Many investors are unaware that some companies choose to underquote their investment property value in their financial reports. This arises from a choice in their financial reporting, where these companies could choose to carry their investment property at cost instead of fair value.
While an efficient market should in theory address this very quickly, from what we have seen so far, markets may not fairly value these stocks, especially where there is a lack of market interest. One case we have seen recently is the Isetan buyout offer, whereby the shares jumped 148% on a proposed privatisation offer that was 150% higher than the last traded price.
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Fortunately for us, being adept with reading financial statements means we know which stocks are currently doing this. Here, we share 5 stocks whose Revalued Net Asset Value (RNAV) is higher than the book NAV in their financial statements.
| Stock | Ticker (SGX) | NAV/Share | P/NAV (times) | RNAV/Share | P/RNAV (times) |
| OCBC | O39 | $11.77 | 1.17 | $12.21 | 1.13 |
| City Development Limited | C09 | $10.12 | 0.58 | $19.46 | 0.30 |
| Shangri-La Asia | S07 | HKD11.39 | 0.44 | HKD23.95 | 0.21 |
| Bukit Sembawang | B61 | $5.70 | 0.59 | $10.76* | 0.31 |
| Hotel Properties Limited | H15 | $4.13 | 0.87 | $5.80*^ | 0.62 |
^Does not account for recent approvals for redevelopment
1) OCBC (SGX:O39)
OCBC is exploring the redevelopment of its iconic Chulia Street property, which includes 63, 65 Chulia Street and 18 Church Street. The main OCBC building at 65 Chulia street was completed 48 years ago.
Banks are barred from engaging in property development under Singapore’s current banking regulatory framework. Therefore, OCBC would probably have to transfer the Chulia Street property to a partner that will redevelop it. After the project is completed, the partner would then transfer the asset back to OCBC.
While no plans have been firmed up, to give a sense of the redevelopment potential, the main OCBC building at 65 Chulia Street stands at a height of 198m with 50 storeys and a carpark block. OCBC Centre South at 18 Church Street is a seven-storey building with a basement completed in 1985. The 15-storey OCBC Centre East at 63 Chulia Street was completed in 1996.
In comparison, one of the newest office buildings in the CBD, Guoco Tower has a height of 284m, while Republic Plaza which was completed more than 25years ago has a height of 280m.
2) City Development Limited (SGX:C09)
City Development Limited (CDL)’s commercial investment properties, as well as self-managed hotel properties, which mainly include the Millennium & Copthorne chain of hotels are all being held at cost.
CDL also holds stakes in various listed companies such as 21% in IREIT Global (SGX: UD1U), 65.6% in Grand Plaza Hotel Corporation (GPH:PM), 75.8% in Millennium & Copthorne Hotels New Zealand Limited (NZE:MCK), 65.5% in CDL Investments New Zealand Limited (NZE: CDI), 27.9% in CDL Hospitality Trusts (SGX:J85) and 35.7% in First Sponsor Group Limited (SGX:ADN).
This means that CDL has a track record of being able to carve out and list separate parts of their business should they choose to do so.
CDL also has a track record of redeveloping older assets. In 2021, it commenced the redevelopment of its Central Mall properties and the surrounding areas after securing permission from the authorities to uplift the gross floor area by 67% to 735k sqft.
CDL’s NAV per share is at $10.12, while its RNAV per share is at $19.46.
3) Shangri-La Asia (SGX: S07)
Shangri-La Asia Limited owns, develops, operates and manages hotel properties, investment properties such as office / retail spaces, as well as residential developments for sale.
Shangri-La currently has a portfolio of businesses covering over 100 hotels and resorts, several mixed-use developments including retail and commercial real estate, over 500 food and beverage outlets, wellness and fitness facilities, and family-centric spaces.
Well known brands under Shangri-La include its namesake “Shangri-La”, “Kerry Hotels”, “JEN by Shangri-La”, “Traders”, “Rasa”, “Summer Palace”, “Shang Palace”, “CHI, The Spa at Shangri-La”.
Shangri-La has witnessed a robust recovery in its hotel business, particularly in Hong Kong and mainland China, which experienced strong demand following the easing of cross-border restrictions in 2023. It is expected to benefit further from increased tourism and travel in 2024. During the recent Qingming holiday in the first week of April 2024, China saw 119 million domestic tourist trips made during the three day holiday, up 11.5% from the same period in 2019.
Shangri-La Asia’s Reported NAV per share is at USD 1.47 (HKD 11.39), while its Adjusted NAV per share is at USD3.09 (HKD 23.95).
Shangri-La Asia is dual listed in Hong Kong (HKSE:00069) and on SGX.
4) Bukit Sembawang (SGX: B61)
Bukit Sembawang has been a property developer of landed homes in Seletar Hills and Sembawang since the 1950s. To date, it has developed over 4,600 houses in Seletar Hills, Sembawang and Luxus Hills.
Bukit Sembawang is equipped with a sizeable land bank of over 240,000 sqm in Singapore, slated for coveted landed homes. Analysts believe that Bukit Sembawang has enough inventory to sustain sales for the next decade, with the land pegged at extremely low historical costs.
Residential prices in Singapore have continued to increase, with prices of private residences more than doubling compared to 15 years ago. This steady appreciation makes the land bank more valuable with every passing year.
5) Hotel Properties Limited (SGX: H15)
HPL has been in the news for two reasons over the past year, one positive and one negative one. Here we look at the right reason.
The Group has received the Grant of Provisional Permission for the redevelopment of the Forum, voco Orchard Singapore, and HPL House into a mixed development comprising hotel, retail, office and residential components. Detailed plans for this project are currently underway.
The combined site of the Properties, all freehold land and a 999-year leasehold land located along Orchard Road and Cuscaden Road, has a total land area of 14,027.12 square metres (150,986.66 square feet). The approval is for a comprehensive mixed redevelopment comprising two tower buildings of 64 storeys and 43 storeys on a 6-storey podium with a rooftop garden, a performance theatre and basement carpark. A separate 29-storey tower will be constructed over the contiguous basement carpark.
This represents a massive upside compared to the existing structures; voco Orchard with 24 floors, HPL House with 10 floors, and Forum with a 16-floor office block and 5-floor retail block.
Additionally, in London, Bankside Yards is progressing to the next phase of development, being the residential tower of over 200 units.
Closing statements
Companies who have a much lower NAV than their RNAV may lead investors to believe that they are fairly priced or even overvalued when they are actually undervalued. Here we have shared one bank (OCBC), two property developers (CDL & Bukit Sembawang) and two Hoteliers (Shangri-La Asia & Hotel Properties Limited) who have a much higher RNAV than their NAV.
While the RNAV is not an indicator of the company’s performance, as the return of equity measure would be a better measurement, the RNAV may act as an indicator of the value of the assets should the company choose to unlock its value either by selling or redeveloping them.
Want to find out how we identify such undervalued stocks with hidden potential? Join us for our next webinar session to learn more!
