Monday, July 03, 2006

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.


Doc Noble said...

Hi Dali, good post on Tebrau. How did U calculate the NTA? Land of 1,012 acres = 44,022,000 sq ft x RM110 psf = RM4,842,420,000 (thats RM 4.8 bil). If we take just 50% of value, thats RM2.4 bil. Divided by 670 mil shares = NTA RM 3.58 per share. Isn't this the fair value for Tebrau shares? If thats the case it certainly seems undervalued now. What do you think?

Salvatore_Dali said...

Well, if I post it at RM3.00, it looks ridiculous as it assumes all land will be sold at current prices. Thier NTA is based on the revalued book value, taking a discount... in actual fact, however you cut it, the stock looks cheap... but for the stock to keep going, the 9MP and Johor Play has to be evident. The surge in even D Bhd (has land in Johor) looks good, though I would stay true to Tebrau as it looks clean and no hanky panky (yet).

frenzy said...

so, are u buying any ? :)

I think The Edge has a writeup on Tebrau roughly 2 to 3 weeks back. I was quite a positive writeup too.

Salvatore_Dali said...

If we were to base it on RM28psf, for its 1,012 acres it has a RNAV of RM1.70. You don't want to use RM110psf yet even though thats the current pricing as a lot of things could change along the way. That could push the RNAV to be past the RM7.00 mark. Bit silly for now.

Doc Noble said...

Hahaha...yes RM 3.58 would have appeared ridiculous, yet if they actually develop the land & not just sell it the value would be far higher than even RM110. Regardless, if we discount the land value by 75% to get your RM 28 psf, thats your RNAV of RM 1.70 which seems reasonable enough. So the upside should be quite good. Also bec of the 9MP Johor will definitely be developed, its just the timing.

Kurt A. Tasche said...

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Anonymous said...


Tebrau closed at RM 1.69 with over 100 mil shares traded.

A Singapore broking house said last week that the value for the stock should be at RM5.00

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