Straits Trading
I would like to share my opinions on Straits Trading, which was
incorporated in 1887. Recently I made a big investment into this company, which
kind of against my previous investment policy, that I should not invest too heavily
into any single company. However, I found that Straits Trading has a lot of potential
as it was transforming itself since approximately 9 years ago. I think that the
company will slowly unlock its investment value which will eventually benefit
all shareholders.
What is this company about? I will just use the company
introduction which can be found on its official website (http://www.stc.com.sg/home.html):
Incorporated in 1887, The Straits Trading Company Limited has stakes in real estate, hospitality, resources and investments that span the Asia Pacific region. It owns an 89.5% stake in Straits Real Estate, a co-investment vehicle that seeks out real estate related investments and opportunities globally. It also owns a 20.95% stake in ARA Asset Management Limited, one of the largest read estate fund managers in the region and has a 30% interest in Far East Hospitality Holdings, an established international hospitality owner and operator. Straits Trading also engages in tin mining and smelting through its 54.8% owned subsidiary, Malaysia Smelting Corporation Berhad, that is dual listed on Bursa Malaysia and SGX-ST.
To be Honest, if we use numbers in AR2016, the share is currently
trading at PE 15.1, which is not cheap. The only thing which might encourage investors
to buy the shares might be that the share is currently trading below book
value. ROE of the company is always below 10 in past 5 years. So why I still
want to invest heavily into the company? Let us take a look at the company
recent years development, which can be found in chairman statement and business
review in the annual report. I mainly focus on business development after 2008,
as Straits Trading was acquired by The Cairns Pte Ltd in 2008 and new
management team came in during that year.
Recent Years Development
2008
1. The Straits Trading Company Limited was
acquired by The Cairns Pte Ltd, a member of Tecity Group in April 2008. The
proposed voluntary conditional cash offer announced on Jan 06, 2008 stated that
the offer price per share is $5.70. Another offeror, Knowledge Two Investment
Pte Ltd, a wholly owned subsidiary of Lee Latex Limited raised the offer price
per share to S$6.55. The Cairns Pte Ltd raised the offer price per share to
$6.70 and became the largest shareholder of the Straits Trading Company
Limited.
2.
Straits Media ceased to operate billboards at
Orchard Emerald Shopping Centre and Market Street Car Park. It managed to
develop new sites in Bugis Junction and Arcade in Raffles Place, and the
company redeveloped the mode of advertising display at TangPlaza underpass.
3.
The Board believed that that Straits Trading
should not remain as passive property owner collecting rent from tenants of the
completed residential projects. The completed residential projects have been
deemed non-core and will be divested at the appropriate time and suitable
prices.
4.
Condominium units at the Group’s Gallop Gables
development along Farrer Road, Singapore were leased at market rents with an
average occupancy rate of 90% for the year. The Condominium units at along
Woolletron Park were leased at market rents with an average occupancy rate of
95%.
5.
There were four completed GCBs remaining under
the first phase of the Group’s GCB development along Cable Road and Nathan
Road, Singapore. Construction activities continue to slow down as projects are
deferred, and construction costs are expected to slide further throughout 2009.
6.
Many Hotels under Group’s management underwent
refurbishment. The Group also commenced managing Marque Hotel Perth in 2008.
7.
Efforts to redevelop the Group’s Rendezvous
Observation City Hotel site in Perth stalled when the authorities rejected the
submitted plans. An appeal was lodged.
8.
In Malaysia, the Group’s joint venture with
the Taiko Group to develop bungalows in Ipoh has progressed satisfactory, with
nine units sold in the first phase of this project.
9.
MSC and Australia Oriental Minerals NL (the
Group’s aggregate 58.5% interest owned subsidiary, with 42.7% held by MSC) has
each acquired a 30% stake in
the coal development project in Kalimantan, Indonesia.
10.
In H2 2008, MSC proposed a right issue to
strengthen its capital base, however due to the GFC, the collapsed in the metal
and equity market has led MSC to reconsider this capital raising exercise.
2009
1.
The group sold 42 units the Group owned at
Gallop Gables in 2Q2009. Meanwhile the Group started work on two GCBs land plot
at Cable Road. In Malaysia, the joint venture with the Taiko Group to develop
bungalows in Ipoh got 12 units sold to date in Phase one. In addition, the
Group is planning to develop their land parcels in various part of Malaysia and
dispose those that are non-core and non-strategic.
2.
The Group repositioned its property division
as a niche developer and owner of high-end lifestyle properties.
3.
Straits Trading Building at 9 Battery Road
obtained TOP in November 2009. A close to 90%
tenancy rate was achieved.
4.
Koba Tin has been extensively developing its
gavel pump mining operations, and PT MSC Indonesia and MSC’s 20% owned
associate PT Tenaga Anugerah began tin mining operations in 2H2009, with one
gravel pump mine operating in Banka Island and three cutter suction dredges for
offshore operations.
5.
MSC Board decided that MSC should reposition
itself to focus on its original core business of tin. The Group has initiated a
divestment programme for all Group’s non tin investments and assets.
6.
The acquisition of 30% stake in the
polymetallic mine at Rapu Rapu Island, Philippines was completed at the end of
2009.
7.
At Muara Teweh in Central Kalimanatan,
Indonesia, coal mine development was suspended in mid 2009 due to the sharp
drop in coal prices and the complex geology affecting the continuing of the
coal seams. Mining should commerce in the second quarter of 2010.
2010
1.
The joint venture with Taiko Group launched 47
luxurious freehold bungalows in Ipoh, Malaysia.
2.
Straits Trading initiated development work on
two of their five remaining plots of vacant bungalow land in Singapore. The
Group also invested in 14 units of The Holland Collection. The Group acquired
Chancery Five in the first quarter in 2010.
3.
Consolidated investments into one company, WBL
Corporation Limited, and increased the shareholding to 18.9%.
4.
The Group is evaluating how to best maximise
its value by divest its investment in AMR. The agreement for the sale of the
coal project in Indonesia has been executed and the disposal is expected to be
completed in 2011.
5.
Reposition RHG as a branded three and four
stars business hotel chain. The refurbishment is still on going.
6.
MSC repositioned itself as a pure tin smelter
and producer.
7.
At PT Koba Tin, the production from small
scale mining operations ceased altogether. A few new gravel pump mining
operations start up in 2010.
8.
The Group divest its 22.1% interest in BCD, a listed
gold and copper associate in Australia.
2011
1.
The Holland Collection, Five Chancery and two
new GCBs along Cable Road received TOPs.
2.
Existing Marque hotels will be rebranded as
Rendezvous.
3.
RHG continues to embarked on several refurbishment
projects and implementation of operational improvements including upgrading IT
infrastructure.
4.
Straits Media acquired a new site at the
underpass at The Sail @ Marina Bay.
5.
MSC completed secondary listing on SGX on 27
January 2011, and straits trading’s shareholding in MSC decreased from 72% to
54%.
6.
MSC commenced operation of a new production
unit as its Rahman Hydraulic tin mine in Perak that contributed to an increase
in mine output. The smelting and refining facilities in Butterworth is
upgrading too.
7.
MSC group announced that the State of Perak
has approved the renewal of leases for a longer period up to 2030.
8.
Application of extension of PT Koba’s Contract
of Work for another 10 years after 2013 has been submitted.
9.
Indonesia Tin Association imposed an export
moratorium on tin shipments from Bangka Island from 1 October 2011.
10. Another additional production unit was
installed at the Group’s tin mine in Perak, Malaysia.
11.
MSC divested its interest in Australia
Oriental Minerals NL (AOM), and coal development project in Indonesia.
2012
1.
On 26 November 2012, the group announced that
it will increase its stake in WBL Corporation Limited from 17% to 44.58% in
2013 through a share swap with two leading institutional investors.
2.
The Group commenced development on the land
parcels along Nathan Road, Singapore.
3.
The Group acquired freehold interest of
Rendezvous Grand Hotel Melbourne in September 2012.
4.
The Group signed a Joint Venture
Implementation Agreement with Far East Orchard Limited to establish a 30/70
joint venture to pursue and conduct hospitality management and hospitality
management, and investment in real estate for hospitality purpose.
5.
Several divestments were made during the year
in respect of MSC group’s non tin assets.
6.
MSC announced that PT Koba Tin had received
notification from Indonesia government that it was still continuing with its
evaluation for the extension of PT Koba Tin’s Contract of Work which expired
after 31 March 2013, but permission of production is granted for three months
with effect from 1 April 2013.
7.
MSC has agreed to reduce its effective
interest in PT Koba to 30% upon granting of a mineral license for another 10
years.
2013
1.
In May 2013, the group sold entire
shareholding of WBL to United Engineers for $508.8 million and record a gain of
$91.8 million on the disposal.
2.
In November 2013, the group acquired a 20.1%
of stake in ARA. The group concurrently entered into a strategic alliance with
the private investment company of Mr John Lim to form an 89.5% owned
co-investment vehicle, SRE.
3.
In August 2013, the group completed the
injection of Rendezvous Grand Hotel Singapore and Rendezvous Gallery into FEHT
for S$217 million in cash and S$68 million in units of FEHT
4.
In November 2013, FEHH became fully
operational.
5.
In August 2014, FEHH completed a 50-50
separate joint venture with Australia’s Toga Pty Ltd.
6.
MSC has ceased all mining operations in
Indonesia and initiated efforts to divest its assets in the country.
7.
MSC’s 30% joint venture company in the
Philippines which operated a poly metallic mine also ceased its operation to
avoid making losses due to depletion of economic reserves.
2014
1.
In December 2014, the sale of Straits Trading
Building for $450 million was completed.
2.
In July 2014, the group successfully redeemed
$225 million of Medium Term Notes and refinance it with lower cost financing
facilities.
3.
In 2014, the group acquired 4% of Suntec REIT
4.
In May 2014, SRE committed US$80 million of
capital towards ARA Summit Development Fund I
5.
In December 2014, SRE made its maiden
acquisition of a retail development in ChongQing, China.
6.
In August 2014, FEHT made its maiden entry
into Europe with acquisition of a 50% interest in four hotel properties in
Demark and Germany. It also expanded its reach into Australia with the
acquisition of two buildings in the CBD of Sydney and Brisbane.
7.
In 2014, MSC exited its Indonesia operations.
It acquired 80% stake in SL Tin Sdn. Bhd in March 2014, which has a 15 years
mining lease in the state of Pahang.
2015
1.
My Place, located in Nan An District of
ChongQing, China construction completed.
2.
In August 2015, SRE acquired 98% interest in
an office building located at 114 William Street in Melbourne.
3.
SRE has invested in two real estate funds:
Greater Tokyo Office Fund, and ARA Harmony Fund III.
4.
SRE Capital launched its first fund, SAAIF in
April 2015.
5.
ARA successfully raised US$325 million in capital
commitments for Peninsula Investment Partners.
6.
In October 2015, ARA successfully launched a
new privately held REIT.
7.
In December 2015, ARA established the ARA
Harmony Fund V
8.
In November 2015, Suntec REIT acquired three
floors of strata office space in Suntec City.
9.
In December 2015, Suntec REIT completed the
divestment of Park Mall and entered into a joint venture to redevelop the
property.
10.
In April 2015, Atbara Holding Private Limited
was divested to Haiyi Holdings for S$53.8 million.
2016
1.
SRE realised its first investment since its
inception with the sale of 114 William Street for A$161.5 million in November
2016. The divestment yielded a before tax profit of A$21.7 million.
2.
My Place, located in the Nan An District of
ChongQing, China completed its renovation anf fit-out in December 2016.
3.
SRE acquired three freehold apartment
buildings comprising 396 units in Central Osaka for JPY 6.2 billion, and added
another 120 apartment units with Splendid Nambe II.
4.
SRE Capital was appointed as Investment Advisor
by Nikko Asset Management Asia Limited for NikkoAM-Straits Trading Asia ex
Japan REIT ETF in February 2017.
5.
ARA established ARA Harmony VI to invest in
Century Link, a newly completed premium grade commercial property located in
the heart of Lujiazui Finance and Trade Zone in Pudong New District, Shanghai,
China in October 2016.
6.
ARA announced privatisation in November 2016,
Warburg Pincus and AVIC Trust will join ARA after it privatised.
7.
MSC acquired production facility in Kiang
Malaysia.
As we can see, the group is slowly transforming itself from an
operator to an investor. In early days, we can see that the group runs the
business as a property developer. The group develop buildings and sell or rent
it out to make profit. In recent years the group use its cash to acquire read
estate funds and other buildings instead of building them by itself. In that way,
the group can diversify its portfolio which will reduce the risk. The Group did
the same thing with its hospitality department too. All these developments were
completed in very recent years, so I strongly believe that the Group will be
able to slowly unlock the value as most of the properties and hotels are now
managed by experienced managers.
I believed that it is very tough to be a new CEO for a company
with more than 100 years history. As Ms Chew said during the interview with
CNBC Manging Asia, it is very tough. GFC happened during the year she took over
the company, which made things worse. I believed that the management team is
able to run the company better and safer as they got the experience to survive
in GFC.
Take note that we might have to wait for very long time before the
market realised the value of the company.
DYODD (: Thanks for reading.
