sets out each division's net profit contribution to the group. 

Property development contributed RM40.7 mil, representing 49% of total net profit.

Construction division contributed very little profit, probably due to its focus of undertaking in house jobs within the group.

Net profit		March	June	Sept	Dec	TOTAL
(RM mil)		2013	2013	2013	2013	2013
Property development		7.4	11.5	12.0	9.8	40.7
Construction		1.6	(3.6)	2.4	2.7	3.1
cable manufacturing		4.6	4.9	5.3	4.9	19.7
Building materials		2.0	1.2	1.5	2.8	7.5
hotels & leisure		2.3	3.7	4.6	5.1	15.7
investment holdings		(1.7)	3.2	(4.5)	(0.1)	(3.1)
others		(0.2)	(0.2)	(0.2)	(0.3)	(0.9)
TOTAL		16.0	20.7	21.1	25.0	82.7
Shares (mil)		456.1	456.1	456.1	456.1	456.1
EPS (sen)		3.5	4.5	4.6	5.5	18.1

4. Landbanks

The following are details of the properties owned by PJDev.

Out of total net book value of RM629 mil, only approximately 53% (RM336 mil) are development land bank. The rest are resorts related.

Location		Details	Area	Date of	NBV
			(acres)	Acquisition	(RM mil)
Damai Laut Resort, Lumut		Resort	n/a	1990	115.6
Swiss Garden Hotel		Hotel	n/a	1997	86.5
Swiss G Resort, Kuantan		Resort	n/a	1999	53.1
Subtotal					255.2
Harbour Place,		land for mixed	16.2	1996	71.5
Seberang Prai Utara		development
You City, Cheras		mixed development	13.2	2007	64.9
Subang Jaya		land for mixed	2.7	2010	38.3
		development
Sek 52, KL		land for mixed	0.5	2011	37.9
		development
Seksyen 13, PJ (DKSH land)			5.9	pending	124.2
				completion
Subtotal					336.8
Kuantan, Pahang		land for oil palms	1,000.0	2006	37.4
GRAND TOTAL					629.4

Almost all of the development land bank is currently under development (Harbour Place at Butterworth, You City Cheras, You One at USJ). 

This is typical of OLH group of companies, which seemed to prefer asset light strategy. Instead of holding vast land bank, they like to acquire land when they are ready to use it for development. This kind of fast turnaround method is good for Return on Equity. 

As discussed in my previous articles, size of land holding is a matter of preference. Lack of vast land bank should not be deemed as a handicap. As long as the developer has the requisite skills and resources to pull it off, it is a viable strategy that could benefit the company and the shareholders.

5. Land Sales

On 31 December 2013, PJDev entered into a conditional sale and purchase agreement to dispose of Menara PJD to Top Glove's major shareholder for RM220 mil cash. Upon completion, the disposal will result in gain of RM101 mil. 

On 20 January 2014, PJDev entered into a conditional sale and purchase agreement with a China based developer to dispose of 70% stake in a piece of land at Sri Hartamas for RM186 mil cash. PJDev will retain 30% stake in a JV company to develop the land. Upon completion, the disposal will result in gain of RM53 mil.

The two disposals generated a lot of excitement.

Prince charming delivered the kiss and sleeping beauty woke up. Share price ran from RM1.00 to RM1.60 over few months.

6. Development Projects

PJDev has development projects at Penang, Klang Valley, Johor and Pahang.

As at to-date, unbilled sale is RM848 mil, almost two times last year property development revenue.

Other details such as GDV, respective project sales, take up rate, etc are not readily available.

As usual, I don't dwell too much into these details as I trust that the management would have proper planning to ensure steady stream of earnings coming in from the various projects.

However, I found two of the group's projects very interesting :-

(a) You City at Cheras is located right next to LRT station (please refer to photo below).

(b) You One at USJ, Subang is located at the back of USJ Summit shopping centre and Global Oriental Berhad's ("GOB") mixed development project Da:Men. As mentioned in Part 7 of GOB articles, an LRT line is currently under construction and run right in front of Da:Men. The new LRT station is only about 2 minutes walking distance away.

Due to proximity to LRT lines, these two projects should be well received and contribute to group earnings over next one to two years. 

The following are pictures of PJDev's various development projects :-

(Northern Region)

(Wellesley Residence, Butterworth)

(Woodsbury, Butterworth)

(Klang Valley)

(You City, Cheras.  Please note the new LRT station at the right side of the photo)

(You One, USJ)

(You One is located at the back of Da:Men, GOB's mixed development project at Subang. The dotted line is the new LRT line)

(Southern Region)

(You Terrace, JB) 

(Mon't Callista, JB)

(East Coast)

(Swiss Garden Resort Residence, Kuantan)

7. PJDev-WC

Of course, any write up on PJDev will not be complete without mentioning the WC !!!

This instrument has delighted many i3 members when it rose from 15 sen to 80 sen over a period of one year.

A gain of 400%.

WC expires in December 2020. Exercise price is RM1.00. Based on latest market price of mother share and WC of RM1.58 and 78 sen respectively, conversion premium is 13%.

8. Concluding Remarks

(a) PJDev's fundamentals are sound. It has strong balance sheet and good profit track record. It also consistently paid out dividend of 5 sen per share over past few years.

(b) The group has several business divisions. However, I am of the view that the construction division, the building material division, the cable manufacturing division and the resorts / leisure division have limited scalability.

Together they contributed almost half of PJDev's net profit. Going forward, I expect them to report steady profit. But they might not be able to grow in an exciting way.

The property division is what makes PJDev sexy. With revenue of RM300m+, there is scope for further growth. In my opinion, it is not inconceivable that one day this division will double its profitability, propelling PJDev's overall earnings to a new level. Some of its projects are exciting and have yet to contribute in a material way to earnings in the past. We should watch this division closely.

(c) Recent disposal of two pieces of land has fired investors' imagination. Let's see how things will evolve going forward.

(d) Last but not least, both PJDev and OSK Property are owned by Tan Sri OLH. I think it is a matter of time before he rationalises the two groups. The merger would create an entity with market cap of more than RM1 billion with significant financial and operating resources.

It would be interesting if it really materializes.

Have a nice day