October 2016

Metro Holdings Limited (SGX: M01)

Cash Rich Real Estate Landlord and Developer
Trading at a Sharp Discount of 43% to NAV
Significant Potential Upside of >40% by 2017

Please email questions and comments to:

hch@quarzcapital.com
Jan F. Moermann
Havard Chi
www.quarzcapital.com
This presentation is a research report and is for informational purposes only. Opinions expressed are solely those of Quarz
Capital Management, Ltd. and this is not a recommendation to purchase securities discussed herein. This presentation is
confidential and may not be reproduced or distributed without the express consent Quarz Capital Management, Ltd.
Please refer to the next slide for additional disclosures.

Quarz Capital Management

LEGAL DISCLAIMER
DISCLAIMER
As of the publication date of this report, Quarz Capital Management Ltd. and its affiliates (collectively "Quarz"), others that contributed research to this report and
others that we have shared our research with (collectively, the Authors) have long positions in and own options on the stock of the company covered herein
(Metro Holdings) and stand to realize gains in the event that the price of the stock increases. Following publication of the report, the Authors may transact in the
securities of the company covered herein. All content in this report represent the opinions of Quarz. The Authors have obtained all information herein from sources
they believe to be accurate and reliable. However, such information is presented as is, without warranty of any kind whether express or implied. The Authors
make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its
use. All expressions of opinion are subject to change without notice, and the Authors do not undertake to update or supplement this report or any information
contained herein.
This document is for informational purposes only and it is not intended as an official confirmation of any transaction. All market prices, data and other information
are not warranted as to completeness or accuracy and are subject to change without notice. The information included in this document is based upon selected
public market data and reflects prevailing conditions and the Authors views as of this date, all of which are accordingly subject to change. The Authors opinions
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herein is accurate and reliable. The Authors reserve the rights for their affiliates, officers, and employees to hold cash or derivative positions in any company
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The information contained in this document may include, or incorporate by reference, forward- looking statements, which would include any statements that are not
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which are beyond the Authors control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on
all securities, companies, and commodities discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any
investment decision.

Quarz Capital Management

Agenda

Introduction
The Metro Opportunity
Property Portfolio
Cash and Liquid Investments
Key Reasons for Undervaluation
Quarz Capital Recommendations for Metro Holdings Limited
Illustrative Sum of Parts Valuations
Shareholder Base
Conclusion

Metros property development projects (Clockwise L R): Nanchang Fashion Mark (China), The Crest @ Prince Charles Crescent (SG), Sheffield Digital Campus
(UK), Milliners Wharf (UK), Middlewood Locks (UK)

Source: Quarz Capital Management, Metro Holdings Limited

Quarz Capital Management

Introduction
Imagine if You Can
Receive Another

Invest SGD 0.915/Share for:

SGD 0.77/Share (84% of Mkt Cap)

SGX listed company since 1986

for FREE

Household name in Singapore

Net cash holdings of SGD 393m (SGD 0.48/share)

Receivables due from JV of SGD 133m (SGD
0.16/share)
Listed equity holdings of SGD 111m (SGD
0.14/share)

Investment and development properties valued at

SGD 603m (SGD0.73/share)
Annualized rental income >SGD 30m (SGD
0.036/share p.a.)
Established and reputable high-end department
store chain in one of the fastest growing retail
markets in the world valued at SGD 50m (SGD
0.06/share)

&

Investment to Real Estate PE Fund totalling SGD

37.4m (SGD 0.05/share)

Source: Quarz Capital Management, Metro Holdings Limited

Quarz Capital Management

The Metro Opportunity 1/3

The Metro Opportunity

Household name in Singapore and Indonesia due to its department stores

Company has successfully transformed into a global property landlord and developer
Excellent real estate portfolio in Singapore, China and the UK
2nd largest net cash holdings in SGX with SGD 393m (52% of market cap)
Total net cash, receivables and liquid investments totalling SGD 637m
NAV Asset Classes Breakdown

Key Statistics
Last Price1
52-Week Range1
Shares Outstanding2
Market Capitalization
Gross Asset Value (GAV)3
Net Asset Value (NAV) 3,4
NAV/Share
Discount to NAV
Dividend/Yield2

Cash Due
from JV
10%

SGD 0.915
SGD 0.81 - 1.09
828.0m
SGD 757.7m
SGD 1,360.7m
SGD 1,332.8m
SGD 1.61
- 43%
0.07 / 7.7%

Property
Investment
35%

Net Cash
30%
Property
Development
10%

Listed Equity and

PE Invt
11%

Retail
4%

NAV Country Split

Cash and
Liquid
Investments
41%
1) Bloomberg data as of 3rd Oct 16
2) Based on Metros FY2016 (end Mar) Annual Report, 1Q17 Financial Statement
3) Based on QCM estimates and Metros FY2016 (end Mar) Annual Report, FY1Q17 Financial
Statement
4) Metro FY1Q17 Financial Statement Total Equity SGD 1,372m (SGD 1,311 if excluding dividend
of SGD 58m distributed on 4th of Aug 16)

Source: Quarz Capital Management

Indonesia
4%
Singapore
2%

China
49%

UK
4%

Quarz Capital Management

The Metro Opportunity 2/3

Metros Share Trades at a Massive Discount to its NAV
1400

111
Net Cash and liquid
Investments of
~SGD 637m
~84% of Mkt Cap!!

1200

1000

Share price trades at 43% discount of NAV

133

Grade A Commercial and Retail

Investment Properties + Development
Properties (mostly pre-sold) + Retail +
Investment in PE fund

Upside of 76%
to NAV

SGD million

393
800

600

400 Share Price

@SGD 0.915

36
55

Current Mkt Cap

758

200

Property Investment
and Development
portfolio valued
at SGD 603m
~80% of mkt Cap

Investors pay for Property Portfolio and get

additional cash and liquid investments
valued at SGD 637m

470

134
0

Current Mkt Cap

Property Devt
Property Invt
Invt in PE
Net Cash

Metro's NAV
Retail
Cash Due from JV

Source: Quarz Capital Management

Quarz Capital Management

Property Portfolio 1/2

Solid Cash Yielding Investment and Property Portfolio in China
Metro Tow er

Metro City
Type
Loc ation

Shanghai
Nanchang

Ownership
Lettable Area
Valuation
Value / PSM
Oc c upanc y Rate
Net Inc ome
Inc ome Yield
Top Tenants

Retail Mall
Xujiahui Distric t - Direc tly
linked to Xujiahui Subway
Station (Line 1,9,11)
60%
39,107 sqm
1
SGD 221m
SGD 5,651
3,6
88.2%
1,6
SGD 22.1m
10.0%
Fitness & Beauty Ctr - 7.6%
Star Theatre - 6.5%
Food Republic - 6.4%
Kodak Cinema - 6.0%

Type
Loc ation
Ownership
Lettable Area
Valuation
Value / PSM
Oc c upanc y Rate
Net Inc ome
Inc ome Yield

Top Tenants

Nanchang Fashion Mark

Guangzhou

Type
Location
Ownership
Saleable Area
Area Delivered
Valuation
Value / PSM
To be Completed

Mixed- Use Development

Hong Gu Tan CBD
30%
498,139 sqm
291,887 sqm
SGD 178.0m2
SGD 883
2018

Sham a Century Park

Type

High End Residential

Pudong New District - 5 mins
walk to Shanghai Science
Location
Subway Station (Line 2), 15
mins drive to Pudong CBD
Ownership
30%
Lettable area
40,388 sqm
1
Valuation
SGD 368m
Value / PSM
SGD 4,952
Occupancy Rate
54.2%2,7
Net Income
SGD 5.4m2,5,7
Income Yield
2.7%
Mainly to Corporates,
Top Tenants
Expatriates and as Short Term
Service Apartments

GIE Tow er
Type
Location
Ownership
Lettable area
Valuation
Value / PSM
Occupancy Rate
Net Income
Income Yield
Top Tenants

1)
2)
3)
4)
5)
6)
7)
8)

Grade A Commerc ial

Xujiahui Distric t - next to
Metro City
60%
40,388 sqm
1
SGD 200m
SGD 4,952
3
99.4%
SGD 15.2m1
7.6%
Exxon Mobil - 18.6%
Swatc h Grp - 16.8%
Energy Sourc e - 13.8%
KFC - 8.4%
Pizza Hut - 6.7%

Grade A Commercial
Yexiu District
60%
28,390
SGD 100m1
SGD 3,522
86%3
SGD 3.8m3,4
3.8%
Yu Cai Restaurant - 14.2%
Abbott Lab - 11.7%
GZ Kamen Industry - 10.2%
Sino- US MetLife Ins - 7.7%

Portfolio valued at
SGD 523m8 and
generates normalized
rental income in excess
of SGD 30m

Based on Metros FY2016 (end Mar) Annual Report

Based on Top Spring Internationals 1H16 (end June) Financial Statement
Based on Metros FY1Q17 (end June) Financial Statement
Based on annualizing NI reported in Metros FY1Q17 (end June) Financial Statement
Based on annualizing NI reported in Top Spring Internationals FY1H16 (end June) Financial Statement
Lower than normal rent and occupancy rate as Metro City is undergoing a major refurbishment programme. 1 out of 9 floors has ongoing asset enhancement work
Lower than normal rent and occupancy rate as units in Century Park are in the process of being sold, resulting in the inability to commit to long-term tenancy contracts
Including an apartment in Shanghai Lakeville Regency (next to Xintiandi) valued at SGD 6.5m

Source: Quarz Capital Management, Metro Holdings Limited

Quarz Capital Management

Property Portfolio 2/2

Development Projects in Singapore and UK will be fully completed and
sold in the next few years
Middlew ood Locks
Type
Location
Ownership
Saleable Area

Mixed - Use Development

Western boundary of
Manchester City Ctr (next to
River Irwell)
25%
223,000 sqm

Development Profit

SGD 210m1

Profit / PSM

SGD 940

To be Completed

Late 2017 - 2022

The Crest @ Prince Charles Crescent

Sheffield Digital Cam pus

Type

Commercial Development

Location

Sheaf Street, adjacent to

Sheffield main train station

Ownership

Type
Location
Ownership

50%

Residential Development
Jervois Area - 5 mins drive to
Orchard Road Shopping Belt
40%

Saleable Area

12,200 sqm

Saleable Area

50,854 sqm

Development Profit

SGD 15m2

Development Profit

SGD 50.8m3

Profit / PSM

SGD 1230

To be Completed

2017 - 2020

Profit / PSM

SGD 1000 3

To be Completed

Late 2016

Proportional Share of Development Profit in excess of SGD 80m

1) Based on median profitability of residential property developers in UK Assume development profit of SGD1230 / PSM
2) Based on median profitability of mixed use property developer in UK. Assume development profit of SGD940 / PSM
3) Based on price to move estimated sales price of SGD 1,500 / PSF (current selling price >SGD 1,600). Estimated development profit
of SGD 90 / PSF based on land purchase price of SGD 960 / PSF and construction and operating cost totalling SGD 400-450 / PSF

Source: Quarz Capital Management, Metro Holdings Limited, various financial reports of UK property developers

Quarz Capital Management

Cash and Liquid Investments

SGD 637m of Cash and Liquid Investments
16.1% stake in Top Spring
(3688 HK) - valued @ SGD 81m
1% stake in Shui On Land (272
HK) - valued @ SGD 30m

Listed Equities
17%

Cash due from

Joint Ventures
21%
Net Cash
62%

Loans to JV of SGD 133m

Repayment once development
projects are completed in the
next 1-3 years
Joint Venture Partners:

Cash holdings of SGD 421m

Total non-current liabilities of
SGD 28m

Source: Quarz Capital Management, Metro Holdings Limited

Quarz Capital Management

The Metro Opportunity 3/3

Share Price has been Range-Bound despite Severe Undervaluation
1.60

+76% - Current NAV / Share of

SGD 1.61

1.50

1.40

1.30

1.20

+40%

Repetitive pattern of stock trading

up pre- / post- announcement of
dividend and correcting after
dividend payout
Ex-date of
FY14 dividend

Ex-date of
FY15 dividend

>40% - Potential total return based

on the execution of Quarz
recommendations

+25%

Ex-date of
FY16 dividend

1.10

-5 to +15% - Potential range of total

return without catalysts
/ normalised scenario

1.00

0.90

0.80

0.70

Declaration of
FY14 dividend
of SGD
0.6/share

Declaration of
FY15 dividend
of SGD
0.6/share

Feb-14 Aug-14

Feb-15 Aug-15

Declaration of
FY16 dividend
of SGD
0.7/share

0.60

Aug-13

Feb-16 Aug-16

Feb-17 Aug-17

Source: Quarz Capital Management, Bloomberg, Metro Holdings Limited

10

Quarz recommendations can

lead to 1) Higher valuation of
Metros share price, 2) Release
of excess capital to all
shareholders, and 3) Company
to achieve its L-T objective of
value creation

Quarz Capital Management

Key Reasons for Undervaluation

Items / Comments
Excess net cash holdings of SGD 393m (52% of market cap) which will increase to
SGD 526m over the next 2 - 3 years (completion of current development projects)
Investors concern about the inefficient allocation and potential mismanagement of capital
Strategy

Lack of clarity and coherent strategy besides opportunistic acquisition / disposal /

development of real estate properties
Lack of clarity on the strategy of retail operations
Lack of clear dividend and capital return policy
Weak investor relations:
- Lack of access to management

Communication

- Hard to decipher financials (no clear breakdown of key financial data such as recurring
rental income / development and one-off gains)
Stock has little institutional following and no sell-side coverage which lowers trading liquidity

Negative feedback loop of lower liquidity further leads to lower investors interest

Lack of clarity on managements KPI

Management

Lack of share-based compensation as a portion of remuneration package (poor alignment

with shareholders interest)

Source: Quarz Capital Management, Metro Holdings Limited

11

Quarz Capital Management

Quarz Recommendations for Metro Holdings

Items / Comments
Immediate distribution of excess cash / return of capital
- SGD 150 - 200 million of cash distribution will yield a dividend of 20 - 26%
- Remaining cash balance of >SGD 215 million (>SGD 350m by 2018) is more than sufficient
to cover annual dividend payout and make opportunistic RE acquisitions
Strategy

Implement accretive share buyback programme to repurchase shares whenever share

price trades at a discount >40% of NAV
Present clear strategy in Real Estate (e.g. focus countries, type of RE, evaluation criteria)
and Retail (expansion and store rationalising) divisions

Clear statement on dividend policy

Improve investor relations to increase understanding of Metro Holdings
- Institutional investors to have increased access to management
Communication

- Increase coverage by both buy- and sell-side analysts (management to participate in equity
roadshows)
Increase in quality and quantity of reported financial information and presentation (data
on rental income, rental rate trend, forecasted development margins and profit)

Management

Clearer link between managements compensation to companys mid- to long-term

profitability and share price
Increase proportion of share-based compensation to management to align their interest with
shareholders

Source: Quarz Capital Management, Metro Holdings Limited

12

Quarz Capital Management

Potential Total Return for Metros Shareholders

>40% Upside Potential With Implementation of Quarz Recommendations
1.30

1. Return of excess capital to

provide initial upside of ~23%

0.06

1.20

Upside in excess
of 40%

0.12

Discount to NAV
to decrease to
~25%
0.40

1.10

0.21
1.00

Dividend Yield
of ~23%

3. Annual dividend strongly

supported by recurring rental
income and development profits

0.90

0.80
0.92
0.70

2. Discount to NAV to decrease to

25% following improved
understanding of the intrinsic
value, resilient earnings and
strategy direction of Metro
Holdings

4. Metro still retains >SGD 215m

of net cash (increasing to SGD
350m by 2018) to invest and
enhance its long-term
profitability

Undervaluation and
cash-rich profile of Metros
stock to provide downside
protection

0.60
Current Share
Price

Extraordinary
Dividend

Lower Discount to Annual Dividend

NAV

Source: Quarz Capital Management, Metro Holdings Limited

13

Total Upside

Quarz Capital Management

Illustrative Sum of the Parts Valuation

Items
Property Investment
GIE Tower (Guangzhou)
Metro City (Shanghai)
Metro Tower (Shanghai)
Shama Century Park (Shanghai)
Lakeville Regency (Shanghai)
Listed Equity and PE Investment
Top Spring
Shui On Land
InfraRed NI China RE Fund II
Property Development
Nanchang Fashion Mark (China)
Middlewood Locks Manchester (UK)
Sheffield Digital Campus (UK)
The Crest @Prince Charles Crescent (SG)
Retail Business
Metro SG (3 stores)
Metro ID (9 stores)
Other Assets
Cash& Cash Equivalent
Cash Due from JV
Gross Asset Value

Market Value
(SGDm)
100.0 1
221.0 1
200.0 1
368.0 1
6.5 1

Current
Yield (%)
3.8
10.0
7.6
2.7

Stake (%)
100.0
60.0
60.0
30.0
100.0

502.0 3
3009.2 3

16.1
1.0

178.0 2
210.0 4
15.0 5
50.9 6

30.0
25.0
50.0
40.0

Proportional
Value (SGDm)
469.5
100.0
132.6
120.0
110.4
6.5
148.3
80.8
30.1
37.4 10
133.7
53.4
52.5
7.5
20.3
55.0
0.0 7
55.0 8
554.1
421.3 9
132.8 1
1360.7

Liabilities
Deferred Income
Deferred Taxation
Net Asset Value
Mkt Cap (Share Price@0.915)
NAV / Share
Discount to NAV (%)
Upside to NAV (%)

27.9
12.0 1
15.9 1
1332.8
757.7
1.6
43.2
75.9

Source: Quarz Capital Management, Metro Holdings Limited, Bloomberg

14

GAV (%)
34.5
7.3
9.7
8.8
8.1
0.5
10.9
5.9
2.2
2.7
9.8
3.9
3.9
0.6
1.5
4.0
0.0
4.0
40.7
31.0
9.8
100.0

1) Based on Metro Holdings FY16 (end Mar) Annual Report

2) Based on Top Spring International FY1H16 (end June)
Financial Statements
3) Stock prices from Bloomberg as of 20th Sept 2016

4) Based on median profitability of residential property

developers in UK Assume development profit of SGD 1230 /
PSM
5) Based on median profitability of mixed use property
developer in UK. Assume development profit of SGD940 /
PSM
6) Based on price to move estimated sales price of SGD
1,500 / PSF (current selling price >SGD 1,600). Estimated
development profit of SGD 90 / PSF based on land
purchase price of SGD 960 / PSF and construction and
operating cost totalling SGD 400 - 450 / PSF
7) Despite current equity position of SGD 23m, we value the
unit at 0 due to its loss making profile (NI of -2.4m, -1.6m in
FY2016, FY1Q17) and the potential cost required to further
right size the operations
8) Valued at P/E of 20x CY15 NI at a discount to established
and bigger peers such as Matahari (P/E 31x15A),
Ramayana (P/E 26x 15A)
9) Subtract dividend payment of SGD 58m from the cash
balance reflected in Metro Holdings 1Q17 Financial
Statement
10) Investment in real estate PE fund

Quarz Capital Management

Shareholder Base
Description of Shareholder Base
Estate of Mr Jopie Ong is deemed to be interested in
the shares held by Eng Kuan Company, Dynamic
Holdings and Leroy Singapore.

Shareholding Level

Ms Ong Ling Ling, Mr Ong Jenn, Ms Ong Ching Ping

and Mr Ong Sek Hian are the Joint Executors of the
Estate of Mr Jopie Ong

Estate of
Jopie Ong
34%

Mr Ong Jen Yaw has a 3% direct stake (held by

Citibank Nominees) and partial interest in the shares
held by Eng Kuan Company (Estate of Mr Jopie Ong)

Others
50%

The Ngee Ann Kongsi is a non-profit organisation

actively involved in the education, cultural and welfare
activities in Singapore. The foundation was founded to
look after the religious and welfare needs of Teochew
immigrants but has evolved to become a significant
contributor to the enrichment of the Singapore society

Ong Jen Yaw

3%

Ngee Ann Kongsi

10%
Tweedy Browne
1%

<2% of total shareholdings are held by BoD and top

management

Source: Quarz Capital Management, Metro Holdings Limited, Bloomberg

15

Dimensional Fund Advisors

2%

Quarz Capital Management

Conclusion
The Metro Opportunity, in Summary
Metros Share Price is Severely
Undervalued

We Recommend:
Immediate distribution of SGD 150 - 200
million of excess capital (Dividend Yield of
~23%)

NAV of SGD 1.3bn (SGD 1.61/Share) vs Mkt

Cap of SGD 758m (- 43% discount to NAV)

Accretive share buyback programme and

clear dividend policy

Investment and development property

valued at SGD 603m (SGD0.73/share)

Provide clear strategy in Real Estate and

Retail divisions

Annualized rental income >SGD 30m (SGD

0.036/share p.a.)

Improve investor relations to increase

investors understanding of Metro Holdings

Net cash, receivables, and listed equity

holdings of SGD 637m (SGD 0.77/Share)

Increase in quality and quantity of reported

financial information

Deep discount cap and substantial cash

holdings cap potential downside
(privatisation possibility)

Increase proportion of share-based

compensation to management to align
interest with shareholders

Potential Upside in Excess of 40% by 2017

Source: Quarz Capital Management, Metro Holdings Limited, Bloomberg

16

RESEARCH OFFICE
Quarz Capital ASIA (Singapore) PTE. LTD.
Havard Chi, CFA
Head of Research
E-mail
hch@quarzcapital.com
Tel
+65 (0)94 33 3898
REGISTERED OFFICE
Quarz Capital Management, Ltd.
Clifton House, 75 Fort Street
P.O. Box 1350, George Town
Grand Cayman, KY1-1108
www.quarzcapital.com