A pot of gold down under

Stamford Land Corporation (formerly known as Hai Sun Hup Group Ltd), led by Mr Ow Chio Kiat, received an unsolicited offer of AUD 850 million (SGD 1.05 billion) for its hotel portfolio.
Not surprisingly, the current market cap of Stamford Land, prior to the announcement, was way below the offer price (Market cap of S$388.7million). (Byebye EMH?) The hotel portfolio is valued at a total net book value of just AUD 382 million.

SLC received AUD1.3 million for the purposes of conducting due diligence under the exclusivity agreement (which has since lapsed on 7 March 2008). Since then, SL has received approaches from other parties for the hotel portfolio.

Stamford Land said its property development arm is a growing core business. If its hotels are eventually sold, it said it would focus on increasing its investment in property development and return surplus funds to shareholders.

In its statement, the group said the high and continually rising cost of hotel development in Australia and New Zealand means it will not face much competition as there is unlikely to be an oversupply of room stock in the foreseeable future.

Stamford Land said its second core business - property development - has evolved from its initial foray into the hotel industry. The development and sale of luxury apartments has prospered and expansion is on the cards, it said.

Its property development portfolio, also based in Australia and New Zealand, includes The Stamford Marque, an 83-unit luxury residential development in Sydney.

MYOB thinks that....

Given the current unfavourable situation in the credit market, it takes a strong buyer to fork out such a significant sum. The buyer was said to be a substantial public group with a diversified international portfolio of investment and residential properties and hotel.

Some background on Mr Ow. He's a man who enjoys (and thoroughly deserves) the high life. Back when Stamford ventured into hotel development, Mr Ow did the unthinkable – he chose to operate the hotels under their own name. Stamford Land now owns a collection of landmark luxury hotel properties strategically located in key cities in Australia and New Zealand.
Stamford Land launched its foray into the hotel sector by buying up existing hotel properties. For property transactions, valuations are based on three methodologies: replacement cost; willing-buyer, willing-seller based on the most recent transactions; and yields from earnings streams.

'I feel very passionate about the hotel business because I built it up myself since 1994,’ --- Mr Ow

MYOB assesses that it is a matter of time (and price) before SL sells the portfolio. Back in 2002, Mr Ow emphasized the importance of the expected yield. He strongly claimed that he would not buy properties without yield. Fast forward to 2008, based on the bid of S$1.05 billion, the entire hotel portfolio is offering a low yield of (about) 2.1%. Unless there is something spectacular about the hotel's performance in the coming years, MYOB thinks that at S$1.25billion/yield of 1.75%, SL and Mr OW should seriously consider parting with the pot of gold.

No doubt the hotel portfolio is the core business of SL, the property development arm has the potential to replace the hotel business. Mr Ow has also confirmed the intention to return funds to shareholders which are surplus to requirements. Followers of OCK should know that he is known to be fair to shareholders. Cougar Logs returned much cash from the sale of one of its unit.

If only the market cap of SL is much larger, I would believe that Mr Whitman favours such a unique company which is safe and cheap. With the Aussie economy well supported by the commodity bull, there is less risk of the market falling off the cliff, as compared to the US economy.

MYOB will continue to analyse the numbers to give you a better idea.

Straits Trading AAR: The Coast is clear!!

As a round up to the STCL saga, MYOB would like to report that Ms Chew Gek Khim has been appointed as the Non-Executive and Non-Independent Director of the Board of The Straits Trading Company Limited on 20 Mar 2008.

A little background on Ms Chew:

"Ms Chew, age 46, is the Executive Chairman and Chief Executive Officer of the Tecity Group of private investment companies, the controlling shareholders of the Company. A lawyer by training, Ms Chew graduated from the National University of Singapore and practiced law with the local law firm of Drew & Napier, before she joined the Tecity Group in 1987. She is also director of CapitaRetail China Trust Management Limited, a listed trust of the CapitaLand Group with retail malls in China, as well as FJ Benjamin Holdings Ltd, a fashion retailer in Singapore. Ms Chew is also the Deputy Chairman of the Tan Chin Tuan Foundation in Singapore and the Tan Sri Tan Foundation in Malaysia. She is active in community and public service, and serves on the boards of organizations such as Singapore Totalisator Board and National Heritage Board. She is also a member of the Advisory Board of the Faculty of Law at the National University of Singapore and Deputy Chairman of the National Environment Agency Board."

Currently, The Cairns hold 84.31 % of STCL. They are very close to the 90% mark but I hope they retain the listed status of STCL.

It has been a good ride with STCL. MYOB greatly admire the astuteness of Ms Chew. We wish her all the best in bringing out the hidden value in STCL. It would be interesting to see how things turn out over at Robinson.

Words of Wisdom

MYOB brings you a controversial figure in this WOW entry - George Soros.



"The worse a situation becomes the less it takes to turn it around, the bigger the upside. "



The Federal Reserve cut interest rate by 75 basis points to 2.25% to send the market into euphoria. Dow rallied more than 3.5%, led by Financials. JPMorgan's rescue of Bear Stearns also ensured that no financial institution gets insolvent. Any instance of that would be the final nail in the Wall Street coffin.



MYOB would like to quote Mr Soros on bottom fishing. There is no certainty, or any clarity for that matter, that a turn-around is near. The market, driven by bad economic conditions, could sink further. Nevertheless, MYOB would like to highlight that even with all the gloom in the market, we should make it a point to balance the gloom and the optimism. You want to be there when the train leaves the station.

Emptor caveat.

Words of Wisdom

"My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the courage to sometimes say: I don’t know...."

Nassim Nicholas Taleb, post trader


Taleb wrote the best non-fiction seller on Amazon in 2007. "The Black Swan" was preceded by Fooled by Randomness: The Hidden Role of Chance in the Markets and Life. Basically, Taleb explains a lot of 'successes' that we envy to randomness. In one of the most counter-intuitive example, he would rather invest his money with a fund manager who has outperformed from the population of 3 managers than one who has outperformed in the total population of 300.

Taleb also argues that the world has under-estimated fat-tails. His real idea is that the more remote the event, the less we know about its probability.


Down in Wall Street, it is perhaps impossible to find a person who can see how the turmoil would unfold. Quants, MBAs, CFOs are all lost. If they are not, we would not be here in this state in the first place. Taleb shows incredible humility and appreciation of risk and uncertainty, far more than the highly paided CEOs running Corporate America.

If you have time, do check out the two books.

Words of Widsom

In today's trading, Bear Sterns dropped more than 50% from yesterday's close. MYOB has a famous quote from Mr Guru himself, Warren Buffett, on investing.

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " --- Warren Buffett

You can decide for yourself if Bear Sterns falls into the former or latter catergory.

Participation Certificates - Make it your business?

Merrill Lynch to issue four China Participation Certificates on SGX

Merrill Lynch announced on 5 Mar 2008 that it will issue four Participation Certificates in April on the Singapore Exchange (SGX) that provide investors with a cost effective way to obtain access to selected China-themed sectors.

The four Participation Certificates are China Water, China Consumer Brands, China HShares
Discount and China S-Shares and as the names indicate, provide transparent access to the
China water sector, China consumer brands sector, a basket of H-Shares which are trading at a
discount to their A-Share counterparts and a basket of S-Shares which likely to benefit from
China’s economic growth and subsequent money flows into the Singapore stock market,
respectively.

The underlying indices for the four Participation Certificates are the Merrill Lynch China
Water SGD Index, the Merrill Lynch China Consumer Brand SGD Index, the Merrill Lynch HShares Discount SGD, and the Merrill Lynch S-Shares SGD Index, respectively. Each index is
based on Merrill Lynch research and the composition is reviewed at least twice a year.


The Participation Certificates are designed to be buy-and-hold investments, whose price
return is tied to a stock index, a single stock or a basket of stocks and indices. It is a non-leveraged product with exercise price of zero and is suitable for investors who wish to have an exposure to some of these unique baskets of stocks, indices or both.

As I type, Bernanke is speaking on CNBC talking about measures to solve the housing/credit problem. The Dow is down some 200+ points. The martket will continue to be highly volatile, with down side bias. MYOB will dissect the participation certificates to see if you should make it your business.

Stay tuned.

Words of Wisdom

MYOB brings to you a new series -- Words of Wisdom. This new series will feature poignant quotes on value investing. In this chaotic period, the inaugural post will feature Mr Benjamin Graham.


"Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble... to give way to hope, fear and greed."

Straits Trading: OCBC's white flagl!!!

Following the Lees and GEH's decision to sell their stake in STCL to Tecity, it is no surprise to MYOB when OCBC also gave up their stake in the company, citing the loss of the added value of being part of the combined stake in 33.4% held by OCBC Bank, Great Eastern Holdings Group, Knowledge Two and Lee Family Companies.

Just for the records, MYOB did not think that the Lees would give it up so easily. MYOB has assumed that the status quo would remain, based on the state of the affairs after Tecity's declaration that $6.70 would be their last offer.
Having received valid acceptances of more than 50%, Tecity has on 4 Mar made their offer unconditional. Accordingly, as at 5.00pm on 4 Mar 2008, Tecity has 74.37% of the issued share capital of STCL. The Closing Date of the Offer will be extended to 3 April 2008.

MYOB hopes and expects that Tecity keeps the listed status of STCL. Once again, MYOB does not think that it might not be such a bad idea to hang on for your shares.

Legendary Investor Series: Martin Whitman - The safe and cheap man (Part II)

If you're a value investor, you need to know who Marty Whitman is.

Whitman writes quarterly in the Shareholder letters for his TAVFX. The investment advice beats any MBA textbook easily. You could get a better understanding of investing through these than most major MBA programs in the U.S.

Whitman is totally committed to TAVFX due to his personal stake in it. Few things align your investment manager's interests with your own like him putting $63 million worth of his own money beside yours. Much of it came from his initial success in the buy-out of failed companies.

Today, the Third Avenue Value Fund has more than $11 billion in assets under management. Yet this massive size isn't hurting Whitman's ability to generate returns. In the last year, he's up 17%. Most managers find their performances stagnate as soon as assets under management rise above a couple billion.

Strangely enough, Marty Whitman currently has 54% of his equity position abroad. Only one of his top five holdings is a U.S. play.

Obviously Whitman favors development companies, particularly those located in Asia. Whitman's favorite Hong Kong company of all is Cheung Kong Holdings, one of the largest property developers in Hong Kong. Whitman has more than $880 million worth of his fund's assets in the stock. To Mr Safe and Cheap guy, he simply loves the conglomerate discount.

MYOB can understand why. Firstly, holding companies are often discounted, even to the extend that the SOP is greater than the total market cap. Check out Wheelock Holdings. Whitman obviously doesn't mind this. This only adds on to this profits when there is any unlocking in value. It also allows him to collect on the cheap.

Secondly, Whitman appreciates and values FCF over 'paper' NAV. The conglomerate discount gives him a good ratio that he is paying for compared to the FCF.

In the next series, MYOB will look at the gripes Mr Whitman has over paper valuation of company based on NAV.

Straits Trading: GEH throws in the towel!!!

GEH has made the following announcement at the close of trading:


The committee of Independent Directors have evaluated the two offers relating to the Group's shareholdings in the Straits Trading. Holding a strategic nature in the Straits Trading, any premature announcement by GEH could have influenced the outcome of the competing offers.

"The Special Committee has decided, after careful and extensive deliberations and taking into consideration, inter alia, the advice of the financial adviser, to accept Cairn's offer of $6.70 per share in the best interest of the Group's policyholders and shareholders."

MYOB feels that this is a decent outcome for Tecity and The Cairns. I believe that Ms Chew was prepared to paid up to $6.70 per share for Straits Trading. The Lees, including OCBC and GEH, played their cards well to ensure that they extract maximum value out of Tecity.

Relating to a similar 'buy-out' of OUE, MYOB believes that shareholders who hold STC can hang on for the ride. Firstly, liquidity has been reduced greatly. Any weak sellers would have sold out already, or accept Tecity's offer. If you believe that Tecity could unlock further value in STC, hang on to your shares. Of course, once the offer closes, there is a high potential that the shares may drop below the offer price of $6.70.

Straits Trading: The Winner! Tecity!

In a surprise move, the Lees have accepted Tecity's bid for The Straits Trading Company at $6.70. Tecity now owns 33.15% of the company. With the offer slated to close in a few days time, it will be interesting to see how OCBC and GE will respond.

MYOB thinks that Tecity has played a good game of poker. From the onset, with their starting bid of $5.70 per share some two months ago, Tecity must know that this wasn't going to be easy. Ms Chew played her cards well and now she will most likely get to gain control of one of her grandfather's flagship.

Legendary Investor Series: Martin Whitman - The safe and cheap man

"We are cowards." That's how Marty Whitman, the octogenarian dean of deep-value investors, describes himself and his colleagues at the firm he founded, Third Avenue Management.

Why? Simple, Whitman explains: "We hate to lose money."

Martin Whitman is a veteran value investor with a long, distinguished history as a control investor. He is Co-Chief Investment Officer of Third Avenue Management and has successfully identified value in securities for more than 50 years.He has managed the flagship Third Avenue Value Fund since its inception. Mr. Whitman has also taught at the Yale School of Management for over 30 years.

Driven by that fear, Whitman and his crew focus on finding stocks that are "safe and cheap." Talk to him about his investing philosophy and those two words come up regularly. And always in that order: safe, then cheap.

Safe, to Whitman, means companies with rock-solid financials and managers whose interests are aligned with those of their stakeholders. Rather than focus on near-term earnings projections, which aren't always a reliable guide to a company's health, Whitman looks at assets, and prefers companies with holdings that can be readily valued - a bias that often leads him to financial and real estate concerns.

He and his team search worldwide for companies that can grow what they call net asset value, or NAV (Third Avenue's calculation of the company's intrinsic worth), by 10% annually. They buy only when a stock is selling at a discount to net asset value. "We buy growth - we just don't pay for it," Whitman likes to say.

"Safe and cheap" makes for a comforting mantra. Rather than timidity, though, Whitman's approach actually calls for remarkable fortitude. It requires the nerve to pick through distressed companies that others are ignoring and demands the conviction to see big gains come to fruition.

Turnover at Whitman's flagship mutual fund, Third Avenue Value runs at less than 10%, meaning that the average holding period for a stock is more than ten years.

In the long run Whitman's patience has been handsomely rewarded. Over the past five years, for example, his fund has delivered annualized returns of 22.5%, topping the S&P 500 by more than seven percentage points. During the past decade Third Avenue Value has delivered about 12% a year, some five percentage points better than the S&P.

With a record like that, it's no wonder that even at age 83, Whitman says he intends to continue at the firm as long as he is "compos mentis." "If I could be a tennis pro, I would do that tomorrow," he quips. Instead, the avid tennis player recently signed a contract to stay on at Third Avenue for five more years.

Whitman's willingness to go against the crowd was on display this summer. As investors were bailing out during Wall Street's wild ride, "We were buying like crazy," he says. To ensure he had a margin of comfort, he stuck to well-financed companies that would not need regular access to new funding from capital markets in the next few years. Here are three of his purchases.

"You have to accept the fact that you're not going to buy the bottom and you're willing to ignore what might be a chaotic operating picture over the next two to four years," he says, "there are fantastic bargains."

Whitman's focus on strong managers and great values has led him to invest alongside some other smart investors. He partnered profitably with Eddie Lampert to buy Kmart bonds before the retailer emerged from bankruptcy.

Another pro Whitman admires is 42-year-old J. Bruce Flatt, who, Whitman says, has been described as Canada's Warren Buffett. Flatt runs Brookfield Asset Management, a Toronto-based firm.

MYOB understands that the TAVF is only open to US residents. A pity. However, TAVF has a heavy Asia focus (check out their largest holding) and TAM has opened a Singapore office.