KAF-SEAGROATT & CAMPBELL BHD
KAF-Seagroatt (Fundamental: 2.15/3, Valuation: 1.8/3) is a cash rich, well-established standalone stockbroking company in Malaysia renowned for its prudent management.
The company has a solid balance sheet with net cash of RM183.9 million or RM1.53 per share as end-October 2014. This is equivalent to 93% of its share price.
The stock is trading at a trailing 12-month P/E ratio of 31.9 times and a price-to-book ratio of 0.82 times. The company pays dividends consistently, with 7.5 sen per share paid in FY May 2014, equivalent to a decent yield of 4.6%.
There have been a number of merger and acquisition (M&A) activities among Malaysia’s investment banks in recent years, with valuations ranging from 1.3 times book for HwangDBS to 1.77 times book for OSK Investment Bank.
But apart from the more speculative M&A angle, there is also another little known fundamental attraction in KAF — its book value is severely understated with properties acquired at low prices.
The jewel in its crown is a plot of prime freehold land measuring 34,217 sq ft at Changkat Kia Peng, near the KLCC complex, carried at just RM5.7 million or RM166.20 psf, and last revalued in 1998. In 2013, I-Berhad bought 1.05 acres in adjacent Jalan Kia Peng for RM132 million or RM2,886 psf.
A revaluation of KAF Seagroatt’s land to around RM2,500 psf suggests the land could be worth 15 times higher at RM85.54 million, with a potential revaluation gain of RM79.8 million or 66.5 sen per share. This could boost its book value from RM2.01 sen to RM2.68 per share, making the stock potentially trading at 0.6 times revalued book.
KAF also has seven acres of residential and commercial lands in Port Dickson, Negeri Sembilan with a book value of RM2.69 million, or RM8.82 psf. The lands were acquired and last revalued in 2005.
This article first appeared in The Edge Financial Daily, on February 5, 2015.