One of my holdings is HK listed GuocoGroup. While many singaporeans would be familiar with the Singapore listed GuocoLeisure and GuocoLand, GuocoGroup is the one you want to be holding. Here's why I think GuocoGroup is a good buy.
Company Summary
Guoco Group Limited ("Guoco") (Stock Code: 53), listed on The Stock Exchange of Hong Kong Limited, is an investment holding and investment management company with the vision of achieving long term sustainable returns for its shareholders and creating prime capital value.
The Group is engaged in the property development and investment; stock broking and commodities trading; insurance and fund management services; and treasury and investment managemnet.
In response to this worsening market environment, the group has trimmed down substantially the level of investment activities and the size of the investment allocation thereby reducing market exposure. The approach is to focus on a list of strategic stocks that the group believes offer reasonable valuation with good long-term underlying businesses and potential. It will look to acquiring significant positions in selected companies, strategic investments that present synergistic business opportunities to the Group. The company had undertaken a corporate streamlining initiative to consolidate the Group's interests in GL. A detailed plan of space utilisation, development opportunities and alternative use is being studied by management with a view to unravelling and enhancing the significant capital value of the hotel properties in London bearing in mind the potential boom in the hotel industry as London prepares to host the next Olympic Games 2012.
Core Assets/InvDao Heng Securities (100%); GLL (65%); Principal Investment(100%); GuocoLeisure Limited(54.1%); Hong Leong Financial Group Berhad(25.4%).
Quantitative Analysis
Share price at hkd$75.50 is around its net current asset value (Total current asset minus all currnet liabilities) of $78.218HKD. In other words, they can pay off any debt they have if they want to today.
GuocoGroup owns 65% GuocoLand (mkt cap – sgd$1700mil) and 54.3% GuocoLeisure (mkt cap - sgd$533.5mil). At current market value, GuocoGroup owns sgd$1394.69mil which is a per share value of hkd$21.20(sgd$4.238).
Just adding the net current asset value and the current market value of guocoland and guocoleisure subsidiaries, GuocoGroup has a net book value of hkd$99.41. Since GuocoGroup chairman controls 74.79%. of GuocoGroup, we have to give a discount of at least 10% for the illiquidity as bid/ask spread will be wide. So, we arrived at the final net book value of around hkd$90.
By buying at hkd$75.50, you are essentially paying for GuocoGroup net current asset value and getting GuocoLeisure and GuocoLand for free, not to mentioned other assets under GuocoGroup (example, their stake in Bank of East Asia) I've not accounted for. Further to that, it also have a manageable 5yr average annual payout ratio of 37.82% which gives you a yield of around 5%.
Even with the simple valuation measure of book value or p/e ratio, it is also undervalued.
This is a buy based on what I've pickup from Security Analysis by Graham & Dodd.
Qualitative Analysis
I am not much of a believer in scrutinizing every minute details of how a business works as I know I will not have more detail than the cursory glance off glossy financial reports while management will have in-depth access to the "on-the-ground" details as well as expertise to make strategic and operational decisions.
Thus, I adopt a more macro view of the business with relation to the business cycle and whether I feel good about the management. For GuocoGroup, the Quek family have shown themselves adept in business management and have been consistently creating value for the shareholders as can be seen from the increasing book value without resorting to any form of increased leverage or equity fundraising. Further, a family owned conglomerate is a good buy for me as the management interest is often aligned with the shareholders and excessive compensation will not be so prevalent as management are more interested in raising the book value of the company and they are unlikely to walk away from the company like a hired-CEO can.
Vested 5,000 shares at avg cost of hkd$66.04
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