Tuesday, September 29, 2009
Why I Like TA Enterprise
This is tough, its taking me 2 hours to write this and the bloody stock is moving as I write. Everybody should know TAE and what it does well, its a solid retail client based stockbroker. However, it has failed to broaden its investment banking side of things, and that has always relegated TAE to a discount to other players. The fact that it is not bank backed may have been a huge reason for not being a major player in investment banking. Anyways, that being the case, it has always been a good proxy vehicle whenever the stock market goes on a good run. Its a well managed broking operations with very strong and discipline credit control, and being the largest retail broker gives it a high beta when the market is on an upswing. Even in dull trading days, the financial figures have shown that it can still operate quite profitably as its business model is very much remisier based which has low incremental and operational cost to its structure.
Shares Issued: 1.428bn
52 week High-Low: RM1.40 - RM0.52
As of Monday, it has started to break out from its 52 week high. I was waiting and waiting for the details of the listing of its property arm before I can make a good assessment. You try looking around for research coverage on TAE, there is none bar one (the last one was by Citigroup and that was more than 6 months ago), and even that was just issued yesterday by Hwang-DBS. So, apologies to Hwang-DBS, much of what I am writing is based on a pretty decent research piece from your side.
Why I Like:
a) Its the surprise factor. Not many people realise just how cohesive and attractive TAE's property operations are. It is hard for investors to imagine that a stockbroker can be a decent property player - in fact, to me, they are a much better property player. They have accumulated a highly attractive landbank and also highly attractive hotels for decent investment income. In one fell swoop, you have an investment income side with solid real assets and the other being property development with very attractive landbanks.
b) By listing TA Global, it bring enormous value because as it is TAE is always rated as mainly a stockbroking operation. Following the listing TAE will still own 55% in TA Global but TA Global will suddenly become the country's 5th largest property company. This will allow TA Global to shine and be rated fairly on its own prospects, and with that comes a more proper valuation, which will indirectly benefit TAE anyway.
c) Once on its own, everyone will get to appreciate just how attractive TA Global's landbank is: 6.7 acres within KLCC (which could have a GDV of RM2.5bn); and another 236 acres scattered around Sri Damansara (48 acres), Bukit Bintang (3 acres), Dutamas (3 acres), U-Thant (1.4 acres), Kluang (95 acres) and Serendah (78 acres).
d) The general public were a bit skeptical at first when TAE went into property but just have a look at its completed and partially completed portfolio: Damansara Idaman, Idaman Villas and Idaman Residence. They can deliver solid premium projects, a big badge of honour. So, there is no problem with branding. In fact Damansara Idaman won the CNBC Asia Pacific Property Awards in 2008 for best development. (A bit of dejavu akin to the Mont Kiara projects in the early 90s by the Tong family).
e) I like their investment properties a lot. It is not haphazard or a mishmash of assets but a thought out acquisition strategy. It has acquired 4 major hotels: Radisson Plaza in Sydney for RM233 (97), Westin Hotel in Melbourne for RM389m (09), Aava Whistler in Canada for RM107m (08) and Swissotel in Singapore for RM635m (to be completed by Jan 2010). Besides their Grade A hotels portfolio, they also have two office buildings in Menara TA1 and the Teresan Center in Vancouver.
f) TAE as a whole maintained very good net margins as a group. For the last 7 quarters, net margins was between 24.7% to 48.3%. There was a blip at the height of the subprime implosion (Nov 08-Jan09) where it registered a negative 22.8% margin loss. That was quickly cast aside as their following quarter (Feb 09-Apr 09) saw net margins rebounding back to 42.3%.
g) Following the listing of TA Global, TAE will receive RM230m cash which could give TAE shareholders a special dividend in the months ahead.
h) After all that, the timing is just nice as it is slated to be listed by November 09. The fact that it has broken through its 52 week high cannot hurt.
The proposed listing will see TA Global issuing 4.8bn shares (50 sen). If you are thinking of subscribing its IPO, well forget it, there is no public portion. The only way you can get a piece of the action is to buy and hold TAE shares. TAE shareholders will receive 3 TAE shares and 3 ICPS for every 5 TAE shares held. To make it clearer, if you have 10,000 TAE, which will cost you around RM14,000 you will get 6,000 TA Global shares and 6,000 TA Global ICPS. Hence its really like an IPO if you buy TAE now.
Of course the attraction is at what levels TA Global will list. Hwang-DBS accords a fair value of RM2.10 on TAE, which to me is a bit conservative. I expect TA Global to perform very well upon listing. The projected market cap for TA Global may be around RM2.4bn - RM2.6bn, making it number 5 behind SP Setia (RM4.18bn), UEM Land (RM3.81bn), KLCC Property (RM3.3bn) and IGB (RM2.64bn). In fact I think TA Global will be number 4 once it gets listed as it should easily shove aside IGB.
Being the number 4 player, plus its landbank being a lot more accessible than others, will make it attractive to foreign institutions. Next will be the elevation to be part of FBM-70??? I don't have a price target but I think TAE has no business being at current levels looking at the upcoming developments and I also think Hwang-DBS RM2.10 is a bit conservative.
p/s photo: Tavia Yeung Yi
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