UOS - United Overseas Australia

[thereslifeafter87]

This company was brought to my attention recently by that failed processor of bodily waste products PackersOldKidney on the DVN thread.

As soon as I saw the company's latest report, I sent him an email and asked him to remove his post so that I could accumulate a position without pushing the price up too much (the stock is reasonably illiquid). He did so and for that I thank him.

However, now that my buying is done, and with his permission, I thought I would share my research on the company with the readers of this forum (read: Time to ramp! )

UOS is a property investor and developer based in Malaysia.

Basic Financial Data is as follows (my figures are adjusted to present a realistic conservative picture and are assembled by a total examination of the company report).

Shares on issue: 65,792,469
Market Price: $1.00
Market Cap: 65,792,469
EPS 2004 (Half year): 27.12 CPS (adjusted for outside equity interest)
NTA: $1.89 per share

PE (using historical 1st half 2004 profit only): 3.69

Revenue 2003: 57,806,000
Revenue 2004 HY: 40,073,000

Profit 2003: 10,499,000
Profit 2004 HY: 17,843,000

Equity: 124,025,000
Return on Equity (1st half only): 14.37%
Cashflow 2003: 13,310,000
Cashflow 1st half 2004: 10,911,000
Debt: negligible

The following returns are unadjusted for outside equity interest.
Investment Property Market Value: 128,809,000
Rental Income (projected for FY 2004): 8,550,000
Gross Return on Investment Properties: 6.64%

Dividend yield (gross) around 5%

UOS has a strong track record in the property development industry, and has been highly profitable. Earnings in the 2nd half of 2004 will be lower than the first, due to less stock and correspondingly lower sales, however the full year profit will be well above the HY announcement.

Property devlopment earnings will always be lumpy as new projects are developed and then sold. However, UOS has performed well in the past and should continue to do so.

The real kicker with this company is its incredible valuation! At $1 it is valued at less than 4 times its half year earnings!
The share price is $1 while NTA stands at $1.88. If the company were to liquidate tomorrow, shareholders could stand to gain an 88% return (if properties were sold at market).

The company also has virtually no debt. Yes thats right! A property developer with no debt!

The only downside some might see with this compnay is that it is quite illiquid. Other than that I can't seem to fault it...

Leaving aside the property development aspect of the business, UOS still owns investment properties worth over $1.70 per share, and earns returns on these investments comparable to the listed New Zealand property trusts.

This is a strong investment by any measure.

Questions, comments?

Negative responses/accusations of ramping all welcomed!

[thereslifeafter87]

P.S.

The company should earn well over 20% ROE for the full year.

[Sauce]

Thats a big ROE for a company with no gearing. Debt to equity of 7% compared to industry median of 54%.

(surely if the market they are operating in is a lucrative one they could double that ROE by taking on some debt? albeit riskier but 7% is too conservative IMO!)

They mention in the half year accounts they are not expecting the second half to be as stellar as the first. are they stacked with projects to ensure continued growth through 05?

They were a bargain at 40c a just over a month ago thats for sure.

I imagine the large discount to NTA is because of its small cap status, illiquidity and operating in a high risk and cyclical industry. The discount seems a little excessive though!

They are obviously good at what they do, have proven numbers and look cheap on fundamental basis, but I think they definitely deserve a high level of risk to be factored into the price.

Probably a fairly speculative BUY in my opinion, good if you want some exposure to the sector and have the knowledge/ability to keep an eye on the malaysian property market!

Not one for my dollar, but I hope it goes through the roof for you tla87 certainly looks like good value

Sauce [}]

[Sauce]

tla87,

As you mention in your original post, the nature of the industry means the earnings can be "lumpy", this is a good point - I think valuing a company of this nature on a historical PE multiple is far from ideal. And forecasting EPS for a forward PE is much harder for a because you have to know alot about what future projects they have and of course with property development the costs and final sale prices are so subjective.

You have to put alot of trust in their ability to create the opportinities.

Regards,

Sauce [}]

[Packersoldkidney]

Guess I gotta reply since my name has been mentioned!

Yeah, this is one for any diversified portfolio, and frankly on the numbers puts all other property development companies in the shade: not to mention most if not all companies with the growth label on the ASX. Even though I'm a numbers dope, and quite possibly a dope in general (ever heard of a smart kidney? Nup, didn't think so), even I can tell this one is way undervalued. (!)

Take the point that profits will be up one report and down the next. Stock is very illiquid and very difficult to get hold of. Exiting this one if you have even more than a few shares could be a nightmare in certain situations.

Should also mention the company's website, which is: http://www.uoa.com.my Worth a look to see what they have currently on the boil.

Tightly held, and way, way undervalued.

Thanks to TheresLifeAfter87 for the figures: think he's picked a winner. I have a small holding via another organ (he he), but am of the opinion the share liquidity problem will have to be looked at by the directors to increase the share price to something approaching fair value.

[thereslifeafter87]

Yeah,

Definitely a bargain at 40c, however definitely still a bargain now.

I don't see it as a risky play, because they have a stable income stream from their investment properties, pay a good dividend, have plenty of cash and f all debt.

You are right though Sauce that their future income depends on relying on them securing development opportunities and that PE's don't matter too much. Thats why I'm going on the basis of NTA more in my valuation.

Next half they wont earn as much because they don't have as many projects to sell. But even if they stop property development once their current stock runs out, the company will still be way undervalued, and should still be profitable (with no development expenses).

There is very little long term risk in this one. Perhaps short term risk if you don't like illiquidity or need to exit in a hurry for some other purpose.

There is no speculation involved here. Its classically undervalued.

[thereslifeafter87]

Wow,
Just checked out the website.
Puts into perspective the experience this coy has.
A lot of big big projects successfully completed.

And the balance sheet couldn't be prettier :-)


P.S.

Sauce,

you are right about being conservative. But with $120mill in equity, they could conceivably gear right up and undertake a project requiring investment of $300-400 mill. If they make margins of say 30% not undoable for a property developer, then thats a profit of $120 mill spread maybe over 3-4 years, say $30 mill a year.

That may be wishful thinking about potential, but the potential is definitely there... and at these prices, there is a huge margin of safety.

[thereslifeafter87]

What do you know,
Ramping does work

So who purchased the 4,600 shares at $1.05?

[mark100]

not me - I was next, 5000 @ 1.05!
Being following this one for a while hoping it would fall back on low volume but now the ramping has started I better get in!

cheers
mark

[thereslifeafter87]

lol mark,

good to see you in there.

I wouldn't want to wait for this one to fall back! not at these prices.

I'd rather be in and sure. I had a bid sitting at 95c for a few days, but then just decided to take what was on offer.
Sellers are few and far between