I did some quick research and found that Shenzen factory rents in the "outer zone" was at 19.54 RMB per square meter per month. Per NTE's 2011 AR they have a total of approximatley 1mm sq feet of floor space in Shenzen. 558k sq ft is manufacturing space while the remainder are mostly dormitories etc.
If you price it all out at the 19.54 RMB rate the gross rental would be 64mm RMB per month or $122mm U.S. annually. Less operating expenses and taged with a 10% cap rate you could get a billion dollar value for the property.
The report I looked at was from the "Propertty Times" Q4 2012. "Inner zone" rents are at 40.25 RMB. I used the outer zone rate just to get a feel for what the company may be sitting on. Warehouse space lets for 31.6 RMB in the outer zone and R&D for 39 RMB.
Kind of interesting......
JCH your analysis seems flawed, mostly because you are mixing square feet and square meters.
The price of 19.54 RMB per square meter per month is just over $3 per sq meter per month or around $0.30 per square foot per month. So on 1 million square feet that is $300,000 per month or $3.6 million per year. At a 10% cap rate, that's only $36 million and if the facility magically became 3 million square feet, that would be $108 million.
However, the property has been rezoned high-end commercial so I would recommend looking at the grade A office pricing in the report, which comes out to $30 per square foot per year (on average) for Shenzhen. Right now NTE is several miles from major downtown, but it is adjacent to the soon to be built special cooperation zone. Conservatively it is reasonable that when built, NTE's land could get $20 per square foot per year, or $60 million on 3 million buildable. I would also suggest a 5% cap rate is more reasonable, so the fully built property is likely worth $1.2 billion. A develop probably has to pay $125 to $150 per square foot to build 3 million square (maybe somewhat less), so that's $375 million to $450 million. Would they also pay $125 to $150 per buildable to get the land? Seems reasonable if not conservative - that's $8 to $10 per share. The big question is asking rents. If it's $25 and not $20, the construction cost doesn't change much, but land sales price obviously moves.
To Sevenxreturn - interesting however the location is north of the airport and much further from downtown and real estate is all about location. Also, some funky corporate governance with only 2 reports a year, father chairman, son CFO, lawyer based in Nevada and on the Board. Has management given any indication that it plans to monetize the Shenzhen facility?
Sentiment: Strong Buy
One thing that is also a big factor in current real estate value is the ability for the existing property to appreciate in value. Rents/income are a factor, but sometimes that plays a huge second fiddle to the capital gain in appreciation. Kind of like a stock and a dividend.
The best way to value it is buildable sq feet and what it’s going for (For sure over $200, and $500 is possible). Raw land is also good indication also and some numbers were in the 80 million per acre.
Either way you look at it, the land is worth allot. Probably worth more than the company. Either way it doesn’t really matter. It puts a huge floor on the stock. Maybe higher than what it is right now. On top of that you have the $4.60 cash in the bank, and growing. Growing earnings, revenues, dividends etc etc. Not to mention other hard assets like other real-estate, plants, equipment. Bottom line is just buy the stock and hold. Risk/reward is incredible.
Sentiment: Strong Buy
Yes all you say is correct with management. However the father and chair recently bought over 1,000,000 shares at $2.50, which is way above market. Also Mr. So needs an exit and he is getting old. If I was to guess the true book is way over $20 considering land and other assets on their books at cost. It is time for the company to start communication and doing something with the stock for So’s exit or retirement. The company has also indicated their new desire to communicate extensively with Q numbers and more now? I regards to the factory in Shenzhen I do not know there plans currently. However the verbiage so far indicates the need for both locations for their production. Whichever way this go’s it is still a great buy in my opinion.
I have personally been to the Nam tai Shenzhen location. The company and the land have great value currently and I agree with the assessment made. NTE has big upside and has been very consistent in being profitable and paying me income for many years now.
However you also need to check BNSO Nam tai’s Nabors. BNSO is way under book, has one factory almost the same size and blocks from NTE, the chair added over 1,000,000 more shares recently at $2.50 over market. The company organically built a new factory three times of their Shenzhen location. Last this company has not received any exposer yet at a $7,000,000 market value.
That's interesting. Since the property was rezoned they will most likely bulldoze all of the current buildings and put up one or more skyscrapers once they move to the new property, but your figures show the extreme value of land there.
Sentiment: Strong Buy