Monday, January 7, 2019

STAR..等时间。。。等DIVIDEN 就可飞升

STAR has 48 acres of Real Estate

According to The Edge Prop (30 Oct 2018), the company has 48 acres of real estate and more than half of it are undeveloped land. Below is a list of vacant land that we compiled from the company’s Annual Report 2017:
Star List of Vacant Lands
Something to note is the industrial land in Bayan Lepas, this was previously the company’s printing operation which has been ceased and left vacant since September 2018. CIMB IB Research estimated the market value of the real estate, including the above vacant land, is amounted to RM519 mil which translate to RM0.70 per share.

#3: Net Cash Position

Star Financial Position
As at 30 Sep 2018, the company is in a net cash position. It has a total cash of RM313 mil while its borrowing is at RM 1.75 mil (both long-term and short-term borrowings). This translate into a net cash per share of 42 sen. This is significant as it accounts for 60% of the company’s market capitalisation.

#4: Management’s Track Record

When it comes to deep value investing, we need to pay attention to the management. If the vacant land is sold to third party, do the Management transfer these gains back to shareholders? Because if they don’t, then there is no point for shareholders to be excited about the hidden asset in the company.
The STAR’s Management seems to have this traits of distributing any one-off gains back to the shareholders. The recent ones being the sale of Cityneon which the company declare special dividend of 30 sen per share in FYE 2017.

#5: Valuation

As at 30 Sep 2018, the company has a net asset of RM1.14 per share while its share price trades at RM0.70 per share (at the time of writing). This gives a price-to-book (“PB”) ratio of 0.61 times. Such low PB ratio was mainly due to its poor business performance which led to the drastic fall of share price.
One of the valuation method in deep value investing is to determine the liquidation value of the company and compare against the share price. The rationale behind this is that, in the event where a company liquidates, the stock price will reflect the liquidation value.
Considering STAR business performance is poor and they could go out of business if it continues to be bad, the liquidation value would be as follows:
Star Liquidation Value
The above is calculation of liquidation value is before revaluation of vacant lands. It would seem to be undervalue if the vacant lands are revalued and sell.

My Insights

So, does the STAR falls into the category of deep value stock? Yes, but the Management must know how to unlock its assets. I, personally, believe that the shareholders will be benefitted if the STAR choose to sell its vacant land. This means more special dividend!!
However, it appears that the Management is planning to diversify into property development. This could be a potential risk given the current property market condition is negative and no signs of recovery yet. Furthermore, property development is an entirely new business model which is unrelated to what the STAR is currently doing. Peter Lynch called this “Diworsification”.

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