Bukit Sembawang Estates Ltd – The Giant Has Awaken!

Bukit Sembawang Estates Ltd has recently release their latest full year 2016 financials. I have shared previously in 2 separate posts why I invest in this company.

Upon release the financials, the share price has jumped from 4.44 to 4.77 within 5 days – Awakening the Giant!

So let’s review what was stated in the latest financials:

-          The company has decided to keep to their aggressive dividend policy (YESHHH…33 Cents per Share) despite net profit dropping significantly.

-          The company balance sheet continue to remain debt-free.

-          Today’s price of 4.660 is still below its Net Current Asset Value by more than 5%.

So Although I made gains but I am keeping and not selling because…

1. Debt-Free – It still remains one of the developers in Singapore that do not have any debt in its balance sheet. This is significant because the company will not need to pay any finance costs and is able to direct these “excessive cash” into dividend.

2. Price continues to be below its Net Current Asset Value – This is another amazing point of this company. Normally for property developers, their Current Asset Value will not be able to cover all its liabilities. But in the case of Bukit Sembawang Estates Ltd, their Current Asset Value is able to cover all its liabilities and has excess amount left. In value investing, this meant that if you bought this stock at the current price, you will be getting the business and its fixed assets FREE OF CHARGE!

3. Continue to be a “Singapore Only” Developer – This company has not been tempted to expand into foreign countries yet, unlike other developers going into China/Malaysia and getting “bruised”. This also gave me an impression that the company only do business (in this case develop properties) in places that they are familiar with.

4. Land Bank and Special Shareholders – Although the Annual Report has not been released and I am unable to verify the truth in these points, but I believe these points still remains true as there are not much announcement in SGX on purchases of land bank and shareholder changes for the last 12 months.

5. Lack of Activities – This is a positive point for me because this meant that the company understand about the current situation (Economy is on a downward trend) and also the fact that there will be a high number of properties available over the next few years. The company will most probably concentrate on selling their existing properties on hand to maximize its return for its shareholders, especially with the effects of QualifyingCertifications.

6. Ability to generate Free Cash Flow – Although I stated previously that I do not use the Triple S Scorecard on blue chips, but with the Enhanced Triple S Scorecard being created, I tried it with the latest financials of Bukit Sembawang Estates Ltd. As expected, it failed the Enhanced Triple S Scorecard. But it did reveal a very interesting point of the company, which is the company’s ability to generate Free Cash Flow. Just look at the Free Cash Flow (Net Cash from Operating Activities minus Capital Expenditure) the company generate over the last 5 years…

What are the question marks?

1. Future projects – Without reviewing the annual report, I am unable to tell whether the company has enough projects to last for the next 5 years.

2. Sustainability of the Dividend (Part 1) – This will be the main issue with Bukit Sembawang Estates Ltd has to deal with. Over the last 2 years, the company has announced 33 cents of dividend each year. However, it has stopped short of stating that 33 cents as the final dividend. It is actually Final Dividend of 4 Cents plus Special Dividend of 29 Cents. Thus, there is always the possibility that the company could reduce the Special Dividend amount or in the worst case scenario, giving out a Final Dividend of 4 Cents only. This is less than 1% Dividend Yield!

3. Sustainability of the Dividend (Part 2) – If the property market continue to deteriorate, the company may not have enough cash to pay a high dividend. This reduction in Dividend may cause a chain reaction in the share price, reducing it sharply.

In Short

Although the marco factors are not in favour of Bukit Sembawang Estates Ltd, but the micro factors within the company continue to remains a pull factor for me.

I believe there will be a point which the government will review its policies and remove TDSR completely or the property sector will just recover as more and more people make new purchases. When this happens, Bukit Sembawang Estates Ltd will then start to “come out to play”.

The management also seems to know what they are doing, especially during this period of poor economy. Instead of aggressively expanding to hold stable the revenue and net profit, the management decided to maximize its net profit by concentrating on selling their unsold units. In addition, the management also announced this bumper dividend to hold the share price.

Moving forward, IMO, I believe the excessive property supply will last till 2017. Thus, the management should probably announced another year of bumper dividend to manage expectations.

If the share price falls after XD and continues to fall below 4, then I may add more to my holdings.

Current Price: 4.66 as of 2 Jun 2016

Please do your own due diligence before you invest in this stock.

Do note the author is vested in this stock/company.

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