Let’s talk about CapitaLand. I am currently holding on to shares of this company bought in 27 Jan 2011.
1) The Who: Lim Ming Yan (previously it’s Liew Mun Leong). CapitaLand issues stock options to its employees and Mr Liew set a record for being the highest paid chief executive officer in corporate Singapore when his salary in 2007 topped $20 million for helping CapitaLand rake in net profits of $2.76 billion that year. That record is still unbroken. In a way, it helps to motivate the employees to align their interest with the company’s. Below shows Mr Lim’s holdings:
2) The Why: Technically CapitaLand is not considered a value stock. However, from Benjamin Graham style cigarette butt stocks investing point of view: With total assets value of nearly S$42b includes current assets worth around S$11.6b. Current Market Capitalisation is 13.75B. Price/Book is 0.88. This stock appears undervalued and has a high margin of safety.
However, it gets a bit fuzzy from the growth-value analysis. Because it is hard to estimate CapitaLand Annual Compounding Rate of Return. The earnings of CapitaLand are not consistent. I reckon this is common for cyclical property counters.
Looking at the above: EPS, Operating income & gross profit are erratic. Another worrying trend is the increasing operating expense. ROE is low only 5.41 currently. 5 years EPS growth rate is -11.45.
However, 5-Year Annual Dividend Growth Rate (%) is 7.78 and 5-Year Annual Revenue Growth Rate(%) is 7.64. Profit Margin is 23.90%. As a property development company, CapitaLand is not highly geared. Its Leverage Ratio is 1.9.
However to review a cyclical stock base on 5 years data may not be sufficient and reviewing cyclical property counters base on their P/E ratio is tricky. Buy high, sell low? Hmmm…
Looking at the above (if base on Lynch’s principle of buying cyclical stocks when their PE is high), now may not be a good time to buy. As mentioned earlier, I am holding on stocks bought in 27 Jan 2011, last bought some shares in Aug 2012.
Intrinsic Value from website currently is $3.51 (vs current stock price of $3.21). Not much margin of safety.
So how good or bad are these figures, in comparison to City Developments Ltd, Hong Kong Land Holdings Ltd and Sun Hung Kai Properties Ltd? (see below data from Yahoo Finance)
Looking at the table above CDL and Hong Kong Land appear to have stronger figures, and Sun Hung Kai by virtue of its sheer size, surprisingly has a good return on assets and equity, and relatively low total debt/equity and EV/EBITDA. Of course the differences lie in more than just the figures (see here and here).
For CapitaLand, the process of re-structuring (privatizing the mall unit) and focusing on China and Singapore is good.
3) The When: Don’t really have a good answer to this one. I am currently holding on to shares of this company bought in 27 Jan 2011. Prior to Jan 2011 have bought and sold shares of this company.
Why Jan 2011? Perhaps it is the Graham’s take on margin of safety, In comparison to the prices in 2010 and the highs of 2007, it would seem like a bargain. I do occasionally read about the shares buy back by CapitaLand (here and here). And in general it is good for investors. In addition, it is interesting to see what price they paid for the shares eg $2.435, and $3.0037.
Parting thoughts: CapitaLand is South East Asia’s largest developer by market value, with Temasek Holdings one of its largest shareholders (although there are news of them selling), and it was ranked 77th in Corporate Knight’s “Global 100 Most Sustainable Corporations 2013”. Will Temasek let CapitaLand tank?