Tan Chong's Property Assets Catching Guoco's Eyes

Source : The Business Times, September 17, 2007

TAN Chong International appears now to be more of a property play than a seller of motor vehicles. That's why several analysts, including Singapore's Kim Eng Research, are calling a buy on the stock at current prices - on Friday, it closed 2.5 Hongkong cents lower at HK$2.325.

Kim Eng on Sept 5 set a target for the stock at HK$3.62 - 4 per cent down from an earlier target of HK$3.77. It attributes the downward revision to the recent change in development charges, which it said affected its valuation of Tan Chong, as it had earlier factored in the combined redevelopment of Tan Chong Motor Centre and The Wilby Residence, both off Bukit Timah Road.

Kim Eng said: 'The higher DC rates resulted in a higher development charge and consequently our valuation for the company's investment properties has decreased from HK$2,591.1 million to HK$2,293.8 million.'

Although the property scene in Singapore has been somewhat dampened by the hike in development charges and the more recent changes in en bloc rules, most property players and observers are still bullish on the sector's long-term outlook.

It's Tan Chong's property assets that have perhaps also attracted Malaysian business tycoon Quek Leng Chan to increase his stake in the company through his Guoco Group. Guoco increased its stake in Tan Chong from 11.02 per cent at the end of last year to 12.11 per cent at end-June this year.

Everyone knows that Mr Quek is a shrewd investor and he perhaps also sees an opportunity to increase his stake even further, given market talk about the house of the Tans who currently control Tan Chong.

According to previous media reports, there is little love lost between the Singapore and Malaysian side of the founding family - between Singapore-based company chairman Tan Eng Soon and his uncle Tan Kim Hor.

In recent years, the chairman appears to have consolidated his position, with the latest annual report showing he has 16.66 per cent of the company. In total Tan Chong Consolidated, the holding company of the founding family, owns 45.34 per cent.

While the trigger point for a compulsory general offer for a listed company in Hong Kong is 35 per cent, this should pose little difficulty for a takeover artiste like Mr Quek, nor is he short of the resources to make a takoever offer for a company with a market capitalisation of under $1 billion.

In the meantime, the company's car sector is doing less well as sales of its main line - Nissan - continue to decline in the face of fierce competition from the likes of Toyota and Honda and from parallel importers. Sales of Nissan fell from 10,045 units in 1H06 to 6,746 in 2H06 and to 6,106 in 1H07.

Things are brighter, however, at its Subaru and Nissan heavy commercial vehicle divisions, with sales of the former rising from 1,836 units in 1H06 to 2,323 units in 2H06 and to 3,185 in 1H07.

Kim Eng's target price is based on the sum-of-the-parts of Tan Chong's vehicle distributorship business, its high net cash position of about HK41 cents a share, and the estimated market values of its investment and held-for-sale properties.

Details like these must surely have not escaped the eyes of Mr Quek and his advisers.

A takeover attempt by Mr Quek would be a boost to the fortunes of weary minority investors.