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QuestionsCategory: Valuation QuadrantOUE Valuation and Capital Expenditure
Michael Lim asked 6 years ago

Hi Victor/Rusmin,
When i Plot the NAV against share price of OUE, i have realized that that the current P/BV of 0.23 today is the lowest ever in the past 10 years of history. Even during the Great Financial Crisis, its P/BV is at 0.75x while during the Euro crisis it was at 0.56x.
Just when i though the stock has gotten cheaper, the downtrend continues with no sign of weakening. The capital recycling by injecting the properties into their REITS (OUE H trust, OUE C Reit) have been happening for past few years, yet the market doesn’t seems to react to it. Twin Peaks projects used to be a problem, but recent news suggest sales of the luxury condominium are picking up. 
Is there something behind the curtain that retail investors does not really know? Perhaps that is some value trap lurking somewhere which i never notice. Would like to hear your thoughts on this =)
Capital Expenditure
Referring to Link: FY 2015 Annual Report, Page 56 of 103 of the PDF File
Operating Cash Flow is 55,265
Capex under “Additions to property, plant and equipment” = (4,161)
Free Cash Flow = 51,104
It is my understanding for property companies, they should have rather high Capex. Did i take the wrong figure? or is my understanding of Capex requirement property developers flawed? 
Would like to understand if this is the norm. 
Thanks for reading this!

Michael Lim replied 6 years ago

Correction for current NAV
Current Share Price = $1.54
NAV per share = $4.35
P/NAV = 0.35

Still the biggest discount in NAV for 10 years

1 Answers
Victor Chng answered 6 years ago

Hi Michael, 
Personally, I did not analyse OUE but based on your analysis I had develop a few question for you to think about it

  1. Do they have recurring income from the business? for instance rental or they are just developer?
  2. Do they have potential growth in business? such as project that are currently in development and is about to finish in 2-3 years?
  3. What is their property yield at the moment if their business are rental in nature
Victor Chng replied 6 years ago

As for Capex, I think you can also include addition of properties