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PLENITUDE – the Turtle of Property Stocks



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Sep 03 2007
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There’re basically two sectors which will flourish when a country’s economy is picking up – banking and property. On the same note should the recession hits, these two same sectors will suffer on equal quantum. FinanceTwitter had written some articles on property stocks and amongst others, the favorite would be Mah Sing Group Berhad (KLSE: MAHSING, stock-code 8583). Others include E & O Property Development Berhad (KLSE: E&OPROP, stock-code 3468), Sunrise Berhad (KLSE: SUNRISE, stock-code 6165) and SP Setia Berhad (KLSE: SPSETIA, stock-code 8664).

Having said so, it doesn’t means other property stocks are crap or un-attractive. It simply means there’re just too many choices to choose from and realy, it depends on how you as an investor “feel and know” about the companies. Sometimes you just need to have that “click” with the company before you actually have the intangible justification to say that this stock is what you’re looking for. It could be that you’ve bought property developed by such company or you know someone close to you who works within the company who can provide you with the independent views.
Plenitude – Slow and Steady
One of FinanceTwitter readers recently asked about another property stock, Plenitude Berhad (KLSE: PLENITU, stock-code 5075). What I can say about Plenitude is that it sure has the characteristics of a “mini MahSing”. I’ve to admit Plenitude wasn’t on investors’ radar until it made a net gain of RM24 million from the disposal of a 37-acre plot of land in Tebrau to Permodalan Eramaju Sdn Bhd (Ikana Group) for RM64.4 million.
Plenitude was reportedly owns a landbank of about 1,950 acres with half of it located in Johor while the remaining 835 acres in Kedah (Sungai Petani). Unless the buzz about NCER really takes off in a big way, I’ll just put this Kedah’s land on reserve as far as profit contribution is concern. Furthermore the commercial value of lands or buildings in the northern part especially in Kedah is not that interesting.
Plenitude Property StockListed in 2003, the company has been consistently declaring dividends though the amount is nothing to shout about. The company owns the 200-room Tanjung Bungah Beach Hotel in Penang and has been on lookout for more lands surrounding it. At the southern part, it has the Desa Tebrau project with GDV of about RM280 million which is located just 14km northeast of Johor Bahru city.
Its maiden foray into the high-end residential market started with its acquisition of four parcels totaling 20.1 acres in the exclusive Sri Hartamas, Kuala Lumpur. The proposed development on these four plots of land will feature 11 units of bungalows, 84 units of semi-detached houses and 796 units of condominiums with each one having a different and unique concept. The total GDV (Gross Development Value) at Klang Valley totaled RM333 million, not to mention Taman Putra Prima project at Puchong with a GDV of RM233 million.
Fundamental of Plenitude – Cash-Rich
What is attractive about this company is its sizeable cash pile of over RM48 million, not to mention the additional RM20 million in fixed deposits as of end of Mar-2007. Hence, with the net gain of RM24 million from land sale to Ikano, Plenitude has about RM92 million of cash to play around – 68 sen a share. Based on the trading share price as of writing (RM3.04) and 2006 EPS of 38.8 cents, the stock is trading at P/E ratio of 7.83 only.
Plenitude Financial SummaryThus it’s not surprise that OSK Investment Bank has a target share price of RM5.00 per share on Plenitude which will translate to P/E ratio of 12.88 times, well below the average property stocks P/E ratio of 16.7 times. And with the company having a gearing of zero, the juicyness of this stock becomes more obvious.
Of course if you were to take the earnings forecast of 2007 and 2008, the current share price is trading at 7.52 and 5.73 times respectively. The ROE is definitely something to be noted as it shows the efficiency and the determination of the management in creating values for its shareholders.
Technical Analysis on Plenitude
Since the stock breached the RM2.40 per share level and established it as the new support in early Apr-2007, it has created two new highs of RM3.10 and RM3.60 per share. These two highs however becomes the current resistance since the U.S. subprime spooked all the investors who were previously chasing the property stocks.
Plenitude Stock ChartNevertheless, the stock has not traded below the 200-D moving average and any correction to the RM2.40 level should be well-supported. With the current housing problem not completely cleared, I would not jump into the bandwagon now as it’s testing the resistance of RM3.10 per share. But it depends very much on your risk appetite.
The Problem with Plenitude
Ok, so if Plenitude is so promising why the stock is trading at such a low level of P/E ratio? As most investors will tell you, stocks are trading at their current level because there’re reasons for it to be at that level. The fundamental is good, gearing is at zero, management is efficient and it has abundance of cash. So what could be the problem?
For one, the floating shares of Plenitude amounting to 135,000.000. The company’s largest shareholders are:
  • Ikatanbina Sdn Bhd – 45.5%
  • Ong Bee Kuan – 19.6%
  • En Primeurs Sdn Bhd – 7.3%
  • Bus Info Plus Sdn Bhd – 4.9%

Hence the combination of the above four largest shareholders already owns a whopping 77.3% collectively. Assuming the remaining 22.7% (this is not the correct figure, mind you) or 30,645,000 shares floating in the market, the stock is illiquid – meaning it’s not easy to buy or sell. Add in the Plenitude Turtle and Rabbit Racefactor that half of the shareholders might be long-term investors and you have very little shares to trade. And if only few people want to sell or buy, the stock will not go very far. The dividend yield is not attractive anyway.

The second reason could be due to the fact that the company is very conservative – as a matter of fact it could be viewed as too cautious that the company might not be attractive for medium-term investors. Traders do not like stocks which are too boring and conservative. But then it could be this reason that the company managed to gather such a huge cash-pile. Remember the story about the Rabbit and Turtle running a race?

# TIP: Wait for the stock price to consolidate to RM2.40 if you’re really obsessed with this stock. Unless you do not have property stock in your portfolio, you shouldn’t chase the stock especially at current price and global housing uncertainties.

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