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OF LATE, the stock of a 105-year-old company has been quietly rallying to a one-year high, with volume to boot. What has sparked the renewed interest in Bukit Sembawang Estates, a conservatively-run, debt-free residential property developer partly owned by OCBC's founding Lee family?
From S$4.64 in July 11, the counter has advanced to S$5.12 by the end of trading on Wednesday - a one year-high and a rally of 10 per cent in little more than a week.
Trading volumes, too, have exploded from under 10,000 shares a day two weeks ago to a total of more than 300,000 shares done in the past three days.
It is trading above its net asset value, a rarity for developers. And it is in technically overbought territory.
One reason could be the eyewatering dividend of 33 Singapore cents a share that the firm is planning to pay out next month. At current prices, the dividend still means a decent yield of 6.5 per cent.
A second reason is mergers and acquisitions (M&A) speculation. The Lee family has a history of divesting their companies, with Fraser and Neave (F&N) and Asia Pacific Breweries (APB) in 2012 being the most famous examples. In the current depressed market for property developers, perhaps an opportunistic buyer has emerged.
Privatisation is one way for listed developers to escape paying hefty penalties on properties that remain unsold two years after their Temporary Occupation Permits (TOP) are issued.
Any news of bulk sales will give the stock price a boost.
There is a third, and most likely hypothesis for the share price run-up: that Bukit Sembawang has successfully unlocked some value from its legacy agricultural land, which it previously could not build houses on.
Going by past annual reports, Bukit Sembawang had a long-running dispute with the Singapore Land Authority (SLA).
It had wanted to convert part of the 117,000 sq m, 999-year leasehold agricultural tract by the CTE andAng Mo Kio Ave 5, called Lot 12949A MK 18, into a residential development of 167 landed houses.
But SLA required the developer to surrender its existing 999-year lease in exchange for a new 99-year lease in order to build on the land without restrictions. Bukit Sembawang had maintained that the building restriction did not apply, presumably refusing to give up its long lease. Its annual report a year ago said the issue remained unresolved.
Its latest annual report out on July 8 revealed that it might have acquiesced. "We are unlocking the potential value of Lot 12949 Mk 18, an agricultural land, by converting it into a 99-year leasehold residential development, as enhancement of its land use and development value," wrote chairman Samuel Guok.
In a footnote in the annual report, Bukit Sembawang added that it had submitted plans to develop the area. "Differential premium is payable for the intensification of land use prior to issuance of written permission," it said.
Given its legacy holdings, Bukit Sembawang has always been one of those "deep value" Singapore property stocks that patient investors with a very long time horizon can sink their teeth into at the right price.
In Yio Chu Kang'sSeletar Hillsarea, the company is developing its "Luxus Hills" range of landed houses, which can be around 200 sq m each.
The entire area, including unused agricultural land and all current and future phases ofLuxus Hills, adds up to almost 300,000 sq m. This implies that at least around 1,000 more houses could be built.
Meanwhile, it has yet to launch or start building the 80-unitWatercove(20,000 sq m site area) landed housing project on the edge of Sembawang.
Now, Bukit Sembawang is trading at 1.03 times book value, just below its average of 1.1 times in the seven years since the global financial crisis, where it has gone as high as 1.5 times and as low as 0.8 time.
The recent update on its agricultural site definitely gives a boost to its valuation. This has to be weighed against possible losses from its stock of completed but unsold properties, be it from discounts or penalty charges.
So the bulk of the firm's value remains to be realised. Valuing the upside from this is a lot trickier. One first has to figure out the cost of the above land currently recognised in the company's balance sheet.
Meanwhile, investors curious about the firm's plans can still attend its annual general meeting next Wednesday to find out more.
Ultimately, in the absence of any M&A action, Bukit Sembawang remains a long-term stock premised on the future of Seletar Hills. Given subdued growth in Singapore, investors have some time to figure this company out.
The Business Times