“Never put all your eggs in one basket”. An age-old advice that we often hear. However, for companies, should we also look for businesses with diversified asset base? Actually, more often than not, companies diversify due to growth-driven purposes. For investors though, it also helps to reduce the geographic risks we are exposed to. Here are 3 companies driving growth through overseas expansion.
- Mapletree Greater China Commercial Trust (MGCCT)
Mapletree Greater China Commercial Trust (MGCCT) has revealed its FY18 results which were largely in-line with analysts’ expectations. Gross revenue fell by 5.5 percent year on year to $89.6 million, with the drop largely due to “reversal in Value Added Tax payable for Gateway Plaza” and weaker exchange rate of Hong Kong Dollar against Singapore Dollar. The decline was cushioned by higher rental earned from Festival Walk and Gateway Plaza.
Other encouraging news came from higher occupancy rates and rental reversions. Overall portfolio occupancy rate stood at 98.5 percent after an increase of 1.6 percent, with Sandhill Plaza even achieving a 100 percent occupancy rate. Rental reversions were also positive for all the three properties, with Festival Walk seeing an 11 percent increase in rental, Gateway Plaza at 8 percent, and 15 percent for Sandhill Plaza.
Further, tenants saw higher revenue with growth of 7.4 percent, totalling HK$5.2 billion and higher footfall to the malls of 3.2 percent growth. Overall the malls are doing better, which explains the confidence of the management about the properties’ prospects.
The diversification efforts come in MGCCT’s plan to expand into Japan with the acquisition of six freehold commercial properties which have been approved by unitholders. These acquisitions are projected to cost $770.5 million, but will bring an expected net property income yield of 4.8 percent.
The yield accretive acquisition will drive MGCCT’s growth and diversify its risk of being overly exposed to Hong Kong’s market. OCBC raised the fair value target from $1.39 to $1.42 per unit. Currently, MGCCT is trading at $1.16 per unit.
- Ho Bee Land
Ho Bee Land (Ho Bee)’s 1Q18 performance was still able to meet analysts’ expectations in spite of a decline in its profitability, which was due to the divestment of Rose Court last year.
Net profit saw a 12 percent decline year on year for the first quarter as expected with the above-mentioned sale. Also, the firm sold a “small development site at Ferny Avenue on Gold Coast” at a profit, selling at AUD5.5 million compared to the purchase price of AUD2.9 million in 2012. Also, Shanghai’s joint venture projects by Ho Bee has performed well and generated 28.5 million for the quarter.
The firm has diversified and invested EUR40 million into the Credit Suisse European Property Fund II as well as EUR50 million in a commercial development project in Munich which will see the redevelopment of the acquired property into a 500 thousand square foot Grade A office building.
Moving forward, the sale of unsold units at Sentosa held by Ho Bee can be a catalyst for the share price to move upwards, given the return of positive sentiments to the local property market. However, despite the stronger demand for higher-end properties, the high selling price of these units at above $4million are unlikely to see a high spike in sales. Thus, Ho Bee’s performance in FY18 will likely be underpinned by its overseas properties.
CIMB ascribes a target price of $3.39 for Ho Bee, representing to a potential gain of 27.4 percent against its current price of $2.66.
- MindChamps Preschool
MindChamps Preschool (MindChamps) is further expanding into Australia after it acquired four preschools in Sydney at AUD12.9 million. These acquisitions is expected to be funded by bank loans and cash held by the company (currently standing at $39.4 million). Post-acquisition, MindChamps is still expected to be at a net cash position.
The acquisition will add to MindChamps’s portfolio which already comprises eight other preschools in Australia. More acquisitions are expected: two in 2019, and one in 2020.
Consolidation of the newly acquired preschools should see growth in the company’s financial performance and hence the stock price. Notwithstanding that, the firm is also looking into expanding into China, by opening a Chinese preschool there in August this year.
Earnings contributions from the newly-added and upcoming preschools are together a potential catalyst for this stock. RHB has a Buy call on the stock with a target price of $1.00. MindChamps currently trades at $0.80 per share.