Metro Holdings

Kim Eng on 12 June 2012

Background: Metro Holdings is a property development and investment group, backed by an established retail business. Its property arm not only owns and manages several prime retail properties in first-tier cities in China, but also holds significant investments in a number of property businesses in China, including stakes in listed companies such as Shui On Land and Top Spring International Holdings.

Why are we highlighting this stock? Metro recently reported bumper earnings for FY3/12 with net profit up 12.2% YoY to SGD91.9m. The group now has a healthy net cash position of SGD392.1m (or 47.4 cents per share) and has proposed a dividend per share totalling 6 cents (including 4 cents of special dividend) to reward shareholders.

Benefiting from portfolio reconstitution. Metro has been divesting a number of non-core commercial assets, the most recent being the sale of its 50% stake in Metro City Beijing, which resulted in a pre-tax divestment gain of SGD98.7m. Parts of proceeds have been redeployed into new investments, such as a 5% stake in Hong Kong-listed Top Spring. The group’s current property portfolio continues to perform well, with occupancy rates of its five key properties averaging at 92.5% as at Mar 2012.

Strategic tie-ups for new opportunities. Besides Top Spring, Metro can also list Shui On Land and TESCO as potential partners for future collaboration in China. With its expertise in retail, we expect Metro to increase its exposure to retail assets in China to tap on the growth in domestic consumption. This could either be in the form of further JV investments in new commercial properties or expanding its retail operations into China from just Singapore and Indonesia currently.

Healthy cash position offers flexibility. With SGD392.1m in net cash, Metro can theoretically acquire nearly another ~SGD400m worth of assets (assuming 50% LTV) while maintaining net gearing at zero. Alternatively, with the stock currently trading at just 0.6x P/BV, management could perhaps consider doing a capital reduction instead.