Bankruptcy..., page-19

UOS own 68.32% of UOADB. We are buying it back at roughly ¼% per annum. At the current rate, it will be ours again in the year 2140…

The two key takeaways upon a more thorough reading of the Q3 report are firstly, that it was the second best ever sales quarter in history, going back to the start of 2012, quarterly sales look as such:

Sales -
Q1 2012 RM443m
Q2 2012 RM557m
Q3 2012 RM340m
Q4 2012 RM470m
Q1 2013 RM929m
Q2 2013 RM271m
Q3 2013 RM370m
Q4 2013 RM450m
Q1 2014 RM336m
Q2 2014 RM362m
Q3 2014 RM672m

Unbilled sales have been building nicely too -
Q1 2012 RM723m
Q2 2012 RM814m
Q3 2012 RM798m
Q4 2012 RM713m
Q1 2013 RM1.1b
Q2 2013 RM1.2b
Q3 2013 RM1.2b
Q4 2013 RM1.3b
Q1 2014 RM1.5b
Q2 2014 RM1.6b
Q3 2014 RM1.8b

Very strong sales quarters have often been followed by very weak ones, and with the deferral of a couple of 2014’s launches, there is some risk Q4 sales will disappoint.

The second very interesting element of the Q3 was in the ‘Other Income’ line on the P&L. This line can be tricky to decipher until you see the relevant notes in the AR, but the ‘Other Income’ is up 61.3% year on year and the Q3 vs Q3 comparison shows 2014 up 125% (from RM15.6 to RM35.1). The majority of the income in ‘Other Income’ is rental income, but it is occasionally distorted by unusual items such as the RM48m sale of P&E in Q4 last year. In any case, assuming the 2 x Q3’s are roughly comparable, the rental income from the recently opened NEXUS retail area and the serviced apartments operated by Fraser’s seems to be exploding.

As I indicated in my previous post, given the ‘investment properties’ line on the balance sheet has declined from RM775m to RM758m and the rental run-rate appears to have roughly doubled, this is what gives me confidence that based on normal capitalisation rates for Malaysian property, a revaluation of these assets must be relatively imminent, notwithstanding the small revaluation to the parking assets earlier in the year.
I do tend to agree that more aggressive use of the buyback would benefit holders of both the parent and UOADB, but capital management seems to be a relatively low priority for management and far from their greatest strength.

I have said in these pages before, an equal-access off-market buyback at somewhere midway between the NTA & the last traded price would benefit everyone, sellers would get better than current market prices, non-sellers would see an increase in NTA per share and own a larger proportion of future earnings.

Fortunately, despite capital management weaknesses they are extremely good at developing property, and you will do very well even if good capital management opportunities are overlooked - Eternalgrowth