Thursday, January 19, 2012

HKR International Limited purchased

This morning I added a few more shares in HKR International Limited (HK:480) to the portfolio.  HKR is primarily a property developer and investor with interests in hotels and a few miscellaneous assets.  The balance sheet is solid with relatively little debt and a reasonable amount of cash on hand.

The shares are trading at around a quarter of the guesstimated NAV.  Given the combination of the irregular nature of developers' profits, the impact of changes in property prices and currency movements (among other factors), determining current NAV involves even more guess work than usual, but there is a substantial margin for error.  Likewise, while I do not expect last year's dividend to be maintained, I am still expecting a healthy dividend yield on the current share price.

Lastly, the company has a good track record of not diluting shareholders' interests by issuing new shares and this is a positive.

I paid HK$2.57 for the additional shares.


Juan said...

buying for a quarter of NAV sounds like a pretty good deal. Now to wait and see if that NAV value is realistic :)

traineeinvestor said...

Hi Juan

A good question and one that should always be asked. In this case the margin for error is pretty extreme (even by the discount factors which typically apply to property companies listed in Hong Kong):

NAV as at 30 Sept (per interim report): HK$10.30 per share which implies a discount of 75%

NAV assuming a somewhat 10% fall in asset values (in line with the HK residential market, adjusting for the 12.9% gearing and assuming HK$90 million in free cash flow for the second half year: HK$9.20 which implies a discount of 72%

I do expect the company's profits to fall significantly in the current half year, but that is largely irrelevant to the investment case.


Anonymous said...

will book profit around 1 billion from sukhothai residences split this year and next.