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    Meng Teck is an author, investor and entrepreneur.

    Please note that the stocks discussed here in will probably do more harm to you if you just follow blindly. While all care has been taken to ensure the best possible presentation is given, some shares will take years before they show profit while some will even incur losses. A good investing strategy includes cutting losses, dollar cost averaging, and strong holding power which is needed in order to succeed but not discussed here.

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Land & General - Update

11/26/2014

 
Before we proceed, I would like to invite you to read our disclaimer and also warn that this article may be biased as I am pretty bullish on L&G.
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This is actually a write up to update on the performance of L&G since it was last featured few months ago.
How did it perform this quarter?
60 Million profit for this quarter! Nearly 300% the earnings on the preceeding year quarterly result. 
The purpose of this update is actually not to simply discuss about the increase in profit of this company even though I am more than delighted that this company continues to surprise and exceed my expectation quarter after quarter. The main purpose,however, is to do a better valuation towards this company as I think I have been pretty loose on it previously. Now, the question is, is this company still worth investing?
Valuation was difficult due to the existance of ICULS but since most of the ICULS were converted in the last quarter, I think it is easier for us to do a proper valuation. Before we proceed to calculating the diluted earnings per share of the company, let us find out what's the number of shares as of 26/11/2014.

No of Shares Outstanding = 1,053,117,816
No of ICULS yet to be converted = 143,206,744
Total Shares Assuming All ICULS Converted = 1,196,324,560.


The total amount of shares assuming all ICULS are converted (Fully Diluted) is about 1.2 Billion Shares. The current quarter result is about 60 Million in profit which translates to an earning per share of 5 cents for this quarter alone.
Assuming that this quarterly result is consistent throughout the year, this company will earn an earning per share of 20 cents. At the current valuation of 0.55, the projected PE for this company will be less than 2.75! (That's cheap!)

But of course, I don't think this earning can be sustained.



Projected EPS = 0.15/ Year.
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Need more justification why I think this is a good buy?
Book Value = RM 690 Million / 1200 Million Shares = RM 0.575. (Refer the image above).
At current price, you're buying this business below it's book value.
If you look at the quality of the asset, it is actually very good. Out of the 1 Billion Ringgit Asset, 443 Million of it is Cash & Cash Equivalents. Not to be forgotten, it's agricultural land (Oil Palm & Rubber Tree) in Mukim Kerling, Ulu Selangor of is only written as 48 Million in the book where the real value should be close to 235 Million.( Refer the image below).
1 hectare = 2.4 acres 
1 Acres is worth around RM98,000.
1000 Hacteres equal 2400 acres equal to a value of (2400*98,000) = 235 Mil.
Refer below:
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At current price, you're getting the business at a discount to the book value (that is,in my opinion quite conservatively written) but not only that, you get the competent manager, Mr.Low Gay Teck ( Regarded by many as the White Knight Of L&G for the ability to turn L&G around in a few year. Note: He is also the MD of Mayland previously.) and also some part of the 600 Million Unbilled Sales mentioned by them previously (I'm not sure how much is left) for free.

If you want to put a conservative valuation to this company, assume this, you're going to buy this business as a whole. It seem to have plenty of good projects on the pipeline, a quite competent management is already in place and the financial position is quite healthy. 
The question is how much are you willing to pay?
Is it safe to presume that paying for the book value + a premium of 5 years earning will be conservative? If so, then the valuation will be like the following:
Book Value (0.575) + 5*Projected Yearly Earnings (0.15) = RM 1.325
Yes, I am saying that I believe this share is worth RM1.325.( I may sell before it reaches this price) and that's a potential 200% gain. I do realize that my valuations can be more conservative in terms of projected earnings but I think at the current price, this is a real bargain. Remember, this is not a recommendation to buy or sell, this article is strictly educational. Any action resulting from the use of this article is on your own risk.
4 Comments
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John
11/26/2014 10:23:02 am

Thank you for the initial cover in L&G with the latest result. I have invested in this counter since the issued of ICULS. The current performance of L&G is expected since we acquired the shares.

one year ago, the company have three projects on going, named 8trium, Foresta and Elements Ampang. 8trium already delivery and unbilled sales have fully utilized. And in the past on year, sales recognized are from Foresta and Elements. The latest brilliant quarter result is due by the delivered of Elements Ampang (the final 10 to 15% of the 50% GDV).

Thus, with the delayed on launching Tuanku Jaafar in Seremban, the current performance may not sustained. Even the launching of Elements2 in next month may not get the sales to book in next quarter.

20sen eps or 52m net profit per quarter is doubt or unrealistic due to current project left only Foresta. We do not expect brilliant sales in coming quarters like one year ago. And we are disappoint with the slow launching.

Even the sales might not sustained after this quarter, the potential of L&G is bigger than last year, with sitting of 443m and retained profit of 314m, the company can go big. The wild cad for the company in near term are potential MGO trigger by Mayland, or bonus issue in 1Q 2015 with the reserve in hand.

Reply
Ethan link
11/26/2014 05:05:21 pm

Hi John, thank you for adding value to the post. Appreciate the input on the current sale of the projects and the status of the unbilled sales.
Yes, I do know that the current quarter eps should not be use as a measure of projection because it is probably a one time great result. However, can we say that if we try to be conservative and assume we more than half the eps to 0.08 a year. It is still fair to value it at 0.575 + 5*(0.08) = 0.975 (close to 80% upside). I admit I was too excited about the quarterly result but what I want to show here is that this company is so undervalued, you don't need to be accurate to know it's cheap. I did went to their AGM but I couldn't remember what project are they working on now , but if I am not mistaken, they are aggressively pushing on damansara foresta part 2 and also trying to launch the "elements 2"(yet to be named). Congratulations on your gain from the ICULS. I am owning the ICULS now too.

Reply
The Walk Value Investor - Lim
3/23/2015 05:54:16 am

Hello Ethan, thanks for the info you sharing here. Very interesting you come out with. Btw, if let say I buy the share now, is that still under ICULS? Will i am too entitle for the share dividend which the distribute to ICULS?

Btw I'm new in value investing which right now want to start my first portfolio yet. Thanks again for your open heart!

Reply
Ethan
3/23/2015 09:42:07 am

Hi there, good to hear you're starting upm Good Luck.
Yes,you can still buy the ICULS. Note thst you can buy the L&G share or the L&G-LA. The latter is the ICULS and is not entitled for dividend. If you want to be entitled for the dividend, buy the normal L&G share. Hope this helps. :)

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