OT/ Heard in Asia: Auto Group Tan Chong Stands To Benefit in Economic Slump
By SARAH MCBRIDE
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Here's a company analysts love, but investors are a little shy.
Tan Chong International Ltd. [HK.0693], the Hong Kong-listed assembler and distributor of passenger cars, has a lot to like. It is the leading passenger-car distributor in Singapore, with a 21% market share, narrowly edging out Toyota Motor Corp. It doesn't have any debt, and pays a steady dividend. And it trades at just 5.7 times estimated 2001 earnings, according to GK Goh Research.
But "the stock is not the top of investors' horizons," laments OCBC Investment Research's Jesvinder Sandhu, who has an outperform recommendation on TCI. She and other analysts estimate that the company's motor operations, property holdings and cash are valued at almost two Hong Kong dollars (25.6 U.S. cents) a share. The stock closed Thursday at HK$1.09, down one Hong Kong cent.
TCI does have its less-becoming side. Fewer cars will be sold this year because the Singapore government is reducing the quota it sets for total vehicle sales. Prices are coming down to attract the smaller number of buyers. And a squabble between the siblings who control the parent company, Malaysia-based Tan Chong Consolidated, means the structure of the Tan Chong companies has an uncertain future.
But enthusiasts say that in a slowing economy, the midsize car market -- TCI's specialty -- will do well; GK Goh estimates sales will grow 17% this year. The same advocates also maintain that the dispute at the parent company won't affect stockholders of TCI. "TCI is professionally run by independent management," says Teo Hiang Boon, a Singapore analyst at GK Goh.
What has TCI's fans most excited is its list of property assets, which Mr. Teo values at HK$2.3 billion. They are mostly in Singapore, and most were bought at low prices, some as far back as 20 years ago.
Finally, TCI is starting to make use of its land, using some of the $600 million in cash on its balance sheet to build a residential development called Mulberry Grove on Upper Aljunied Road. Mr. Teo expects a net profit of 7.34 million Singapore dollars (US$4.1 million) from the development.
Part of the reason the company has been moving slowly on its property plans is the lingering effect of a discouraging experience it had last time it moved into development. Its Wilby Residence condominiums were completed in 1997, just in time for Asia's economic crisis and the resulting slide in property prices. After trying to sell it for three years, TCI finally got rid of it last year for S$146 million, toward the lower end of market expectations.
If the latest foray into property goes well, says a TCI spokesman, then it will probably try more. A steady stream of property sales from TCI will help get it recognized and boost the share price, says Mr. Teo. Another possible catalyst for the share price: using some of the company's cash for a larger dividend.
Last year, the company paid out a dividend of 4.5 cents a share -- a payout ratio of 31%. The year before, it paid out four cents a share, a payout ratio of 43%. If the company sticks to 31%, Mr. Teo estimates, the dividend should be about 5.5 cents, giving a dividend yield of about 5% based on the stock's current trading range, but it could easily afford more. Using a special dividend to share some of the one-time gain it saw from Wilby Residence would be an instant way to boost the share price.
One market rumor floating around has Tan Chong Consolidated, which owns 45% of TCI, wanting to take it private. Since companies usually pay a premium over the share price to do this, it would be good news for stockholders. But the TCI spokesman says privatization isn't under consideration.
If TCI tickles your fancy, you might have to be patient. Although it has a 50% free float, it is a small company, with a market capitalization of just HK$2.2 billion. Its shares don't trade often.
Write to Sarah McBride at sarah.mcbride@awsj.com
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