Saturday, October 3, 2015

Bukit Sembawang Estates Limited - A Debt-Free Developer

I wanted to wait till later to write this post on Bukit Sembawang Estates Limited (BSE) - as it is only a recent addition to my portfolio.

However, after reading the post by Brian's on the developer's ratio and not including BSE in the list, I decided it is my role to update others on the financial health of BSE (Brian, no offence! Just kidding.)

Just a quick note before I start off, when I look at Blue chips as compared to Penny Stock/Small Caps, I do not use the Value Stock Scorecard to do any scoring. After all, to me, I review a blue chip via its profitability, branding, future projects and business models.

Profile in Short

Founded in 1911 and based in Singapore, BSE is a residential property developer. (Yup, that's it. So easy!).

Why So Good?

No Debt - As many of you know, I hate debt laden companies. When I learnt that BSE is debt-free. I am SHOCKED! From my little understanding of developers, I am quite sure many of them hold significant long term debt and are depending a lot on the Sales and margin to pay off the debt. In addition, the rising interest rate environment will significantly reduce the net income by increasing companies' finance cost.

Future Projects - if you look at the annual report or the website of BSE, you will realise there are already many projects in line to be developed.

In Singapore Only - In addition to the point above, if you look carefully on the annual report, you will realise all of BSE developments are in Singapore. Looking at the current troubles in the iskandar region (oversupply) and China developments (empty condos), the respective developers may need to do write off or fire sale to clear these unsold units. This meant that BSE will not have this problem in the next 2 to 3 years. Furthermore, by having projects in Singapore, BSE will not have the risk of foreign exchange losses. Demand and supply in Singapore will also be more predictable. Thus they will be able to time their launch/development/sales better.

Price below Net Current Asset Value - "WHAT!" - a react of astonishment may be across your face now. The price of BSE is about $4.5 to $4.7. But the net current asset value is $5.033. About 10% margin of safety.

Why So Bad?

Branding - Despite being established since 1911, BSE branding still lack behind Capitaland or Far East Group. Investors seem to be more willingly to pump in $ in these groups.

Slowdown In Singapore Property - With the implementation of TDSR (and many other policies) by MAS, Singapore PPI has been on the downtrend for numerous months and quarters. Will future sales be able to cover the costs of development?

No REITs - Since BSE is mainly in residential, it will not be involved in any REITs.

In Short

I believe Singapore Property will recover after 1 or 2 more years. Thus, if BSE has the ability to time the property market to sell during an uptrend, it can significant to their bottom line. In addition, with a strong  balance sheet, BSE can withstand any downturn in the Stock Market.

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