Creo Medical Share Discussion Threads

[flip101] 26/10/2010 18:43

Distribution goes ex on the 10th Nov.

[flip101] 26/10/2010 18:13

I think the occupancy rates are a particularly strong point as they show the underlying strength in the Treasury leasing team and the assets.

As you say, analysts have been looking at gearing from the wrong angle and will be surprised to see significant scope for TCT to expand its balance sheet.

For me these results answer many of the problems investors may have seen in TCT and therefore I am hoping we see some proper interest in the stock. Let's see what the rest of the week brings.

[longsight] 26/10/2010 18:02

Flip - agree. Just reading the Results & also noted the points you emphasise.

The lower than anticipated gearing & the refinancing at lo interest rates opens the way to acquisitions - as referred to in the Accounts.

The 97% occupancy of Central Plaza, post Results, is very impressive as is the 89% for the portfolio.

I'm very happy to hold the stock. 6.5% yield this year & next & plenty of scope for NAV & share price appreciation.

TCT are holding presentations in London in early November. I hope to attend - as should Eddie!

[flip101] 26/10/2010 17:46

Longsight, I am particularly pleased with the results and think they demonstrate a very compelling investment case. While operationally there is still some way to go (profit for Q3 was mainly FX transalation), I believe the business has substantially strengthened and TCT have demonstrated a unique ability to build value. The Central Plaza retail podium as an example of this.

The following also relay's what I was saying previously:

TCT ---- "As a Business Trust, TCT is not solely reliant on recurrent income and prior to listing on the SGX, China Real Estate Opportunities Limited ("CREO"), now a wholly owned subsidiary of TCT, had effected a number of asset disposals at significant premiums to their cost as part of its normal trading operations. This approach will remain a key component of TCT's operational business plan as it seeks to deliver maximum returns to its unitholders and to efficiently fund its balance sheet growth."

IE. Significant value is added through capital gains, not just through rental income.

Not only will the 0.025 SGD distribution provide a nice bit of additional income to myself, I think it will also confirm the company's intent on playing a good dividend into the future. This should be positive short and medium term.

It is also very positive that TCT will have refinanced all of its loans by Q4 of this year and therefore eliminate a key risk for the medium term.

TCT ---- "Furthermore SGD10 cents per unit will be payable for the year ending 31 December 2011 funded predominantly from retained earnings. Based on the closing TCT unit price of SGD1.53/unit on 25 October 2010 this commitment equates to an annualized distribution of 6.54%, which provides excellent returns in comparison with other China based real estate vehicles in the form of:
1. Residential developers, which have little in the form of recurrent income and are exposed to the vagaries of Chinese government austerity measures for the residential real estate sector, whilst having a typical distribution ratio of less than 3% pa; and
2. REIT products, which are limited by little or no development capacity which means they do not have the same 'in-built' earnings growth potential of TCT's portfolio, where we expect revenues to double over the next three years on a strongly accretive basis"

RD is obviously bemused by the share price performance also!

Overall I think this adds real strength to the investment case and the stock should trade upwards this evening. I also believe management will be conveying this strengthened message to institutions so hopefully we should see some real progress over the next month or so. If not, I'm happy with the income the share provides on my holding!

[longsight] 26/10/2010 17:34

Total divi for this year will, in fact, be 5c - just split into 2 payments of 2.5c each.

TCT made a profit in its first Qtr. Occupancy levels are far higher than assumed in the various "research" notes. Gearing is significantly less than assumed by the brokers.

There is news of refinancing of Central Plaza at a significant reduction in interest costs.

Contracts have been entered into to ensure the completion of City Center Extension in 2012 which will meet TCT's projection of doubling revenue within 3 years.

The Results bear little relation to the research notes & do not bear out the anxieties of Eddie.

Dividend yield, at current SP, is 6.5% for the first half year & at least that for 2011.

[gucci101] 26/10/2010 15:52

Chaps, note the Q3 results have been released. Broadly positive. Slight revision in NAV (at 3.91SGD/unit) down due to FX moves. 0.025 SGD distribution to be paid in December. 0.10 SGD minimum for 2011.

[flip101] 20/10/2010 16:37

Yes, interest picking up a little bit with around 100,000 traded per day on average over the last few weeks. As more stock finds its way in the hands of Singapore investors liquidity should pick up. I do feel we will need an asset disposal to generate any real re-rating.

Lets hope the Q3 results are positive.

[longsight] 20/10/2010 16:24

slmd - thanks. The website says Wednesday.

Good to see a bit more liquidity in the shares now.

[slmd] 20/10/2010 13:00

Results next week.

[flip101] 19/10/2010 21:45

longsight - regarding TRIO I completely agree. Sell maybe Central Plaza, spend some on a share buyback and some on TRIO. If Richard David genuinely believes the company is worth 4.00SGD/share now, he can't argue that TRIO will deliver a better return on investment than buying back stock at 1.50-1.75SGD.

Unfortunately the market will not believe management talk any more, they are going to have to prove it by selling an asset.

[longsight] 19/10/2010 21:30

Flip & Eddie thank you both for helping keep this BB alive - & for creating a robust debate on TCT.

My take on the Trio JV is that TCT will sell one of its buildings to help fund this. They have opted for a Singapore Business Trust rather than a REIT so as to give them maximum flexability in how they run the fund. Though the objectives of the Trust include maximising distributions to shareholders, they are free in how they achieve this - i.e. they can pay divis out of sales & not just out of net rental income.

To be fair to TCT, the independant valuers who arrived at NAV of SGD4.3 have in fact proved conservative in their valuations historically i.e. the recent 2 disposals achieved prices in excess of the valuations. My impression from talking to Richard David was that he felt the NAVs used in the recent research note was ludicrous & he cited me an example of a recent Office block sale in the vicinity of one of the Properties & comparable to it which had achieved a value far in excess of the valuers's figure & double the assumed value used in the research note [see my previous post].

[flip101] 19/10/2010 20:57

To be fair eddie, I do not disagree with most of your comments above. I suppose where I do disagree is that I think the brokers are wrong. They are looking at the value of TCT through a DCF model rather than through a transaction comparison basis. The way I understood CREO when I made my investment is that it is a development company, not one to generate maximum income. You buy the asset, develop it to a mature stage and sell. When you sell you realise the NAV which is therefore reflected in share price.

[longsight] 19/10/2010 20:11

Eddie - the listing flopped as much as anything because there was no IPO so no decent availability of stock for institutions.

TCT have said to me that the brokers's notes are wrong & that news from TCT, starting with Q3 Results, will begin to show this.

I don't accept that they will not sell Properties if it makes sense. They do get fees - as per industry peer group. But they are also big shareholders & I think they get fees on sales anyway. I think they are very keen to see the shares higher.

You keep banging on about the brokers's notes but you have now had the Co's response several times. If you think the brokers are right - sell. There are so many great investment opportunities out there. I can not believe it that you wish to hold TCT if you really believe the negative stuff you post. What are you? Some sort of hobbyist loser?

[eddie1980] 19/10/2010 19:43

Bearish/Prudent - you decide. Dont think I have ever been bearish on WCC tho.

Would also say stubborn as despite seeing the downsides to PMHL, still there (tho reduced holding) as I feel I am entitled to some of the cash created by the sale of the cement business, as was invested prior to this.

Would rather TCT was flying, but I cannot see that happening until they can create cash.

Of course, would prefer even more to see them sell everything up at the claimed current NAV and I can move on. But of course, the only people making money out of TCT at present are the mgmt of TCT through fees so you can see why they wouldn't sell up.

I can see all the bull arguements for Shanghai and property (tho not residential - and as seen it UK, it can have knock on effects), but what specifically will be TCT's catylst. A discount to NAV is not enough - until they start making cash, no one seems interested. And when u see the profits their property peers seem to make, you can see why (and why peers are rated much higher.) If the brokers are all putting out notes stating no profits for 3 years, then low profits, you can see why no-one is buying.

The company spent millions on relisting specifically for purpose of boosting share price, now they clearly need to do something as the price has drifted and brokers are recommending a 12m target price lower than on AIM (and before the rises we have all enjoyed in the last few months)

[flip101] 19/10/2010 18:00

longsight - did they say when the Q3 results may be released?

[flip101] 19/10/2010 17:34

Longsight, I have also been surprised at the broker notes and their target prices. After all, we were told that Far-East investors understand our assets more and should value them more favourably. In reality they can't look beyond a yield. CREO was not originally a company to create income, it was a capital gains vehicle.

The manager should buy a property, get it to a mature stage (TB and Central Plaza) and then sell for a capital gain. Unfortunately management have got tied up in try to grow the business (in size) rather than maximising shareholder returns.

Transaction values more than underpin the current book value of 4.00SGD/share however all we have is investors looking at the cash flow. What Richard David should do is sell an asset, prove the underlying asset values and buy back stock.

If anyone can tell you they can create a better return in commercial property in Shanghai than buying back shares at this current level is lying. I do not want to see further cash being spend on an asset when they can purchase shares at a 65% discount to NAV.

[longsight] 19/10/2010 05:53

Eddie - I read the CIMB note & contacted TCT & got their feedback. Their view was that the CIMB note made unrealistically pessimistic & indeed simplistic assumptions on the P&L for the next 3 years. Apparantly Qtr results are due out soon & will cast some light on how things are going better than the research notes anticipate. We all know - certainly those of us who read the Accounts of CREO & the listing doc for TCT - that TCT was not projected to make a profit this year. But, in fact, the news flow since TCT listed has been very good.

Eddie - you have yet to acknowledge a single positive on TCT. I am very surprised that the opinions of Jing Ulrich & Churchouse & the recent reports of the FT carry no weight with you on the prospects for Shanghai & the coming PRC financial services & domestic consumption booms. The "research" notes seem quite unaware of these factors & the transformative potential they hold for TCT.

Incidentally, I thought your contributions on PMHL were bearish but fantastic. Thank you. I thought your contributions on WCC were bearish & rubbish. I think your contributions on TCT were bearish but initially very valuable but are now merely bearish. In fact, I have never read a contribution from you that was other than bearish on any share. Interesting.

[eddie1980] 18/10/2010 18:26

Another research note out - on company website from CIMB. surprised it hasn't been commented on. 12m target $1.83 with buy rec (great, but the ask was $1.80 on first day it listed!)

Highlights low P/BV, but again what is clearly evident is lack of profit and cashflow. Quite a lot of financials on Co and many listed peers. should be a good detailed read.

[longsight] 13/10/2010 19:26

Parkson is very lo rent but all the leases coming up for renewal are commanding higher rents - not surprising since rents are growing historically at average in excess of 10%pa. Cap values are important - quite possible that TCT will sell some of portfolio e.g. Treasury Bg. Last 2 sales achieved higher sale prices than ind valuer's estimates. Worth noting that e.g. Central Plaza was valued at 28000RMB sqm by latest research note. TCT ind valued at 42,000RMB but very recent loacal sale of comparable Office block sold in excess of 55,000RMB.

Do you sell now at what I think is close to the lowest point for the share price or do you hold? I think you ignore the value being added to the portfolio by the management.

[eddie1980] 13/10/2010 19:19

ps and I don't think capital value growth will drive this share - that is evident already. (look at PMHL for market sentiment on asset values - less than cash, but as it expects it to go into property, its not interested).

Unless the Co is broken up and sold, it won't play a part. Market will put a value on the assets, when those assets start producing returns - which is back to the issue on income.

[eddie1980] 13/10/2010 19:16

Reasons were exposure to China. Was looking to allocate some to commercial real estate and also wanted far eastern exposure. The restatement of results into GBP also added increased gains each year as Chinese currency increased.

What this masked tho on initial considerations was the fact it had such poor income from rents. my fault for not digging.

In 5 years I am sure this will not be where it is now. The problem lies with where it will be in 12 months - still years away from collecting enough rents to cover costs (based on brokers estimates). We are not talking about an upstart trading co where the market is happy to price in profit growth, this is hold real estate and collect rent company. Yes, extentions give the growth angle, but they should be able to achieve a profit on any rental building.

My thoughts is exactly that - they must have a lot of leases for less than commercial returns, otherwise why such low yields? However I am sure you stated on here that the company said apart from Parkson, all were market rates. So again, I wonder why such poor performance.

TCT are in competion with all other real estate co's for the allocation of investors resources (money!). And currently, other co's achieve a high net profit return on their rents. That is why they are valued at close to NAV - because their assets have that value in producing income. TCT does not as it does not produce income.

When TCT can show it can use its assets to produce cashflow, the market will take interest. But when will that be? If we are waiting 3 years to turn positive, we could be sitting here for a long time. As it is, the share price is down circa 15% since relist, at not much off levels since the duldroms of 2009 - that shows u what Asian investors think of it. And now we are the middle of a bull run. I would hate to see what would happen if the market turns bearish, even short term.

[eddie1980] 13/10/2010 17:02

The historical figures are fact - rents don't cover the costs. why do you think that is?

Based on the current NAV, what is the current yield of TCT? Do you think that that makes the value of the buildings seem good value, or that the values seem high based on the rents they make.

Why do you not consider the actual results it produces. Simply saying NAV will rocket is hardly a good basis. Even if Shanghai booms, who says TCT will? Would love to know your thoughts on why the company cannot even break even on rental income - after all, that is its purpose.

No ludricous posts on WCC. I think I just agreed with some of the non popular people on there regarding articles in the Chinese press. Done very well on that thank you, so you don't need to worry there.

I just have never seen u even contemplate the actual financials it makes.

I assume on WCC you have price targets based on your 2010 and 2011 EPS forecasts. Well, if TCT makes 10c in 2013 as forecast, and based on your prediction of $4 within a year, that makes a 2 year forward EPS of 40. Would you pay that for WCC? Suspect you would sell as think it was overvalued. So why do you think investors will pay $4 for TCT to earn 10c in 2 years time?