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China Housing and Land Development, Inc. Message Board

hdoe1000 8 posts  |  Last Activity: Jan 8, 2015 7:47 AM Member since: Jan 2, 2008
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  • Reply to

    PE = 1

    by hdoe1000 Jan 7, 2015 2:38 PM
    hdoe1000 hdoe1000 Jan 8, 2015 7:47 AM Flag

    I have to correct what I've said about Nobu Su's VTG shares.

    Apparently, last September, an appeals court has reversed a bankruptcy court decision to accept the shares as collateral in Su's bankruptcy cases. But I have no follow up information. Was that decision appealed? What is with the shares already sold?

    The decision will certainly further complicate the bankruptcy cases. Fortunately, they are independent from VTG's claims. Su is paying fortunes to his lawyers. I wonder how long he can do that.

    Sentiment: Strong Buy

  • Reply to

    PE = 1

    by hdoe1000 Jan 7, 2015 2:38 PM
    hdoe1000 hdoe1000 Jan 7, 2015 6:05 PM Flag


    Objectively, the situation in 2008-2009 looked much worse: The world was expected to be in a long recession, reducing oil demand. Financial institutions were bankrupt or stressed, not able to advance credit to the oil sector.

    As to the Nobu Su stake. Most of that is pledged and he will probably never get it back. By last September, creditors had sold some 10% of that stake.

    Unfortunately, Management's communication talent is sub par, as is its talent to create shareholder value. Using 10% of cash flow for share buybacks would not wreck the company but create a lot of shareholder value.

    I could imagine that the delivery of the Cobalt will be delayed by 6 months to the middle of 2016 if day rates remain poor by the middle of this year, although, to my knowledge, there are only five class 6 ships needing a contract in the first half: 3 from Pacific Drilling, one from Seadrill and one from Maersk. Seven class 6 ships need a contract in the second half.

    Regarding Opec: when oil fell to $80 in November, Saudi's Al Naimi promised his fellow Opec partners that the price would recover "soon". In their understanding, that means 3 to 6 months. Refusing the role as a swing producer is costing his country big money. Exporting 9.2 Mb/day (crude+ LPG) at $100/barrel is obviously better than exporting 10.2Mb/d at $50-$60/barrel. I think that Al Naimi will increasingly feel the heat from his own government. Unless prices recover sooner, he has to reach some kind of agreement with other producers about a production cut at the next meeting, at latest - with the others making symbolic cuts an the Saudis factually playing swing producer again.
    His behavior strangely resembles that of Oil minister Yamani in 1986. Yamani suddenly decided that the Saudis will no longer play swing producer and will go for market share. Oil price halved and a few months later Yamani was fired.

    Sentiment: Strong Buy

  • hdoe1000 by hdoe1000 Jan 7, 2015 2:38 PM Flag

    The valuation is getting completely absurd.

    2015 will be the cyclical low for drilling-floaters needing a new contract. Fortunately VTG isn't affected.

    VTG's EPS in 2015 should be in the order of $.30, assuming a ship operating ratio of 92%. Contrary to 2014, deferred items will add to earnings and compensate the non cash financial costs. An upside to that estimate is possible. Thus we are approaching a PE ratio of 1. Market value is just 40% of 2015 cash flow from operations.

    Even if Platinum and Cobalt would work in 2016 at day rates of 230k (total operating cost level), VTG's 2016 cash flow from operations would remain positive at around $80M. That scenario implies that all older floaters in the world will not get an operating cost covering contract and offshore E&P more or less collapses - a case that has never happened. Even during the slump of 2008/2009, with oil prices falling to below $40/barrel, average day rates of UDW floaters (mostly class 5 then) didn't fall below $400k/d.

    At current crude prices, US shale production will not grow in 2015 but will start to crash in the 2nd half of 2015 (field decline rates 40%/year). US shale oil needs +$80/barrel crude to survive medium term.

    So, even without an Opec cut, the "glut" will disappear and crude prices recover to or above $80/barrel by 2016.

    Under the assumption of crude at $100/barrel, US shale production growth was expected to flatten and peak around 2018 or 2019 (EIA). After 2016, global oil demand-supply is likely to get tight again (even with full Opec and US shale production) while - between 2017 and 2019 -, the supply of new class 6 floaters will fall to a trickle – a golden period for DW and UDW drillers.

    Sentiment: Strong Buy

  • hdoe1000 by hdoe1000 Dec 17, 2014 10:03 AM Flag

    Last quarter, a significant part of Gigm`s reported loss resulted from the write down of the value of the Gamania holding (stock price decline). Now, Gamania's fortunes seem improving. After several quarters of declining earnings, there was a positive earnings reversal and Gamania's stock price has responded. Maybe we will see a write up of the value of the holding for the current quarter.

  • Reply to

    Great comment on GFA value by John Gilluly

    by amendoza Dec 11, 2014 10:00 AM
    hdoe1000 hdoe1000 Dec 12, 2014 2:27 PM Flag

    I don't think that the company is overvaluing its assets.
    - Management has said that the book value of the land bank is below market value.
    - The 30% stake of Alphaville is on the books at around R$ 180M. The selling price to Black Rock suggests a value around R$600M
    - The company wrote down the legacy stuff to market value. Because of inflation, dissolved contracts are generally resold at higher prices. Tenda's gross margins are tending up because of that.
    - The share buy backs should further enhanced book value per share, once those shares are canceled.

    Sentiment: Strong Buy

  • Reply to

    Comments about Tenda's numbers and outlook (1)

    by hdoe1000 Nov 11, 2014 2:18 PM
    hdoe1000 hdoe1000 Nov 11, 2014 5:19 PM Flag

    Well, management seems very determined, but there will be a shareholder vote. As long as Tenda has problems, a split could be beneficial, although the Gafisa segment has room for improvements too. Longer term, if both parts should do well, the value of the split would disappear. Opportunities can shift an the freedom to allocate capital to the right segment will have gone.
    (Btw, my Tenda part 2 message disappeared and I put it in again now. Hopefully it will stick now (-:

  • (2nd attempt)

    Operating efficiencies
    For the 9 month period, selling expenses have been around 10% (target 7.5%) and G&A expenses 15% (target 7%). The high percentage of G&A is the result of low net sales so far this year. With launches expected to increase significantly in coming years and activity to be concentrated into 5 or 6 areas, there is a good chance that the targets can be reached.

    Tenda has refilled and reallocated it's landbank. Enough for 5 years of 2014 projected launch volumes.

    Comparison to MRV (based on MRV financial data until 2014 Q2)

    MRV is the dominant player in the low income housing segment. The company is well managed and is currently 6 times Tenda's size, based on sales. The company has 70% of the MCMV market. Dissolutions in 2013 amounted to 21% of pre sales. In 2014-Q2, they exceeded 27% (31% in units, suggesting that the lowest priced units see an above average number of dissolutions). MRV doesn't mention a problem with legacy projects. Gross margins are around 27%. Selling 7.7% and G&A 5.7% of revenues. Other expenses 1.6% of revenues (15% of Tenda's, relative to revenues, although also increasing). The low cost housing segment seems to be financing-light. Financing has a positive contribution to margins of 2.6%. We are seeing something similar at Tenda. MRV's income taxes and social contributions are low with 4% to 6% of income before taxes.
    That gives MRV a net return on revenues of 11.8% (excluding one time contributions) and a Return of Capital Employed (ROCE) of 12.4% (Tenda's ambitious target for ROCE is 14% to 16%).

    In better Stock market times, MRV was trading above book, now 75% of book and 90% of revenues.

    Analogous to MRV's capital structure, Tenda could easily support annual launches and revenues of R$1.5B. Should the company one day overcome its legacy problems and achieve a net return on sales of 10%, based on that revenue size, EPS would be R$ 0.38, supporting a share price of R$ 2.5 to R$ 3.5.

  • The following is based on 2014 Q3 results and CC comments

    Demand for low income housing remains very good.
    Some launches had to be postponed because of delayed permits
    Q4 launch volume will be close to the cumulated launch volume of Q1-Q3 (R$ 372M)

    Dissolutions - New Model
    Investors had expected that with the new model, the problem of dissolution was solved (sales will only be recorded if financing is assured and the mortgage is passed to a financial institution). But in Q3, dissolutions in the new model increased to 42%.
    In the CC management explained that, after mortgage approval, the customer had a 30 day period to walk away from the contract. That has been changed now: the walk away period is limited to 7 days and sales will be recorded only after the receipt of a payment. Management hopes that this will limit recorded dissolutions to 10%-15% of sales.

    Legacy Projects
    Legacy inventory at the end of Q3 was R$ 386M. There is still some construction going on, but deliveries will more or less come to an end in 2014. Thereafter, dissolutions should drop, but I am wondering if, for the units returning to the market, the New Model sales principles apply. Legacy liquidation is clearly progressing more slowly than what management had expected. Annualized, it's turning around R$ 80M currently. In the CC, management said that sales will be made opportunistically, not forced, expecting two more years before it's mostly over. The good news is that margins are improving thanks to reselling at higher prices because of inflation. From gross margins close to zero at the beginning of the year, they see now occasionally gross margins up to 20%.

    Other expenses
    They are quite substantial - R$32M in the last 9 months - double the comparable figure of last year. According to the CFO, they are about lawsuits, resulting from late deliveries, mostly labour related. The company lost some cases, made some accruals. The CFO sees the number of law suits dropping.

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