Asiamoney: best managed companies and best executive 2007, Singapore

Asiamoney, December 2007 

Large cap: CapitaLand

CapitaLand is one of the region’s savviest property developers. UBS’s Alastair Gillespie calls it “one of the leading and most ambitious Asian-based real estate companies”; Goldman Sachs speaks of its “unique capital efficient business model and top-in-class execution.”

The numbers are great – total shareholder returns of S$17.3 billion since inception in November 2000, footprint in 100 cities in 20 countries, EBIT up 154% and EPS 268.3% year on year in the nine months to September 30 (to S$2.8 billion, and 74.4 cents respectively). But it’s CapitaLand’s smarts that really stand out. No other property institution has understood the possibility of the real estate investment trust (REIT) market so well. CapitaLand has now launched five, all of them pioneers: early structures in the Singapore market, a China retail trust that showed just how a Chinese REIT can work if done properly, and now a REIT listed in Kuala Lumpur. All of them have done exceptionally well for unitholders and for CapitaLand itself.

CapitaLand’s strength lies in spotting every bit of the value chain and positioning itself accordingly. It is a developer, a manager, an operator, a financial advisor, a fund manager and an investor, and better still it is good at all of them.

Mid cap: Tat Hong

If you want to play a construction boom, buy cranes. Singapore’s Tat Hong Holdings is, within its chosen field of renting out 70-800 ton cranes, the biggest crane company in Asia, and a world leader in its fleet of crawler cranes.

That’s a useful business to be in, and consequently Tat Hong more than doubled its first half net profit (for the first half of its 2008 financial year) to S$40.2 million. It can boast a gross profit margin of a whopping 39.4% and almost doubled its earnings per share in the first half. Prior to the latest result, president and CEO Roland Ng had set a target of 30% annual net profit growth for the next three years. In November, he said he was confident of beating it.

Tat Hong, formed in the 70s, has four core businesses: rental of cranes (the biggest part and getting bigger), rental of general equipment, sale of cranes, and sale of spare parts. It can serve clients in infrastructure, oil and gas, construction and even pharmaceuticals, and does so across the region from the Middle East to Australia. It has a combined rental and sales fleet of 500 mobile crawler cranes and has built exclusive distributorship agreements with companies like Hitachi-Sumitomo, Mitsubishi and Kawasaki.

It listed its Australian subsidiary, Tutt Bryant, in 2005 and has now turned its attention to China, where it owns a stake in the Dushun Yongmao tower crane company and holds a joint venture company. In the last 12 months it has launched another JV, this time for tower crane rental, and acquired China Nuclear Industry Huaxing Construction Machinery. Still only on a P/E of about 15. The sky’s the limit.

Small cap: SC Global Developments

Merrill Lynch’s Singapore research head Melvyn Boey calls it “Singapore’s most respected high end developer”, and it’s a very useful time to have that accolade. Singapore wants to boost its population from four to six million, much of it from skilled expatriates; wealth is booming and demand for top end residential property seems assured. SC Global Developments is very well placed to benefit. “With an excellent track record and standing in the luxury residential segment of the property market, we believe that upcoming launches will continue to set record prices over the next year,” Boey says. Merrill predicts a compound annual growth rate of 209% in earnings over the next three years – yes, 209.

If that seems farfetched, recent numbers do demonstrate the company’s momentum. Net profit was up 74% in the half year to June 30, year on year, with a 32% gross margin thanks to high sales prices. Its ultra-luxury developments are selling out within days of debut, with construction barely underway; and an associated company in Australia, AVJennings, is helping performance too. SC has a 1.1 million square feet landbank of developable area in high end lifestyle districts on Orchard Road and Sentosa Cove and is well placed for the city state’s growing opulence.

Best executive: Roland Ng, CEO, Tat Hong.

Roland Ng joined Tat Hong in 1979, when it was a family business with a small presence in equipment trading. He became managing director in 1991; since then the group has taken on a corporate structure, become a regional leader in its field, listed in both Singapore and (through a subsidiary) Australia, and is now taking on China.

Fund managers and analysts love what he’s done with the place. That’s hardly surprising: at listing in 2000, Tat Hong shares began trading at 30 cents apiece. In mid-December they were going for $3.24. “He’s very proactive and open to meeting investors,” says one analyst.

Tat Hong’s fleet, of heavyish crawler cranes, is ideal for infrastructure projects, of which there are a great many in Asia. That’s better still for a rental company since the length of the lease can be years at a time. But Ng has been smart enough to adapt to local needs: preparing to take on China, he first observed there was no sense going it alone, then realised that Tat Hong’s fleet of crawlers was of limited use in China where the usual method is to use tower cranes. So he bought a stake in a Chinese tower crane manufacturing company and launched a JV with a rental group; now, he’s confident the country will contribute 20-25% of the bottom line within three years. 

Renting cranes is a surprisingly good business model. For a start, there are very high barriers to entry for people trying to build a fleet on the Tat Hong scale. “For someone new to come in, they don’t just need money,” explains Ng. “If you put your order in for a new crane it takes 18 months to deliver.” Also, you don’t run the risk of technology making your fleet obsolete: Ng says commercial cranes are typically good for about 30 years. “They don’t move much, so there is very little wear and tear,” he says. “They just sit there. I lift something, I drop it. That’s it.”