Top Buys For 2006 #7 - Tebrau Teguh
Johor Play

Followers of Malaysian stocks would have been noticing the fortunes of Tebrau. It has been going up and down between 28 sen and 40 sen over the last 2-3 weeks, but appears to have more legs this time around. Its a known fact that the 9th Malaysian Plan will proceed soon and that South Johor is the key lynch point for the development. Its about time too as the vast tracts of land in South Johor is not being used to its potential. The proximity to Singapore has not been capitalised. Instead of just being a cowboy town for Singaporeans to come and buy one and all things cheaply, its high time that the government leverage the cheap landbank, huge labour force, proximity of the people with spending power in Singapore, latch onto the rise and rise of tourism with the two Integrated Resorts in Singapore, take advantage of the double strength Singapore dollar to attract investment, and basically to up the quality of earnings from South Johor.

The logistics are there with international airports at Changi and Senai. Plus the seaports at Tanjung Pelepas, Pasir Gudang and Pasir Panjang. Singaporeans view investing in South johor as a much better option than even investing in KL (seriously), so the captive attraction is already there, ... just put on a show. Already manufacturing investment has jumped enormously over the last 5 years, as the land starved Singapore operations were being moved to Johor. Johor to Singapore is a lot like Shenzhen to HK. Just have a look at the recent approved FDIs into Johor: Flextronics (Dutch) RM1.4 billion, JST Connectors (Japan) Rm1.0 billion, Podoyo Plastic (S'pore) RM1.5 billion, Sanyo PT (Japan) RM1.0 billion, CIBA Vision (Switz) RM0.5 billion and the mega OSI System (US) RM6-8 billion.

Under the 9MP, some RM12.2 billion is to be spent developing South Johor. Projects include: Integrated Leisure Resort (yes, the Nusajaya project with the rumoured Disney), Education City (4 foreign universities and an expected 20,000 student population), Medical City (regional hospital facility to attract regional patients), Bullet Train (KL-Johor). etc...

There are many listed counters which will stand to gain enormously from the long term plans: MMC, UEM World, Gamuda, SP Setia, Mulpha and to a lesser extent IJM. However, all of them are already relatively big companies and the benefits accruing to them could be dwarfed by their size. The situation quite different for Tebrau Teguh.

Its 42% owned by Kumpulan Prasarana & Rakyat Johor and has 670 million shares only. At current prices, its market capitalisation is only RM240 million or thereabouts. The biggets asset they have is one of the largest piece of undeveloped land measuring 1,012 acres just 5km from Johor Bahru city center. Its right on the Tebrau-Plentong River Basin, and just next to the JB-Singapore causeway, accessible via the North-South highway. Recent transactions of commercial land in JB was around the RM110psf. Tebrau's book value sits at RM13.40 psf.

The triggers to a revaluation of the stock price would stem from probable joint ventures with Malaysian or even Singaporean construction and property development firms - the company must be fielding tons of meetings from prospective JV partners everyday. A simple revaluation to 90% of the current land values would already push the NTA to RM1.50. However, this is a medium and long term stock and should be regarded as such.

Paid Up: 669.9 million shares
Current Price: 38 sen
52 week Hi-low: 10 sen - 46 sen
Bloomberg Code: TEB MK
KLSE Code: 1589
Current NTA: 70 sen
Revalued NTA to 90% Of Market Price: RM1.50
Dec 2006 Target Price: RM0.80 (Return 110%)
Dec 2007 Target Price: RM1.20 (Return 215%)

Debt is almost zilch, and the other great thing is that the main owner "cannot / should not" sell down its shares. The market cap is also too ridiculously low for the share to collapse, but to gain a couple of times market cap is very easy. So buying below 45 sen looks very safe indeed as there would be no substantive sellers.... c'mon who would sell an almost debt free company with just RM300 million in market cap sitting on the most lucrative piece of land in Johor, and trading 50% below NTA???!!! Any selling would find willing buyers of the stock at every juncture.