Short position


Selangor Properties a long-term play 

Selangor Properties Bhd is one stock that if your mom or dad dabbled in the stock market, would likely hold at one time or another.

But this is one property counter that is under the radar. It is tightly held, and therefore, does not evince much interest from investors. What’s more, it doesn’t get much of a mention from the media either unlike other developers with their attention-grabbing launch gambits.

Unlike most property developers, the company mainly derives its income from property investments located in Bukit Damansara, one of Kuala Lumpur’s swankiest addresses, as well as certain properties in Australia. With almost no launches in recent years to speak of except for Aira Residence in Bukit Damansara, and shares that hardly move except for a recent spike in late May, the counter is not much covered by analysts.

CIMB Research, which has initiated coverage on the stock under the small-and-mid-cap research scheme, has a “hold” call on the stock with a target price of RM5.12 per share. It points out that Selangor Properties is “sitting on gold”, as the company has 42 acres of prime, mostly freehold, land in Bukit Damansara and Bukit Tunku that are ripe for development or redevelopment. These parcels of land are worth RM1.8bil and it has net cash of RM775mil.

However, this is one company that is not in any hurry. It has not hurried before, and it will not hurry now. In the infrequent times that the company has appeared in the media, its Bukit Damansara landbank and investment properties have been highlighted. The question is, when will the assets be monetised?

CIMB Research says that nothing is going to happen until the property market perks up, and the research house sees this happening around 2019. That may be when a potential rerating of the stock could come around, especially when the company decides to monetise some of that valuable landbank.

The research house admits that despite the RM5.12 target price, the upside in the short term looks limited. The share price is currently languishing below RM5. Instead, CIMB Research suggests that “investors with longer investment horizons may find the stock attractive at such cheap valuations”, given its net cash per share of RM2.25 and valuable landbank.

What is holding the counter back right now is also the low core return on equity that CIMB Research estimates to be around 1% to 3% from financial year ending Oct 31, 2017 (FY17) to FY19, as one-third of the assets are cash or cash equivalents that generate low returns. That will make the counter seemingly undervalued, but because it trades at 30 times the 2018 price-earnings ratio, it is one of the most expensive property stocks under CIMB Research’s coverage.

“We value the stock based on a 50% discount to its revised net asset value; the large discount reflects the uncertainty about its landbank development timeframe and low trading liquidity,” it says. This is a stock for those who certainly have time on their hands and enjoy a leisurely morning cuppa.

Enra still in transition 

The developments taking place at Enra Group Bhd are notable, but do raise some questions. Recall that this is the company, formerly known as Perduren (M) Bhd, which morphed from a property developer into an oil and gas (O&G) services outfit in 2015.

It recently reported a massive loss after tax of RM71mil but that was due to losses stemming from discontinued operations, indicating that the company is still in transition. Recall that this is the company which was in the public eye during its 2015 transition period, when it saw the emergence of Datuk Mazlin Md Junid, the former president of Daya Materials Bhd, and Datuk Kamaluddin Abdullah, the son of former Prime Minister Tun Abdullah Ahmad Badawi, as major shareholders. Following that, a few big names from the corporate world were included on the board, namely, Petroliam Nasional Bhd’s (Petronas) ex-president and CEO Tan Sri Shamsul Azhar Abbas, Datuk Ali Abdul Kadir, the former chairman of the Securities Commission, and Datuk Anuar Ahmad, the former executive vice-president of Petronas’ gas and power business.

It has made some notable inroads into the O&G sector, although the profit contributions from the sector are still not that extensive. Then, this week, the company said it is venturing into an entirely new area, namely, the rail sector. Enra inked an agreement with Emrail Sdn Bhd to jointly set up a company and provide total engineering solutions and services for rail and track transportation projects in Malaysia. The joint-venture (JV) company will provide engineering solutions and services that also involve civil works, rolling stock, project, asset management and maintenance services. The JV is in line with Enra’s plans to explore new businesses with growth potential.

The question now is, does Enra have the expertise to move into the rail sector, considering that its primary focus has been the O&G sector?

Whose interest should directors serve? 

Delineation of power is always crucial in the corporate world. Separation of powers ensures the lineage of responsibilities are defined and accounted for.

Having power concentrated in a single party’s hands can sometimes cause unwanted problems for corporations, where bad or misinformed decisions can cause losses or a loss of profit from bad decisions made by a single party.

Corporate Malaysia has come a long way from the past. Prior to the Asian financial crisis, board compositions were nowhere as transparent as they are today. Some do argue that the composition of the board of directors for listed company requirements in Malaysia are among the best in the world, thanks to the painful lessons learnt from inadequately constructed boards in the past.

But the challenge for companies keep evolving. Separation of responsibilities between chairmen and CEOs has also been looked at in the interest of all shareholders, both large and small, and to-date, that has largely been followed.

But a new quirk has also been highlighted recently. Retired civil servants sitting on company boards is somewhat a common practice today. However, in a number of cases, this has come after they have served a cooling-off period after retiring from the civil service.

The current issue, as highlighted by the Malaysian Anti-Corruption Commission (MACC), is the role of politicians on the boards of government-linked companies (GLCs). What the MACC is most worried about is the influence of politics in the running of GLCs. Political and corporate aspirations generally do not mesh, as the interests often diverge into opposite directions. Politicians would think of the political machinery and social welfare, whereas corporations will look towards the bottomline first before considering any other desires in the running of companies.

What GLCs should strive for is shareholder returns. The shareholder in this case is the government or government-backed funds that ultimately benefit the people of Malaysia. In any case, GLCs should operate no less than corporations, as many are listed on Bursa Malaysia and their performance will have an effect on investor confidence in Malaysia.

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