Property developer DNP poised for better times

Property developer DNP poised for better times

By JOSE BARROCK

PROPERTY stocks have been attracting much attention lately, largely due to the behemoth Iskandar Development Region in Johor, with the government looking to develop the area and looking at a whopping RM50bil in investments over the next five years.

Other than the said development, the recent abolishment of real property gains tax has also heightened interest in property counters. With that, the buying of property by foreigners is also expected to pick up.

The Kuala Lumpur Property Index, which is a capitalisation-weighted index of all stocks involved in the sector, has been responsive and moved up by as much as 51% year to date and seems set to post further gains.

Despite most property counters becoming vogue and attracting the attention of analysts and punters alike, some companies with sound fundamentals continue to remain out of investors’ radar screens.

One such company is DNP Holdings Bhd. The company currently has existing property development projects in Penang, Johor and the Klang Valley among others, and has been focusing more on its property development arm lately, switching its core business from manufacturing, where it supplies apparel to several renowned international brands.

Company officials have previously stated that over the next year or so, property development will account for as much as 70% of revenue, surpassing garment manufacturing which will take a back seat to the new core business.

Some of the company’s notable projects include a 125-acre project in Hulu Klang, Sering Ukay which is slated for completion in 2010, and an upcoming development which should commence mid this year on a 2.6 acre plot of land in Bukit Ceylon, where the company is looking to develop condominiums and service apartments.

Another feather in its cap will be The Meritz, a 31-storey high-end condominium project located close to the Petronas Twin Towers, which is slated for completion end this year. It has been reported that the company expects to chalk up some RM120mil in sales from The Meritz.

The company's officials have indicated too that the company may invest as much as RM1bil to develop the properties in the Klang Valley in the current financial year, but details are scarce.

Singapore-based property developer Wing Tai Holdings Ltd largely controls DNP Holdings Bhd. Wing Tai is a relatively large and well known high end property developer in Singapore with a significant presence in Hong Kong. Wing Tai has a publicly traded unit in Hong Kong, namely USI Ltd in which it controls 25.7% equity. Its partner in USI Ltd is none other than Sun Hung Kai Properties Ltd, the vehicle of the Kwok family of Hong Kong.

Among the larger projects in Hong Kong undertaken by the company include The Waterfront in Tsim Sha Tsui, The Giverny in Sai Kung and The Grandville in Shantin.

As property development is gathering steam, especially those involving high-end properties, DNP Holdings could benefit handsomely as it already has the requisite expertise.

With the company’s projects close to completion, there are expectations that DNP Holdings will reverse its loss making performance in FY06. For the year just ended, the company posted a net loss of RM17.6mil on the back of RM284.7mil in sales, which is a sharp turnaround from RM10.4mil in net profit and RM297.2mil in revenue registered a year earlier.

However according to the notes which accompany the financial results, the company states that the losses suffered in the last financial year were a result of impairment losses representing the write down of certain properties, plant and equipment which amounted to about RM31.4mil.

Considering the fact that the company bit the bullet last year, taking the impairment losses into account, the coming years should show a marked improvement in earnings.

Possibly due to the better outlook, the company’s stock has been performing well, gaining by as much as 78%, and closing at RM1.71 on Wednesday. The volume of shares traded has also been heavy with more than 37 million shares changing hands over the past two weeks. The interest generated in the company even nudged DNP Holdings shares to hit RM1.95, its highest in almost a decade.

Several market watchers have been waiting for a material development in DNP Holdings. Although it has gone largely unnoticed, Wing Tai has been acquiring more shares in DNP Holdings. According to filings in the Bursa Malaysia and in its website in Singapore, Wing Tai now controls as much as 55% of DNP Holdings from 51.5% in November last year.

The parent company has since late last year, accumulated as much as 11.4 million shares or about 3.6% in DNP Holdings paying between 67 sen and 97 sen for the shares.

Wing Tai is the only substantial shareholder in DNP Holdings, while the other notable equity holders include state controlled fund Permodalan Nasional Bhd, which has about 2.1% or about 6.6 million shares. All other shareholders have less than 2% equity.

It could be that Wing Tai is merely taking the opportunity to accumulate more shares in the company, considering the price was right as the recent spate of acquisitions are at a stark discount to the company’s net asset per share, which was about RM1.86 as at end last year.

DNP Holdings has also been buying back its own shares, and as at early January this year accumulated as much as 1.8 million in treasury shares.

The share buy backs and Wing Tai's move to raise its stake in the company has led to speculation on something brewing in the company.

It is also worth noting that Wing Tai accumulated the additional shares in DNP Holdings during a relatively strong run in the market, when it would have been wiser to wait for a bear market to accumulate the shares.