I found out why Lai Sun Garment has such a rapidly rising book value and trades at such a huge discount. In 2010, they changed the structure of LSG from pure holding to a Group and I suspect that the assets are now all valued at book , rather than the market value of these traded units.
For example LSG has 1.6B shares trading at 1.43HKD for an market cap of ~2.4B HKD. The main asset is a 50% stake in Lai Sung Development, which has 20B shares valued at 0.2HKD each, so that stake is worth 2B HKD . Now LSG has some ancillary assets ( a bit RE but also a bit debt), but it seems to pretty much trade at the market value of it's sub, which is only a fraction of it's book value. Now I have a hard time seeing LSG being worth 6HKD/share if I can duplicate it for 1.2 HKD in the market (see the change from Y2010 to Y2011):
Another concern is that the Chinese property arm Lai Fung Holdings had a very dilutive rights offering in 2012 that reduced it's NAV/share from 1HKD to 0.6HKD. Lai Fund trades around 0.2HKD. Despite a 0.6HKD NAV, it had only 1.4c in earnings. All those subs look asset rich but are cash flow poor:
Apparently, they had to pledge everything to guarantee their bank loans, despite a gearing ratio that appears to be only around 17%.
I wonder what these guys from 3rd Ave Value Funds are thinking.I'll personally take a pass on this. I can easily buy HK real estate stocks at a 40% discount to stated NAV (HK Lands, Wharf Holding and others) and I don't think they have a pyramid scheme like Lai Sun to calculate their NAV, plus those companies have significant cash flow from rental income, which I think is lacking with Lai Sun and it's brethren. This was an interesting but fruitless exercise. If you have some additional insight let me know. |
