Bring on the Eastern Wind

MYOB did a sum of parts of Eastern Holdings a few weeks back. Today, EH announced a good set of results.


Boutique Property Developer, Eastern Holdings interim net profit surges 585% to S$13 million
- Revenue tripled to S$40.2 million on the back of Singapore property boom
- Property business contributed 75% of the total revenue
- Rewards shareholders with 1-for-2 bonus shares; to improve trading liquidity of the Group’s shares

"Over the years, Eastern Holdings has developed the reputation as an emerging boutique property developer. Looking forward, we will continue to concentrate on developing and investing in a good mix of commercial, residential and industrial properties in local and overseas markets. Barring unforeseen circumstances, the Group expects to do reasonably well in the next 12 months."

"The Proposed Bonus Issue is intended to reward shareholders for their loyalty to, and continuing support for, the Company. In addition, by increasing the number of shares in issue, we hope to improve the trading liquidity of the Group’s shares."

~ Mr. Tay Thian Boon, Stephen
Chairman, Eastern Holdings Limited


Singapore, 13 November 2007 – Eastern Holdings Limited, ("Eastern" or the "Group"), an emerging boutique property developer with a growing portfolio of residential, commercial and industrial properties, has announced its financial results for the six months ended 30 September 2007 (1H08). Net profit jumped 585% from S$1.9 million in 1H07 to S$13 million in 1H08. This is largely attributed to the increasing demand in the local property market.

The Group is also proposing a bonus issue of 100,000,000 new ordinary shares (the "Bonus Shares") in the capital of the Company. This will be on the basis of one (1) Bonus Share for every two (2) existing ordinary share in the capital of the Company held by the shareholders of the Company.

1H08 Financial Performance Review
The Group’s 1H08 revenue improved to S$40.3 million; a 254% jump compared to 1H07. The increase in revenue was the result of prominent sales from sold properties namely D’Evelyn, Walmer Drive, Brighton Crescent and Coronation Drive. Sales and rental of properties contributed 75% of the total revenue, up from last year’s 16%.

Eastern‘s net profit increased by 585% to approximately S$13 million for 1H08 as compared to S$1.9 million for 1H07.

Earnings per Ordinary Share for the year increased to 6.49 cents for 1H08 from 0.95 cents in the same corresponding period last year.

As at 30 September 2007, the Group has more than S$15 million in cash and cash equivalents.

Outlook & Future Plans

According to a local broking house’s report, the physical property market in the short to medium term, should still continue its growth momentum as the industry fundamentals are still robust. In addition, property developers have stronger cashflow from locked in presales over the past few years and are unlikely to lower selling prices to boost sales.

According to Urban Redevelopment Authority (URA) statistics, a total of 6.9 million sf of office GFA is likely to be completed between 2H07 and 2010 or an average 2 million sf a year. This compares with annual demand of 1.96 million sf and 10-year annual take up of 1.3 million sf. As such, in the short to medium term, demand of office space is likely to remain robust and will continue to strengthen office rents and capital values.

As Eastern embarks on the new developments of its two industrial and two residential projects, the Group believes that its property related business will continue to contribute substantially to the Group’s overall operations.

The Group has recently moved to divest selected media assets, which include the IT show, Computer Exhibition, the Food and Beverage Fair and the World Food Fair. The Group expects this transaction will have a material financial impact on the company if it is successful.

MYOB?
EH has enough cash on hand to give out 7.5 cents per share. This is before the divestment of the selected media assets listed above. Together with the management's commitment to inprove liquidity and to reward shareholders, the next few months could be interesting.

RAAAWWWRRRRR!!!

An old report from KE:

The lion's appetite for lime and steel

Since our last update, LAP has almost completed the disposal of itsmotorcycle businesses in China which were beginning to face declining profits. The company found a new focus in the production of quicklime -a purifying agent commonly used in steel manufacturing. LAP's limestone processing plant in Banting commenced trial production in Apr 07 with acapacity of 215k tpa, making it the single largest plant in Malaysia.

Possible plans for expansion include backward integration involving thepurchase of a quarry, which will give it better margins. Subsequently,LAP may also diversify into the production of high quality quicklime used in water treatment, as it offers more lucrative returns.

Volatile earnings for remaining businesses

Although subsidiary Advent Electronics expects FY07 revenue to outperform last year's $70m, bottomline profits will be lower thanFY06's due to higher provisions for inventory obsolescence. Given itscompetitive operating environment, margins for the business remains at~3-4%. In our view, the earnings trend will continue to fluctuate as itis largely dependent on the number of projects secured.

On the new automotive component trading unit, we see a possible slowdown in 2H earnings while LAP irons out technical issues involving the conversion of parts from left to right-hand drive to cater to the Malaysian market.

Anhui Auto stake is worth $0.325 per share LAP owns a 6.16% stake (66m shares) in Anhui Jianghuai Automobile Co.(AHJA), which is listed on the Shanghai bourse. At RMB10.02, this investment has a market value of S$132m ($0.325 per LAP share) or 145%of LAP's entire market cap; meaning that investors will be getting LAP'sother businesses for free.

We also view LAP as a cheap proxy to the booming Chinese automobile market. AHJA's 21x FY07 IBES consensus P/E compares favourably to its more expensive peers' 19x-75x.

Deep discount to SOTP value, Upgrade to BUY with $0.36 TP

Using SOTP valuation, we have included inter alia 1) marked-to-marketvalue of S$132m for its 6.16% stake in AHJA, 2) share of proceeds fromsale of Zhejiang Victor Motorcycle and 3) the group's strong net cash position of $39m. We also abscribed a conservative 5x P/E to our earnings forecasts for LAP's limestone, electronics and tradingbusinesses. After taking into account the dilutive effects of LAP'soutstanding warrants, we derive a fair value of $0.36. This gives acompelling 60% upside potential for a grossly undervalued stock which offers significant hidden value and indirect exposure to China's fast growing automotive sector.

Upgrade to BUY.

~~~~~~~~~~~~~~~~~~

MYOB:

At 26.5 cents, LAP's market cap = $107.5million
Huge amount of cash: S$62 million
Investment in AHJA: 79.38 million shares @ RMB8.5 = S$131 million
Limestone business

Make it your business? Yeah, in anticipation of a handout after divesting AHJA. The limestone business, the cash, and the electronic business are all free.

Business Update

Stocks closed up sharply following the latest interest-rate cuts by the Federal Reserve, ending the month of October on a strong note. For the month of October, the Dow Jones Industrial Average rose 0.25%. The Nasdaq rose 5.83% for the month, and the S&P 500 rose 1.48%. Note that the Volatility Index VIX remained high amid continued uncertainty over the effects of the credit crunch.

STI is near the all time high. HSI broke through the roof with the liquidity from China. MYOB remains slightly cautious at this point, possibly selling into strength.

U

U

Yes, U for Uranium.

Today, MYOB will explore Uranium as an investment. Gone are the days of cheap oil. Let's see if investing in uranium makes good business.

Background
Uranium was discovered in 1789 by Martin Klaproth, a German chemist, in the mineral called pitchblende. It was named after the planet Uranus, which had been discovered eight years earlier in 1781. Uranium occurs in most rocks in concentrations of 2 to 4 parts per million and is as common in the Earth's crust as tin, tungsten and molybdenum. Like other elements, uranium occurs in slightly differing forms known as 'isotopes'. These isotopes (16 in the case of uranium) differ from each other in the number of particles (neutrons) in the nucleus. Natural uranium as found in the Earth's crust is a mixture largely of two isotopes: uranium-238 (U-238), accounting for 99.3% and U-235 about 0.7%.

Nuclear reaction
The nucleus of the U-235 atom comprises 92 protons and 143 neutrons (92 + 143 = 235). When the nucleus of a U-235 atom captures a moving neutron it splits in two (fissions) and releases some energy in the form of heat, also two or three additional neutrons are thrown off. If enough of these expelled neutrons cause the nuclei of other U-235 atoms to split, releasing further neutrons, a fission chain reaction can be achieved. When this happens over and over again, many millions of times, a very large amount of heat is produced from a relatively small amount of uranium.A typical 1000 megawatt (MWe) reactor can provide enough electricity for a modern city of up to one million people.

Nuclear power
Over 16% of the world's electricity is generated from uranium in nuclear reactors. This amounts to about 2400 billion kWh each year, as much as from all sources of electricity worldwide in 1960. In a current perspective, it is twelve times Australia's or South Africa's total electricity production, five times India's, twice China's and 500 times Kenya's total. It comes from about 440 nuclear reactors with a total output capacity of more than 350 000 megawatts (MWe) operating in 31 countries. About thirty more reactors are under construction, and another 70 are on the drawing board.

MYOB Pop Quiz: Which country has the highest nuclear generation?

Sources of uranium ore:
Australia accounts for 30% of the world's total at 1,142,000 tonnes, Canada at 12% (444,000 tonnes). Others Kazakhstan (16% of world total), USA, South Africa, Namibia, Brazil, Niger and Russia. Uranium is sold only to countries which are signatories of the Nuclear Non-Proliferation Treaty, and which allow international inspection to verify that it is used only for peaceful purposes. Customer countries for Australia's uranium must also have a bilateral safeguards agreement with Australia. Canada has similar arrangements.

Make it your business?

Positive: Uranium supplies are estimated at 100 tonnes a year. Demand for U is at 180 tonnes. The rest is taken from stockpiles. Uranium has fallen to as low as US$10 a tonne, up to a few years ago. Supplies have since not been able to keep up with the demand. There are 439 nuclear power plants in operation with a total net installed capacity of 371.671 GW. More importantly, 31 nuclear power plants are under construction (hello China). The weird thing about nuclear power plants is that they run safer at full capacity. Hence, there will be continued demand for U regardless.

Negative: Uranium is sold only to countries which are signatories of the Nuclear Non-Proliferation Treaty, and which allow international inspection to verify that it is used only for peaceful purposes. Customer countries for Australia's uranium must also have a bilateral safeguards agreement with Australia. Canada has similar arrangements.

Positive: The U.S. Department of Energy (DOE) Secretary Samuel W. Bodman today released a Conditional Agreement for companies building new nuclear power plants in the United States to qualify for a portion of $2 billion in federal risk insurance.

Negative: The U.S. nuclear industry has been virtually frozen since the accident at Three Mile Island in 1979, the worst nuclear accident in U.S. history. No company has followed through with plans to build a new nuclear plant since the accident.

Negative: Uranium is not publicly traded on any exchange. Trades are carried out on a private basis. Hence, valuation is based on recent deals.

Answer to MYOB Pop Quiz: Lithuania

Quality Demand Is It?

QDII - Quality demand?

China's largest fund house - China Asset Management - raised US$4 billion within a day under the Qualified Domestic Institutional Investor scheme. Funds approved under the QDII can invest in stock markets outside China. The aim is to allow the vast amount of liquidity in China to flow overseas and ease the pressure on the yuan as well as the high asset prices on the mainland. Singapore is expected to be a beneficiary of the outflow of the Red Yuan.

Readers who frequent Shareinvestor.com might have heard Oldman aka Michael Leong say that, ultimately, the price of each stock simply follows the law of demand and supply. Over the past two days, the Redchips have collectively powered the STI to a new high. SESDAQ has been left behind in the recovery while STI is back to making new highs. If you had gone to bed in Aug and woke up in Oct, you probably would not be able to tell the carnage and panic from the US subprime 'scare'.

According to ML's conservative estimates, up to US$3.3 billion per month on average over the next 15 months may potentially flow into the HK stock market. To give you an idea, that mount has the same effect as SPH being swallowed up in 6 weeks. That is how much buying power there is.

Is it our business?

Be afraid, be very afraid. There's more to come. Beijing has just launched the US$200 billion China Investment Corp over the weekend that would unleash the largest fund in history onto
the world's financial markets. Just look at the Shanghai Index. That is the buying power of 1.3 billion Chinese. CIC is a soveriegn fund, just like our GIC.

The QDII effect on STI is immense. MYOB expects the STI to be more decoupled from the US
markets, and track the Chinese market more closely. Just look at Hang Seng over the past few months.

Stay tuned.

MYOB

Hang on to the Eastern Wind

"Eastern Directories Pte Ltd has signed a non-binding Letter of Intent with SPH to dispose off selected media assets, namely, the IT Show, Comex, Food and Beverage Fair and the World Food Fair.

This transaction is expected to have a material financial impact on the Company."

In a previous post (The Sun rises from the East), MYOB has conservatively valued the entire business at $20 million, based on a generous ROI of 10%. SPH paid $7.1 million to take over Hardwarezone, an regional online media portal with a magazine business.

For FY06/07, Eastern's revenue from the sale of exhibition space was $8.05 million. A rough estimate would value the deal with SPH at $8-10 million.

Management has said that the media business was a cash cow that would provide the company with a solid base to work through good times, and bad. Management would have to justify their move. Perhaps the MICE space is getting too competitive.

We'll have to wait for more details, and more importantly, the price that SPH is paying.

The Sun rises from the East

Eastern Holdings (EH)

Eastern Holdings, traditionally a publishing/marketing business, diversified into the property business three years ago - right when the market started to turn up.

Media

The traditional media business churns along nicely, with focuses in Print, Electronic Media & Marketing Services. The magazine segment is rather ewll-established. Noteable titles are Motherhood, Motoring, Traveller, Teens & Golf. They are also in the exhibition business - the recent Comex is organised by EH.

Some numbers (FY 06/07)
Advertising income $9.76 million
Sale of exhibition sale $8.05 million
Subscription fees $1.21 million

Revenue $19.02 million
Net Profit $2.08 million
Net profit margin - 10.9%

Valuing the fat cash cow media business at $20 million.

Property development

Now, what is more exciting is the property development/investment segment. EH just secured a enbloc deal and acquired a good landbank at Holland.

Loyang Terrace - 999 years leasehold @ $12.5million

- Total land size 23,158 sq ft, Total permissible gross floor area 32,421 sq ft

Even at a reasonable $900psf, NP = $13 million

Grove Drive 81 +83

- freehold land @ combined price of $22.8 million

- Total land size 20,457 sq ft, Total permissible gross floor area 42,387 sq ft, no DC charge

At a reasonable $1400psf, NP = $30 million

D'Evelyn @ 18 Evelyn Road

- 5 storey with 24 Apartment Units with total gfa of 30,767 sq ft

- Having achieved a record $1583psf, total NP = ~$25 million(?)

Property investment

EPL Building @ Lower Delta Road
- 4 storey building; Reitable for $25 million, that's about $20 million above book.

70% interest in 39 Mactaggart Road purchased for $5m in April 2007.
70% interest in 12/14 Hoy Fatt Road purchased for $6.2m in May 2007.
51 Neil Road for $3.2million in Aug 2007.
Say a conservative $3 million net profit.

40, 51, 53, 55, 57, 71 Tras Street (estimated 22,500 sq ft in total)
- Average costs less than $480psf, market rate $1050psf.
- Tenated out at the moment but management has indicated these will be sold at anytime when the price is right for capital gains.
- Excluding the rental income, NP of $12.8 million based on profit of $570psf

110/111 Amoy Street - 12,540sq ft @ $4.7m on April 2007
- Average cost at $344psf, market rate $1050psf.
- NP of $8.9 million

87/88 Amoy Street
- sold for $14.1 million in May 07.
- NP of $7 million

9 Apartment units in Zhuhai, China - 450 sq m

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
For a quick back of the envelope calculation
Media business at $20 million
Loyang Terrace $13 million
81/83 Grove Drive $30 million
D'Evelyn $25 million
40, 51, 53, 55, 57, 71 Tras Street $12.8 million
39 Mactaggart Road, 12/14 Hoy Fatt Road & 51 Neil Road $3 million
EPL Building $20 million
87/88 Amoy Street $7 million
110/111 Amoy Street $8.9 million

Total: $139.7 million!!!
Current Market Cap (on 13 Sep) = $83 million

What I like too:

About 36.35% of the issused ordinary shares of the Company is held by the public.
Top 20 shareholders hold 75.71% of the Company.

Make it your business?