Posted by: donmihaihai | January 1, 2016

CDL, conglomerate & RNAV

Realised that I loves to read conglomerate, especially those with many listed subsidiaries. I am a generalist and reading conglomerate is one way to learn more industries. And yes, I don’t feel conglomerate complicated, at least not those listed in SGX.

Conglomerate also force myself reading reports from places like England,  NZ and Indonesia etc. Even English version of Indonesia annual report is hard to read because of the way it is.While I do not know the tax and law in Indonesia, I do understand why there are so many tax disputes, rulings, notifications, etc due to my experiences in work and reading.

CDL considered itself a conglomerate and its main businesses are property related. Property development, investment properties and hotel. Pretty easy to understand but the way I look at CDL changed after reading 70 overs reports which exclude the listed subsidiary in Philippines. I don’t think many peoples know CDL well.

Not revaluing investment properties projected a conservative image, but CDL is aggressive, gear up when needed and hide it well or this is the way CDL operates. Over capitalized listed subsidiaries and leveraged CDL. Eating up these listed subsidiaries over the years. This is one of the reason why CDL dividends has been low over the years but it might change. over capitalized listed subsidiaries ensured they won’t be asking for money from CDL and M&C acted as first line of defense for CDL REIT and First Sponsor. Smart move, really. Sorry Aberdeen, I do not agree in investing all the listed subsidiaries. Invest in snake head is better.

It is hard not to write about NAV or RNAV when it come to property companies. NAV of a property company is about the method of accounting being used, willingly or forced. This is the first layer. RNAV is about how you  want to trick other. If CDL want to trick other about how high their RNAV is, all it need to do is to revalue investment properties, hotel properties and project all profit to be made from all land banks. Here it goes, RNAV surged.

And what next? It can always tell other, “look at my leverage after RNAV, we can borrow more.” Ok sure, new development, new Investment properties and new hotel. So RNAV increased again! What a trick as long as bank is willing to finance it and most banks are willing! The only block is to make those so called analysts and investors believe in it. Now everyone started to use RNAV and a promotor will always find the highest RNAV.

End of the day, it is not about RNAV. It is how the company grow NAV. Growing NAV mean ROE. This E can appear in P&L or B/S. Realised or unrealized. Lumpy of course, due to industry and accounting. ROE goes back to quality of earnings. Which is Margin, asset turnover and leverage.

Property industry is no different from other industries. With or without RNAV. Earning is earning and money is money. Trying to make it unique doesn’t mean it is.



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