Sunday, January 3, 2010

From Furama's cash offer of $2 per share

Furama's cash offer of S$2 per share came in a surprise with huge premium over the last traded price of $1.4. Let's look at the cash offer price from a business owner's point of view.

1. Total share number is 154m. NTA is $1.4 per share at the time of cash offer.
2. In 2008, Apollo centre was sold at 205m, with profit of 128m. The carrying amount is 77m.
3. The company owns 165m PPE which mainly consist of hotels and lands (after disposing Apollo center). They are stated at cost less accumulated depreciation and impairment losses. In addition, they are adequately depreciated.

 Property, plant and equipment are stated at cost or valuation less accumulated depreciation and impairment losses.  All property, plant and equipment are stated at cost except for a one-off revaluation of the leasehold land and buildings in 1975 by an external independent valuer.  The Group does not have a fixed policy of revaluation.

Depreciation is calculated on the straight-line method so as to write off the costs of the property, plant and equipment over their estimated useful lives as follows:

Freehold buildings 50years Leasehold buildings 50 Leasehold improvement 10 Plant and machinery 15 Furniture, fixtures and equipment 3 - 15 Motor vehicles 5

No depreciation is provided on freehold land and leasehold land with a remaining lease term of more than 50 years.  Leasehold land with less than 50 years to expiry is depreciated evenly over the term of the lease.  Depreciation for construction in progress will commence when construction is completed and ready for use.

4. Apollo centre, Havelock Road, Office and shopping complex, 99-year leasehold from 4 May 1983, site area 5,069 sq.m. How was the sell price of 200m determined? In 2007, the revenue and other income (I assume it includes mainly rental) is 6.5m, minus 4.4m expense. The net income of this property is merely about 2m, or 1% per annum of sell price? Even expense is excluded, the rental income is only over 3% per annum of sell price. It is good to see the original disposal announcement which is however not retrievable from the SGX (it only publishes up to past 2 years record).

5. What is left? There are two hotels in Singapore, a) Furama Riverfront, Havelock road, 99y leasehold from 1968, 14000sqm b)Furama City Centre, Eu Tong Sen street, 99y leasehold from 1979, 3712sqm. How much are they worth? I don't know, but it should worth much more than its carrying value of 100m.

6. There are other hidden asset in BS, for example, available-for-sale financial assets of 14m, which the AR2008 says

 Unquoted equity investments include the Company’s 13% holding in Hong Leong Hotel Development Ltd, a company incorporated in Taiwan on 14 October 1983, which owns an international tourist hotel named “Grand Hyatt Taipei” within the Taipei World Trade Centre Complex.
With the adoption of FRS 39, the Group’s and the Company’s policy is to state available-for-sale investments at fair value.  However, since the fair value cannot be measured reliably as the market value is not readily available without incurring excessive costs, the unquoted investments are stated at cost, less impairment.

The reason for the high-permium cash offer is obvious. Any other hidden gems based on the current market price? Some candidates: Guthrie GTS, stamford Ld, Bonvest???