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KHOR UN HUN

Media attention on Stanley Ho Hung-sun fixates on his colourful personal life and family, and the acrimonious battle over his assets a couple years back.
Lest we forget, Ho also founded Sociedade de Jogos de Macau (SJM), the pioneer casino operator in Macau, on which he built a highly profitable Macau-Hong Kong conglomerate spanning gaming, property and transport.
Investors distracted by Ho's familial goings-on may overlook a low profile and undervalued component of Ho's corporate empire, Shun Tak Holdings, which is a large Hong-Kong-listed property player in Macau.
Shun Tak trades at about 0.5 times its book value, which looks cheap compared with purer play Hong Kong property players such as Hang Lung, Hysan, Swire Properties and Sino Land, which are trading at price to book ratios of between 0.68 and 1.07 times.
But the stock's already low price to book ratio is boosted by its huge indirect investment in SJM, which is recorded at cost in its books.
Ho has used Shun Tak to house 11.5 per cent out of his 43 per cent interest in Sociedade de Turismo e Diversoes de Macau (STDM).
STDM owns about 55 per cent of SJM, listed in Hong Kong with a market cap of about HK$97 billion.
STDM also owns part of the Macau airport and airline, a container port, race courses, hotels and other real estate.
Just taking into account its 55 per cent stake in SJM, STDM is conservatively valued at about HK$53.6 billion. Shun Tak's 11.5 per cent interest in STDM is in turn worth around HK$6.2 billion.
Shun Tak also owns an effective 42.6 per cent interest in its unlisted transport unit, which provides high-speed ferry services between Hong Kong and Macau (known as TurboJet) and coach services between Macau and major cities in Guangdong.
Despite a net asset value of over HK$2.6 billion at the end of 2011, the unit only made a profit of HK$10 million during the first half of 2012 (compared with a loss of HK$53 million a year before). The profitable turn was thanks to a rise in ferry fares, higher traffic and TurboJet swallowing its main rival.
Using Hong Kong-listed Chu Kong Shipping as a comparable, TurboJet can be conservatively valued at HK$64 million.
So let's add it up. Shun Tak has a market cap of HK$9.5 billion. Stripping out its casino holdings (worth HK$6.2 billion) and TurboJet (HK$64 million), an investor could buy all of Shun Tak's property holdings for HK$3.3 billion.
As such, it looks like investors in Shun Tak are getting its property assets with an estimated net asset value of over HK$16 billion for a bargain.
In Macau, they include One Central, which houses a 400,000 sq ft luxury mall and the Mandarin Oriental Hotel, and a stake in Westin Resort.
In Hong Kong, they include Shun Tak Centre in Sheung Wan, the Westwood Mall in western Mid-Levels and SkyCity Marriot Hotel near Asia WorldExpo.
Residential and retail developments with more than four million sq ft of gross floor area at Chatham Gate and Nova City in Macau have been selling well and are expected to underpin property earnings over the next few years. Profit at its hospitality division rose by 146 per cent year on year during the first half of 2012 while its transport unit is turning around as mentioned above.
Shun Tak trades at about 12 times its 2012 earnings, according to Bloomberg.
It is also healthy financially, with net debt at 8.5 per cent of its equity (as at the end of June this year).
Why then is Shun Tak trading at such a steep discount?
The succession fight clearly took its toll on investor confidence in the family owned company.
More significantly perhaps, investors have focused on SJM at the expense of Shun Tak, following the casino operator's listing in July 2008. Punters used to only be able to get exposure to the SJM cash cow by buying shares in Shun Tak. Now that they can own SJM directly, Shun Tak has lost some of its appeal.
SJM's share price has increased almost fivefold since its listing while Shun Tak's has declined by about 36 per cent over the same period, notwithstanding its investment in SJM.
All told, markets have ignored and discounted Shun Tak, and it's become a really attractive stock.


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Shun Tak Holdings

Stock Watch: Shun Tak Holdings

Stanley Ho's Sociedade de Jogos de Macau held the only casino licences in Macau until 2002. Photo: Robert Ng

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