Keck Seng Investments: Quality Real Estate Holding Company At 70% NAV Discount

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About: Keck Seng Investments (Hong Kong) Limited (KCKSF)
by: EA Value
Summary

Holding company with high quality assets in extraordinary locations in US (New York Manhattan, San Francisco SoMa) and internationally.

Deep discount (70%) on NAV vs. current price.

Family-owned with good track record on capital allocation.

Potential short-term catalyst and publishing 2018 results at the end of this month.

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Important notes:

1. Although shares can be found in American and European stock exchanges (tickers: KCKSF or KEC), trading in USD and EUR, respectively, for the purpose of this article, we will refer exclusively to the shares trading in the Hong Kong Stock Exchange in HKD (ticker: 0184).

2. This is a highly-illiquid idea (small-cap with little free-float).

Key price figures:

Current stock price (06/March/2019): 5.70 HK$

3-year Target Valuation: 15.0 HK$

3-year Target Return: ≈ +160% (2.6x)

Forward Valuation Ratios (2018E):

P/E: 12x

P/FCF: 10x

P/BV: 0.5x

Implied cap. rate: 23%

NAV discount: 71%

Executive Summary

High-quality assets

Keck Seng Investments (KSI) (OTCPK:KCKSF) owns and operates residential properties in Macao as well as hotel properties in several countries (USA - New York, San Francisco, Vietnam, Japan).

The quality of the prime hotel properties (e.g. Sofitel Manhattan, W San Francisco), as well as the fair value of the residential properties in Macao (“Ocean Garden” accounted at development cost, while property selling prices have achieved 6x since its completion), are not fully priced by the market.

Very attractive valuation

50% discount on book value. When adjusted, it translates in a deeper 71% discount on adjusted NAV and an implied capitalization rate of 23%. Given the quality of the assets, it seems to be quite underpriced.

On the other hand, the discount does not explicitly appear when valuing the company with classic P/E or P/FCF multiples as one of the main assets is generating little earnings. This may be one of the sources of mispricing.

Potential short-term catalyst

Management has been delaying the sale of Macao assets with the objective to capitalize on the potential boost of the local economy due to the recent opening of the Hong Kong-Zhuhai-Macao bridge and other developments. One potential catalyst is the sale of those assets that alone would represent about HK$6.4 per share.

Low-risk level: wide margin of safety and low debt

Even if the Company operates partially in a cyclical industry (hotels, real estate) and is often affected by the ups and downs of the gaming industry, the current valuation does not seem justified. Furthermore, the company has no net debt. A most probable risk is that the market takes some time to correctly value the company.

Ownership/Management

The “Ho” family possesses about 74% of the Company. Management has a fair capital allocation track record.

Additionally, several long-term value investors have entered into the remaining 26% free float.

Reasons for undervaluation

KSI is barely covered by sell-side analysts, and it may be misunderstood by the market for different reasons: its relations with Macao economy, gaming industry, property cycles, being listed in Hong Kong or macroeconomic fears (trading war, China deceleration, etc.).

Introduction - The Company

Keck Seng Investments (KSI) is a family-owned (74%, see below ownership) holding company operating quality property assets in several countries: commercial and residential properties in Macao and several hotels abroad (USA, Vietnam, Japan, Canada).

KSI is a small cap (1.7Bn HK$, ≈210m USD) listed in the Hong Kong Stock Exchange. The Company is highly illiquid (daily average 20-100k USD), and it seems not to be covered by sell-side analysts.

The Company has traded most of the time at discount to book value. Applying a certain discount on holding companies is quite common. However, in this case, the difference is significant and getting wider. The gap between market price and net asset value may be reduced in the medium term due to: (i) the potential catalyst of selling the Ocean Garden properties, (ii) accumulation of cash from operations.

KSI has shown a track record of value creation for the shareholders, compounding book value steadily (although slowly) for the past years (6% CAGR. from 3.7$ in 2000 to 10.9$ in 2018) and achieving double-digit returns on capital in the past decade (except in 2014, when Sofitel NY was acquired).

Source: Author based on company data

The Company has also steadily increased revenues and EBIT, as well as FCF (13.8% CAGR 2008-2017), generating in the last decade about HK$1.5bn (close to the current market cap of 1.7bn) and in the past years about HK$200-250m in FCF to shareholders annually. This is one of the “slow” catalysts until the Company decides to divest the held-for-sale (HFS) properties. It is expected that KSI will continue to generate this level of cash, and this is what the market may be discounting with current valuation (8x FCF 2018E).

In terms of financial leverage, the Company has been quite conservative, holding a net cash position most of the time. This is quite rare in real estate companies most of which tend to be highly levered.

Top-line Overview

Source: Author based on company data

Hotel segment represents today 95% of revenue share, and more than half comes from room-related services. Slot machine revenues represent an important part (c. 20% of hotel revenues) despite coming only from Vietnam hotel segment.

Proceeds from sales of properties (mainly in Macao) are today a residual segment, but it is important to note that KSI has evolved from a sell strategy towards a hold strategy (representing 50% of the total revenues in the early 2000s vs. only 1% in 2017). Although the Company does not explicitly report why this strategic movement (capitalizing on Macao property appreciation) is an intentional decision from Management.

On the other hand, rental income, representing c.5% is one of the key segments to understand the mispricing of the stock. In 2017, KSI generated HK$90m in rental income, being HK$59m from the held-for-sale (HFS) properties operations. As we will see later on this report, these assets (mainly "Ocean Garden" apartments) are rented at a very low implied yield (c.2%) although they are quite valuable if were sold (what according to Management is their ultimate purpose). These are the same properties that KSI has carried at cost in the balance sheet from the past decade.

Management & Ownership

It is important to understand the role of the controlling family within KSI. Currently, the second and third generations coexist:

Name

Age

Position

Family connexion

HO Kian Guan

72

Executive Chairman

3 brothers (founder’s sons HO Yeow Koon)

HO Kian Hock

70

Deputy Executive Chairman

HO Kian Cheong

68

Non- Executive Director

TSE See Fan Paul

63

Executive Director

n.a.

CHAN Lui Ming Ivan

48

Executive Director

Nephew of H.K. Guan & Hock

YU Yuest Chu Evelyn

62

Executive Director

n.a.

HO Chung Hui

41

Executive Director

Son of HO Kian Hock

HO Chung Tao

43

Executive Director

Son of HO Kian Guan

Source: Author based on company data

The Company is controlled by the HO Family, specifically by 3 brothers (Guan, Hock, and Cheong). Some “value-oriented” funds have entered in the remaining float (>5% as of 31/12/2018). The Company provides a very low profile regarding their investors' relations. Listing the company in Hong Kong requires at least a 25% of free float, and that may be why the Family just remains at that limit, and they do not engage in any type of promotion.

Shareholder

% Interest

Comments

Kansas Holding Limited & Goodland Limited

58.07%

Both companies are controlled by HO Kian Guan & Hock.

HO Kian Cheong

16.21%

3rd brother

74.28%

Source: Author based on company data

Assets breakdown

As a holding company owning several properties, a suitable approach for valuation can be the observation of the balance sheet and performing a sum of the parts.

We go through the main assets, and finally, we will calculate the adjusted net asset value ("NAV") subtracting all liabilities.

In terms of NAV, we estimate the value of the Company at about HK$19 per share (vs current price of HK$5.70). NAV calculation will be based on the most important property segments:

  1. USA, two 4-star hotels: W San Francisco (SoMA) and Sofitel New York (Manhattan), both 100% owned.
  2. Macao, Ocean Garden properties: 140 apartments and 750 car park units in Taipa (Macao).
  3. Vietnam, two 5-star hotels in Ho Chi Minh City: Sheraton Saigon Hotel & Towers (64% owned) Caravelle Hotel (25% owned).

These three segments account already for 16.5 HK$ (83%) of our total NAV calculation of 19.9 HK$.

In addition to those assets, the Company possesses several others: another fully-owned hotel in Osaka (Japan), minority stakes in several other hotels (Canada, China, Europe) and miscellaneous properties in Macao and Singapore. All these properties will not be presented in detail, as they are much less relevant for the investment thesis.

Companies trading with such wide discounts on book value (or even wider discounts on NAV) are usually companies that have low-quality assets or high levels of debt. In this case, net debt is inexistent, and as we go through each of the assets and their individual valuations, we will see that the Company owns some very high-quality assets.

1. USA Hotels: W San Francisco and Sofitel New York

W San Francisco (SoMa). (Picture from Booking.com)

Sofitel New York (Manhattan). (Picture from Booking.com)

W San Francisco

Sofitel New York

Stars

✩✩✩✩

✩✩✩✩

Booking Rating

8.7

8.6

Location

South of Market, SF

Manhattan, NY

Keys

404

398

Gross Floor Area

289,418 sqft.

294,000 sqft.

ADR[1]

354 USD

332 USD

Occupancy[1]

86.0%

82.7%

Tenure

Freehold

Freehold

% of Ownership

100%

100%

Operator

Marriott

Sofitel

Source: Author based on company data

They are both 4-star high-end hotels, very well located and acquired in good moments of the real estate cycle:

W San Francisco was acquired just after the bust of American real estate bubble (2009)(see announcement) from Starwood, for 90m USD (≈700m HK$) at a very attractive cap rate ≈14% (NOI 2007-2008, 12-13m USD).

Sofitel was acquired in 2014 (see announcement) for 265m USD, (≈2000m HK$) at a tighter ≈5% cap rate (NOI 2013 of 13.5m USD). Even though this was a less clear move, the quality and liquidity of this type of assets add certainty to the company NAV.

Source: Author based on company data

RevPAR and occupancies have been slightly weaker in H1-2018 than in the past, but they are still hotels with good performance and high ranges for ADRs (332-354 USD) and RevPAR (275-304 USD), as well as having strong occupancies (82.7%-86.0%).

Both markets are facing some challenges due to the emergence of Airbnb and alike platforms. Nevertheless, it is clear that, given the privilege locations, they are both quite valuable assets.

Taking into account a normalized level of NOI[2], we believe a 6.5% cap rate represents a quite fair valuation for these assets.

The value of US hotels alone would already cover the valuation at which KSI is currently trading.

Valuation USA Hotels:

Normalized NOI: 161m HK$

Valuation @ 6.5% Cap Rate: 2,471m HK$

7.3 HK$ per share

2. Macao - Ocean Gardens

These are actually the "overlooked" assets, and they represent the most straightforward catalyst for the re-rating of the stock. These properties are valued at cost in KSI balance sheet at HK$281m, while a conservative valuation would indicate 7x-8x that level.

The Company reports several held-for-sale properties (HFS properties) in Macao, the main being located in Ocean Garden (OG) on Taipa island. These properties were developed in the early 2000s together with other buildings in the Ocean Garden area. The Company disposed several of these properties during the 2000s, but they kept 140 unit apartments (389,612 sqft gross area) and 758+ car parks units (Company actually owns 70.6% stake, therefore equivalent to 275,105 sqft and 535 car park units).

Ocean Park. (Picture from oceangardens.com.mo)

© 2018 Google

Keck Seng properties in Ocean Garden (Picture from Google).

Since 2013, the Company has not sold any apartment in Ocean Garden, and successive Chairman statements have suggested why. Management's strategy is to hold the properties till completion of major developments such as the Hong Kong-Zhuhai-Macao Bridge (HKZM Bridge) and others, and to capitalize then on increasing prices:

it is the view of the directors that the completion of the Hong Kong-Zhuhai-Macao Bridge will have a strong positive impact on the value of residential properties in Macao”;

“the Group has decided to defer the sale of the properties currently classified under properties held for sale to a later time in order to capture the benefits to be accrued with the opening of the Hong Kong-Zhuhai-Macau Bridge and the Macau light-rail transit system. In the meantime, the Group will continue to lease out vacant units in order to maximize income.”[3]

(visualcapitalist.com)[4]

HKZM Bridge is the world’s longest bridge over water (48km), and it links the two sides of one of the most populated metropolitan areas in the world: Pearl River Delta (50 million people). The Bridge was supposed to be finished by 2017, but it finally got inaugurated in October 2018. It is expected to boost further the already rapidly growing economy of the region.

We can find additional information about developments in Taipa in the annual report of Las Vegas Sands Corporation:

“Based on announced plans in Macao, approximately $7 billion of capital is expected to be invested by concessionaires and sub-concessionaires in new resort development projects on Cotai with announced opening dates through 2018 to 2020. In total, these new projects will add approximately 3,400 incremental hotel rooms, along with other non-gaming offerings and gaming capacity. These new resorts should further drive Macao's transformation into a leading business and leisure tourism hub in Asia. More than 1.0 billion people are estimated to live within a three-hour flight from Macao and more than 3.0 billion people are estimated to live within a five-hour flight from Macao.”[5]

At first, the management decision of delaying the sale of Ocean Garden assets seems to be a savvy choice looking to maximize shareholders value. It is also true that this decision may be one of the factors having caused the lag of the share price in the past years in comparison with its book value.

Another way to approach the value of Ocean Garden assets is referring to the average transactional price for residential properties in Taipa published by Macao’s Statistics and Census Service (DSEC)[6]:

DSEC price vs valuations

Source: Author based on company data

Selling prices in Macao and Taipa have risen dramatically in the past decade, but the Company has kept the value of these assets at cost.

Listing comparables in Ocean Garden show asking prices of around 7,500 HK$/sqft. For car parks, the asking price in the area is around 1.5m HK$.

Source: Author based on company data

As we can see in the table below, between 2012 and 2013, the Company sold the last (till date) apartments at 5,000-6,700 HK$/sqft. At that time, the Company was selling these apartments at 7x-9x their cost and at very low cap rates (1.5-2.0%). We can reason that the Company's decision to delay the sales of apartments will translate in at least (if not better) sales price above 6,000 HK$/sqft. On the other hand, it can be arguable whether or not it makes sense speculating on property prices (renting the apartments at 2% yields) instead of gradually disposing of them.

Apartment inventory

Source: Author based on company data

We believe a value of 6,000 HK$/sqft is a quite conservative valuation. For car parks, we take 1.0m per unit.

Source: Author based on company data

Valuation – Macao Ocean Garden properties:

@6,000 HK$/sqft x 275,105 sqft= 1,651m HK$

@1.0m HK$/unit x 535 Car Park units = 535m HK$

Total: 2,186m HK$

6.4 HK$ per share

3. Vietnam Hotels: Sheraton Saigon Hotel & Towers and Caravelle Hotel

(Picture from tripadvisor.com)

Sheraton Saigon Hotel

Caravelle Hotel

Stars

✩✩✩✩✩

✩✩✩✩✩

Booking Rating

8.2

8.8

Location

District 1, Ho Chi Minh City

District 1, Ho Chi Minh City

Keys

497

335

Gross Floor Area

676,500 sqft.

247,500 sqft.

ADR[1]

497 USD

335 USD

Occupancy[1]

62.8%

89.1%

Tenure

Leasehold (exp. 2042)

Leasehold (exp. 2042)

% of Ownership

64.1%

25%

Operator

Sheraton/Marriott

n.a.

Source: Author based on company data

They are both 5-star hotels, very well located, side by side, in District 1, the central urban district of Ho Chi Minh City. This area of the city hosts the most relevant administrative and commercial buildings in the country. Vietnam economy has grown steadily in the past decade (10-year real GDP CAGR 6%), and the country has attracted more tourists (4-year Tourist arrivals CAGR 20%+).

Although KSI owns only partially these hotels (64%/25%), they are important contributors to the top line due to the cash generation power of Sheraton Saigon that hosts the Palazzo Club (slot machine revenues).

In 2017, the Company earned HK$716m in revenue from Vietnam operations and slot machine segment accounted for more than half the revenues (HK$410m). In total, NOI 2017 from Vietnam hotels were about HK$232m, and normalizing 2015-2018(H1) was an average annual NOI of HK$227m[2].

In order to explain how we get the final valuation, we explain in detail the calculations.

We estimate the NOI contribution of each hotel, taking into account the number of rooms in each hotel (497/335) and the last reported RevPAR (117/78 HKD), arriving to an estimated NOI contribution of each hotel (69%/31%) being 157m and 70m HKD.

As the tenure of these two leaseholds expires in 2042, we want also to account for the possibility that Vietnam government ask for a renovation fee. We then decide to also deduct a tenure discount of 20% in order to account for this potential cost.

To sum up, we approach to the valuation corresponding to Keck Seng's stake taking each separate NOI (157m/70m), applying a capitalisation rate (10%), accounting for the company interest (64%/25%) and finally applying a tenure discount (-20%). The result is an estimated valuation of HK$803.3m for the stake in the Sheraton and HK$140.4m for the Caravelle.

Valuation of Vietnam Hotels:

Normalized NOI (combined): 227m HK$

Valuation @ 10% Cap Rate: 944m HK$

2.8 HK$ per share

4. Other properties and NAV items.

The Company owns other properties and minority stakes that add some value for the NAV calculation.

Other hotels:

  • 3-star Best Western Hotel Fino Osaka (Japan), 100% owned, with normalized of HK$26m at 8% cap rate: HK$330m.
  • 4-star Hotel Inn Wuhan Riverside (China), 41% owned, norm. NOI 15m, at 10% cap rate: HK$147m.
  • Two 4-star Hotels in Canada, Sheraton Ottawa Hotel (50% owned) and Delta Hotel Toronto Airport (25% owned). Combined norm. NOI 21m, at 8% cap rate: HK$263m.
  • In May 2018, the Group acquired a EUR 25m stake in AccorInvest. We keep that at cost for NAV purposes: HK$230m.

Best Western Fino Osaka (Japan) (Picture from booking.com)

Wuhan Riverside Wuhan Riverside (China). (Picture from ihg.com)

Sheraton Ottawa Hotel (Canada). (Picture from tripadvisor.com)

Investment Properties:

Classified in the balance sheet as “investment properties”, they are some commercial, office, and car park properties in Macao: Luso International Bank Building, Ocean Plaza I &II and Ocean Tower. According to the Company reports, they are accounted for at fair value (surveyed by independent firm JLL) in June-2018 for 822m. Taking into consideration available listing comparables and a more conservative approach, we arrive at a valuation of HK$650m[7].

Other Held-for-Sale (HFS) properties:

As commented at the beginning of this report, Macao properties located within Ocean Garden are the main assets under the classification of HFS properties (see comments above). Although this has a tiny marginal impact, taking into consideration available listing comparables[8], the Company possesses some other properties that we value at HK$145m.

Net Liabilities:

At a consolidated level in H1-2018, the group reports HK$1,656m of Deposits & Cash, and HK$2,104m Total Liabilities (1,522m Bank Debt), translating in a position of HK$448m net liabilities. Additionally, the group reports HK$655m as minority interests. KSI does not segment data for all asset types. Therefore, we take a conservative approach to deduct the full amount of minority interests assuming the probable drawback of deducting them twice (remember that we have performed an individualized asset valuation deducting already the minority part).

NAV Calculation

Adding up all items and deducting total liabilities and minority interests, we arrive at a NAV of HK$6.75bn or the equivalent to a HK$19.9 per share. Current stock price implies a discount of 71% on NAV.

NAV sum up

For a conservative assumption of 12x P/E or 10x P/FCF target, the valuation is only slightly above the current price: target price of HK$6 per share. Similarly, if we target FCF yield at 15%, we get a valuation of HK$7. As commented earlier, this must be one of the reasons of the current valuation, the Company is not outperforming as they are renting the Macau apartments below 2% cap rates.

On the other hand, as it was commented earlier, the mispricing comes from approaching the Company from an implied rate or NAV perspective performing a sum of the parts.

If we estimate a 2018 EBITDA of c. HK$540m and an Enterprise Value of HK$2.2bn, we get a 2018E high 25% implied cap rate. A more realistic cap rate would be in the 10% range, implying target share prices around HK$16-17 per share.

From an NAV perspective, after we take the SOTP valuation (HK$19.9), we can apply a discretionary discount (for being a holding Company, Asian small cap, accounting for capital gains, etc.). We take 25%, and we arrive at a HK$15 target price per share.

In conclusion, if KSI continues to be valued with earnings metrics, there is little upside (between +9% and +11% CAGR), but if they start to sell the HFS properties, NAV can be partially realized and push prices up. In the latter case, we give a target price of HK$15-16 per share or equivalent in USD 1.90-2.05.

Bottom Line

Currently, Keck Seng trades at about HK$5.70.

Taking into consideration the quality of the assets, we dissect the investment in three parts:

(i) US hotels represent the certainty and soundness to the valuation and generate some earnings. Together with the cash balance (given to rest of the assets a zero valuation and deducting all liabilities) would represent

NAV (i) = HK$4.1 per share

(ii) Adding only Vietnam contribution as a potential slow catalyst (remember that this segment generates considerable amounts of operating cash flow)

NAV (i)+(ii) = HK$6.9 per share

(iii) Adding Ocean Garden properties may be the most speculative but still quite certain about our conservative valuation represents the quick catalyst, and it enlarges the upside:

NAV (i)+(ii)+(iii) = HK$13.3 per share

(iv) Adding all the rest of properties, participations, and assets (Japan, Canada, China, Accor, other HFS, Investment properties, etc.)

  • NAV (i)+(ii)+(iii)+(iv) = HK$19.9 per share

Reported Financials

Notes:

  • In 2009, PP&E increased significantly due to the acquisition of hotel W San Francisco, bought for USD 90m, c. HK$700m.
  • In 2010 and 2011, the Investment Properties line was increased due to 2 properties acquired in Japan (HK$331m and 177m) that were disposed in 2012.
  • In 2014, PP&E, acquisition of Sofitel NY Manhattan, bought for 265m USD, c. HK$2,054m, NOI 2013 of 13.5m USD.
  • In 2017, an impairment of HK$246m was recorded on Sofitel acquisition.

Financial Analysis

Notes:

  • Capex adjustment in 2011 due to acquisition in Japan (HK$177m).
  • Capex adjustment in 2014 due to the acquisition of Sofitel NY Manhattan (HK$2,054m).

Uncertainties and Risks

  • Re-rating does not happen or take longer: The stock price has not moved too much in the past years, and it could remain longer at low levels. This risk is quite probable if Management does not start to sell Macao apartments. Only the cash generation (HK$200m annually) may make the stock price thrive slowly.
  • Gaming industry regulation risk:

(i) Macao belongs to China as Special Administrative Region (SRA). The value of Ocean Garden’s properties depends heavily on the strength of Macao economy that, at the same time, it is mainly based on gaming industry revenues (28bn USD). There are some uncertainties about the future developments of gaming laws in terms of the integration of gambling rules with mainland China. The main risk would be in fact the legalization of gambling in mainland China that would erode Macao’s advantage. We believe this is an improbable event, and even in the case this happens, Macao has already developed a tourism hub difficult to replicate. We see the case of Las Vegas (11bn USD in gaming revenues) as a very similar case in which the early advantage of Nevada state legislation was not impacted by the later openings of new gambling hubs across the US (Atlantic City, Reno, etc.).

(ii) Vietnam: Sheraton Saigon hotel value and its slot machine revenues could be impacted due to changes in gaming laws. For the time being, Vietnam government has shown a very open attitude in order to attract foreign investing (see Forbes' and AsiaTimes' articles).

We expect both local governments to continue to show a business-friendly attitude.

  • Corporate governance or fraud risk: we can never avoid 100% this risk, but to our knowledge, we have not detected any red flag (management track record, reputable auditor, consistent adjusted earnings vs cash flows), and we believe the HK regulator to be quite strict (surely more than many other western economies), especially for enforcement of laws on a company registered under their jurisdiction.
  • Tenure risk: Uncertainty about property rights after 2049. Due to Macao being a SAR of China (as well as Hong Kong), there are some uncertainties as we get close to the date when the region will be integrated with mainland China. However, as it is the case in Hong Kong, it seems that the most probable scenario is that the central government will grant renewals in exchange for a reasonable fee (see Savills' article).
  • Industry cycle and valuation imprecisions: real estate, specially hotel segment is quite cyclical and quite difficult to forecast as it depends not only on micro-factors (location, general condition of the asset) but also and strongly on macroeconomic factors affecting the business (e.g. Tourism rates) and the land value (e.g. alternative uses, local economics, etc.). This is, in fact, a quite intrinsic risk of a KSI, but there are two factors that mitigate these risks:

(i) Geographical diversification (cycles do not usually happen matching phases in such different markets);

(ii) the valuation has a wide margin of safety to face potential shortcomings.

  • Interest rates risks: what happen with the increasing interest rates? As the Company is underlevered with a net cash position, they would not suffer for servicing the debt and at the margin, they would pay it off completely. Moreover, usually, if interest rates increase quickly, it's because central banks fear inflation, and real estate usually goes well if inflationary pressure arises.
  • Recessionary impact: what would happen in the case of a global crisis? Well, in this case, the Company may suffer in the short term as hotel earnings tend to be affected. However, in the long term, the Company could take advantage of this situation as they did in the past. Given its financial strength, the Company would have opportunities to put its net cash position to work, probably investing in distress situations similarly when they acquired the hotel W San Francisco.

Acknowledgments

We thank gvinvesting from valueinvestorsclub.com for the discovery as well as Heller House and Horos Asset Management for being sources of reference and their contribution to the development of the idea.


[1] Data from the first 6 months of 2018.

[2] Normalized represents the average of 2015, 2016, 2017 and 2xH1-2018. NOI is calculated as: Contribution to profit + Adding back (Income Tax + share of profits less losses of associates + Finance Costs + Impairments + Depreciation).

[3] Company reports.

[4] Megacity 2020: The Pearl River Delta's Astonishing Growth

[5] Reporting from Las Vegas Sands Corporation.

[6] DSEC - Statistical indicator thread

[7] Rental income at level of HK$15-20 per month; NOI margin 80% and cap rates c. 4%.

[8] Ocean Industrial Centre Phase II, Rua dos Pescadores (22,921sqft @ 2,500 HK$/sqft); Ocean Park – Singapore (10,550sqft @ 8,000 HK$/sqft); Keck Seng Industrial Building Car Park units (3unit @ HK$1m/unit).

Disclosure: I am/we are long KCKSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is not an investment recommendation and we warmly encourage readers to perform their own analysis and make their own conclusions.
The author decline any responsibility about the accuracy of the data or opinions expressed in this article.