Top Buys For 2006 #8 - Landmarks

While Tebrau is swaying sideways, the longer it does that, the more uncomfy I get. So better to look at other finds. Landmarks look interesting. The sale of Sungei Wang Plaza and the Andaman Hotel to Sungei Wang REIT should bring about a 50 sen capital repayment to shareholders. Or shareholders could swap one SW-REIT for every 2 Landmark shares. Deal scheduled for completion in October 2006. The net yield for the REIT is expected to be 4.8%. The structure of the deal and the available free float makes Landmark shares a prime target for hedge funds and yield based investors. The main uncertainty is the listing process of the REIT, which was scuppered by the SC earlier. This time around, green light is expected and should attract lots of funds into Landmarks.

All other stuff like room rates, blah blah on its Langkawi hotels and Shangrila are unecessary. The other probable deals to come after the REIT are:

1) sale of stake in Shangrila Hotels

2) sale of its 20% stake in power lant Teknologi Tenaga Perlis

The unlocking of values are very likely to move ahead swiftly because the old shareholders of Zimulia with 18.7% came in at RM1.30 and disposed the stake apparently above RM1.70. What's even more interesting to add to the trigger points is the rumoured entry of new shareholders. Zimulia is said to be sold to to Datuk Zakaria Abdul Hamid and Lee Tuck Fook for between RM1.70 to RM2.00. Another new player coming in is said to be Mark Wee from Sarawak gaming industry (son of Datuk Amar Wee Hood Teck). This is because 18.7% is nothing and you would need a strong partner to mop up more shares to control the company.

Just to spice things up, there are additional triggers in the shareholdings structure - which is open to a General Offer anytime; plus the inherent attractiveness of assets within Landmarks make for easy piecemeal sales. Probably the top two hotels in Langkawi / Malaysia are in Landmarks, The Datai and The Andaman. Its 26.6% stake in the well managed Shangrila Hotels will find Robert Kuok scrambling to buyback the stake from Landmarks should they sell - the last thing Robert wants is to see the stake in the hands of another stranger who could derail the hotel's brand building.

The SW-REIT should bring in a 50 sen special dividend, and the other two assets, if sold, could bring in another 50 sen in special dividend over the next 12 months. These are the kind of unlocking of values which will attract a lot of funds' attention, in particular, hedge funds. The trigger points are all there. For hedge funds, buying and holding the shares for 1.5 years would bring in probably close to RM1.00 in cash dividend plus upside potential in share price - should easily bring on a return of 30% a year compounded. An easy sales pitch.

The RNAV is RM2.40. As assets are being unlocked, we should find the share price trend closer to RNAV. RM2.00 should not be a problem by October/November.

Paid Up: 463.8 million shares
Current Price: RM1.63
52 week Hi-low: RM0.87 - RM1.64
Bloomberg Code: LMK MK
KLSE Code: 1643
Reuters Code: LMHS.KL
RNAV: RM2.40
Target Price: RM2.00 by October/Nov 2006
Actual Return: 22%
Annualised Return: 66%