research report - uoadb, page-4

If you look at the research report I posted, there are 5 Malaysian 'peer' companies, KLCC, Eatern & Oriental, Mah Sing, SP Setia & UEM Sunrise.
Of those 5, really only 4 are comparable as KLCC is more of a REIT with a bit of a development arm attached.
Of the remaining 4, if you look back through the results of the last few years, none can consistently compete with the high gross margins UOADB generates, Eastern & Oriental have occasionally high margins, but much lumpier results. The other 3 seem to have Gross Margins a little over 30% (compared to UOADB which has always exceeded 45%) and Net Margins between 18 & 25% (where UOADB seems to always squeeze more than 30% NM.
All the other businesses are in Net Debt, but the industry seems to have spent 2013 paying down debt (with the notable exception of SP Setia, which has Net Debt to equity of about 60%, and is taking on what looks to be a risky international strategy). The others have a net debt to equity of between 8 & 32%.
UOADB has a net cash to equity of over 30%, so if trouble comes, I know where I feel most comfortable.
If you equalise the results to factor the different debt profiles, UOADB as the cheapest Malaysian property developer becomes even cheaper still.
The only reason I can think is investor skepticism that the high margins can be maintained, but they have done a pretty well maintaining them, so I reckon any margin erosion will be slow developing.
When the 2012 report I referred to in the last post came out, I remember remarking to a fellow fund manager, given the cheapness of UOADB in comparison to the Malaysian peers, I would happily pairs trade a long UOADB position against an equally proportioned short against the 5 peers (or better still just short UEM and SP Setia, which were clearly overvalued in April 2012).
Between the 2 reports, including dividends, UOADB has been up over 50% & the peer group has risen about 20%.
Easiest 30% you'd have ever made (less the borrow costs), with no net-cash out. I would still happily hold such a trade, UOADB is easily the best of the Malaysian property developers, but we are an Autralian focused fund, so no such strategy will be employed - Eternalgrowth