Executive Summary - · PDF fileLTC CORP | Investment Thesis Executive Summary LTC Corp is a...

LTC CORP | Investment Thesis

Executive Summary

LTC Corp is a ~S$80m company listed on the SGX that is engaged in four lines of business: Steel Trading, Property

Development, Property Rental, and Retailing. The company’s stock has lost ~40% of its value over the last three years,

trading down in sympathy with EPS cratering from 23.6¢ to 4.4¢ over that period. Sentiment around the stock is also

poor as its primary exposure is to two industries – real estate and steel – which have both been under pressure over the

last few years. This however presents an opportunity to take a variant view based on a deep understanding of the

company’s fundamentals.

An analysis of LTC’s accounting EPS reveals it to be a poor proxy for the company’s true earnings power. Instead, one

should focus on LTC’s free cash flow, of which it has recorded a negative figure only once in the last 10 years. Whilst EPS

indicates that the company is earning a fraction of what it used to, FCF generation has diverged from accounting

earnings and still remains robust, tracking above the company’s through-the-cycle run-rate. On this metric, LTC is

currently on sale at a mere 2.6x EV/LTM FCF or 3.9x EV/through-the-cycle FCF.

LTC has also been aggressively paying down its debt, having reduced it from a peak of S$59.4m eight years ago to S$60k

as of June this year. This not only de-risks the company’s balance sheet, but more importantly represents an inflection

point for the company. Firstly, aggressively retiring debt has masked the company’s FCF in the past. As such, the end of

the debt repayment cycle should make the company’s FCF generation more evident to the market. Negligible debt going

forward also means that all the company’s FCF that was previously committed to retiring debt (S$38.2m over the past

five years alone) can now begin to either a) be used to create shareholder value through effective capital allocation, or

b) be allowed to accumulate, adding to the company’s already substantial S$34.4m pile of cash (43% of market cap).

Lastly, as evidence of how cheap the stock is, LTC’s wholly owned four blocks of industrial property in Singapore at a

reasonable 7.0% cap rate is alone worth slightly more than the current market cap. Consequently, one receives for free:

43% of the market cap worth of net cash, retail operations purchased a year ago for S$23.1m, nine completed

properties held for sale valued at S$27.9m, and various other hard and operating assets.

Business Description

LTC Corp has four business segments: 1) Steel Trading – a stockist supplying steel rebar to the construction industry in

Singapore (Prominent projects include the Marina Bay Sands Hotel, Marina Bay Financial Centre and Resorts World

Sentosa); 2) Property Development – across Singapore, Malaysia and China; 3) Property Rental – primary asset

comprises four blocks of wholly owned freehold industrial property in Singapore, and 4) Retailing – via its 45% effective

interest in the SOGO department store in Kuala Lumpur. The company is loosely associated with the Lion group of

companies run by the wealthy Cheng family whose operations span retail, property development, mining, steel,

agriculture and more.

Investment Thesis

LTC’s stock has sold off in sympathy with the collapse of its EPS. Accounting earnings are however not instructive of

LTC’s true earnings power. Rather, the company’s intrinsic value is better measured through its FCF; of which it is still

producing a healthy amount and has a history of consistent positive generation. LTC’s stock has ground lower over the

last three years, weighed down by its accounting EPS. It could however be argued that the slump in accounting EPS is in

large part due to “Fair Value Gains in

Investment Properties” drying up. This

line item is an accounting gain recognized

when the company’s investment

properties are revalued annually. It used

to be a consistent source of accounting

earnings. For example, in the three years

through FY13, ~40% of bottom-line

earnings came from this one line item

alone. These gains have ceased as

Singapore’s property market has cooled,

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Figure 1: Rolling TTM FCF vs Accounting Profit

TTM FCF TTM Profit Attributable to Owners

Source: Company filings

Shares begin to sell off in-line with collapse in EPS, however…

EPS and FCF tell different stories


contributing significantly to LTC’s earnings slump. Such revaluation gains were however non-cash, non-recurring, purely

accounting profits to begin with.

Rather than tracking headline EPS, a prudent investor should instead monitor LTC’s ability to generate free cash flow.

Here, not only has EPS and FCF diverged over the last few years, but FCF remains healthy and in fact has historically

been consistently positive. Over the last ten years, a period spanning the GFC and a 77% peak-to-trough collapse in

rebar prices, the company has recorded only one year of negative FCF. In that same period, the company has generated

an average through-the-cycle annual FCF of ~S$12m. Juxtapose that against the company’s S$46m enterprise value, and

the current value proposition becomes evident.

LTC is at an inflection point following years of retiring debt. FCF should become more evident as debt repayment used

to obscure the company’s cash generating abilities. Henceforth, cash can begin to accumulate on the company’s

balance sheet or be used for accretive capital allocation. Company debt peaked at S$59.4m in 2008. Since then, LTC

has actively paid down debt to its current

S$60k. This is a key catalyst for the stock

because in the past, a significant portion

of LTC’s FCF was directed towards retiring

debt. Going forward, with the debt

paydown complete, FCF that would have

previously been used to pay down debt

could begin to rapidly accumulate and the

company’s FCF generation should become

increasingly evident to the investing

public. This also provides management

with the opportunity to get constructive

with capital allocation. For example, a share buyback or tender offer at the company’s current 0.32x P/BV would be an

incredibly accretive undertaking. Alternatively, the company would be well placed to hike its current 8.9% dividend

payout ratio or announce a special dividend. Interestingly, SIAS – an advocate for investor rights in Singapore – recently

raised a series of questions to management including the following, “If the group diversifies into new businesses purely

for the sake of diversification, especially into areas where it has neither the expertise nor the experience to value-add,

then shareholders would like the board to re-examine its capital structure so as to maximise value for all shareholders.

[emphasis is SIAS’]” Management’s response was not very informative, but the exchange highlights the fact that the

possibility of returning capital has at least been broached.

Whilst the likelihood of positive capital allocation decisions going forward is debateable, the ending of LTC’s debt

repayment cycle is inarguably an inflection point for the company. At such discounted prices, the potential for such

value enhancing activities are de facto free call options because even without a capital return program, at the very least

allowing cash to build should draw investors’ attention to LTC’s ability to generate free cash flow. An increasing net cash

position also provides tangible and rising downside protection.

LTC has likely already booked ~S$14m of FCF in 1Q17, a fact unlikely realized by the market due to LTC having no sell-

side coverage. This puts the company on track to keep pace with its long-term S$12m per year FCF run-rate. One of

LTC’s more prominent property developments of late has been the Seven Crescent freehold cluster of bungalows in the

East of Singapore. As of 30 June 2016, four units had remained unsold. However, going through caveats lodged with the

Urban Redevelopment Authority reveal that it is likely that at least three and probably all four units have since been

sold at S$3.6m a piece. These sales are corroborated by the development’s official website stating that “All developer

units are 100% sold”. The third leg to support this conclusion is that the company reversed the unused portion of its

Qualifying Certificate extension charges in 4Q16. This was a charge taken in compliance with the Residential Property

Act’s Qualifying Certificate rules mandating that developers pay a percentage (8% for the first year in this case) of the

land purchase price of unsold units to extend a two-year deadline to sell newly developed property upon completion, on

pain of forfeiture of the developer’s 10% banker’s guarantee. The complete reversal of that provision in 4Q16 and the

timing of the aforementioned caveats (July 2016) indicate that as of 30 June, a provision was no longer needed since the

properties were to be disposed of soon or possibly already optioned despite not yet meeting the criteria for revenue

recognition within the quarter. As such, S$14.4m of FCF (less taxes and transaction costs) is foreseeable in 1Q17 alone.

Non-recurring going forward as debt is now negligible

One-off investment to establish a new business segment


Even through the debt repayment cycle, cash has been building

Figure 2: Five Year Cash Build Analysis


When one considers that the company has but a market cap of S$80.6m and an enterprise value of S$46.2m, a cash

inflow of such size in a single quarter – unanticipated by the average market participant – could provide a near-term

catalyst for the stock.

The nature of public sector contracts provides a natural price stability ballast during times of stress. The current

industry shift of construction project mix from private to public could thus reduce price risk going forward. Most

public sector projects are based on

variable price contracts that are reset

every month. This allows for more

predictable economics as purchase and

selling prices move in tandem with the

market. Private sector contracts on the

other hand are more likely to be fixed

price contracts. With these type of

contracts, LTC has more cost-revenue

matching issues. Due to timely fiscal policy

intervention and shrinking private sector

expenditure, public sector construction

accounts for a larger portion of construction work during economic slowdowns, providing a natural price stability offset

to total construction volume.

LTC does not screen well due to its heavy top line exposure to its steel business. Under the Global Industry

Classification Standard (GICS), LTC is classified under the “Metals & Mining” industry and “Steel” sub-industry.

Consequently, the company screens on market data services such as Bloomberg amongst “peers” such as Vale,

ArcelorMittal, and Tata Steel. As such, if viewed at first blush as a small-cap steel producer, the company would seem

fully valued at ~12x earnings given the steel industry’s poor dynamics. However, LTC is a victim of such algorithmic

broad-brush classification; a practical method of sorting countless small cap companies, but one that misclassifies LTC’s

business. For one, due to accounting rules, all of LTC’s steel subsidiary’s revenues are consolidated in its income

statement despite LTC only having a ~50% economic interest. Adjusting for this, the company’s top line exposure to its

steel business falls from 72% to a more balanced 56%. Furthermore, whilst LTC’s revenues are heavily tied to its steel

business, that segment does not account for a similar share of LTC’s profits, a more crucial metric for shareholders. A

strong case could be made too that – at least per market value vs segment net assets – the company probably derives

more intrinsic value from its one industrial property in Singapore than from the its steel business. Thus, whilst the

company’s current valuation might be apropos for a small steel manufacturer, to categorize LTC as such would be to

miss all its other valuable assets. The company thus remains under the radar and mispriced.

Valuation

One of LTC’s properties alone is worth the current market cap, meaning one receives a whole list of other assets for

free. LTC is very conservatively worth S$0.84/share on a SOTP basis. The market is currently so severely mispricing LTC

that its four blocks of industrial property in Singapore alone – at a reasonable 7.0% cap rate – are worth the current

market cap. Consequently, an investor today receives for free: net cash equal to 43% of the market cap, completed

properties held for sale valued at S$27.9m, a retail business purchased for S$23.1m a year ago, ~60ha of freehold land in

Malaysia, and various other operating and hard assets. Thus, at current prices, there exists a significant and tangible

margin of safety. A very conservative sum-of-the-parts valuation (see appendix) arrives at a base case value of

S$0.84/share.

Opportunity to purchase a business at 25-40% cash-on-cash yield. Viewing the stock as a purchaser of an operating

business, the investment proposition on the table is as follows (figures rounded): One pays S$80m to purchase a debt-

free company, and in the process receive $35m in cash, meaning that one has effectively only paid S$45m for the

company’s future earnings potential which amounted to S$18m of FCF last year and a through-the-cycle run rate of

S$12m. Thus, the investment has a potential effective annual cash-on-cash yield of 25-40%.

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Figure 3: TTM Construction Contracts Awarded

Public Sector Private Sector Median

AFC SARS GFC

First post-independence recession

Dotcom bubble bursts

Source: Building and Construction Authority, Urban Redevelopment Authority


Meaningful discount to historical P/B valuation. The company is not just cheap on an absolute basis, but also relative

to its historical trading range as its P/B ratio of 0.32x is in the bottom 8th percentile over the last nine years, a period

that includes the depths of the GFC.

Key Investment Risks/Bear Case Arguments

Potential for poor capital allocation to destroy value. The fact that LTC is cash rich and could begin to rapidly

accumulate even more cash as debt repayments subside makes management’s capital allocation abilities pivotal going

forward. The first use of said cash was to add a new retail business segment last year. While the jury is still out on that

investment (see Appendix for further analysis), management’s use of cash is an important metric to track going forward

as it weighs heavy on LTC’s future intrinsic value.

Key industrial property could face declining value and NOI, materially impacting EPS and book value. LTC’s wholly

owned industrial property in Singapore

accounts for a significant portion of its

intrinsic value and cash flow. Worryingly,

industrial property values are beginning

to contract, possibly pricing in expected

negative rental reversion due to

oversupply. Management has

acknowledged this risk, stating, “… the

investment properties in Singapore may

face some challenges in maintaining

occupancy and rental rates.” Vacancies –

an indicator of lessee bargaining power –

has been rising over the last few years and is already at levels only seen during the AFC and SARS periods.

As a silver lining, market imbalances tend

to beget their own corrective forces as

new supply is throttled in response to

poor expected forward returns. This

process is already underway, but is only a

year old. Aside from the obvious effect a

decrease in rental income would have on

LTC’s bottom line, a far larger and less

obvious effect would be that negative

rental reversion could fuel revaluation

losses. This would have the opposite

effect of the abovementioned revaluation

gains in the past. With LTC already only earning ~4c per share, this could tip EPS into negative territory, a psychologically

important threshold for market participants. Just as worryingly, investment properties account for 47% of LTC’s book

value. A lower property valuation could therefore materially impact BVPS. However, mitigating this fact is that the stock

is so cheap that the base case SOTP valuation builds in a ~30% decline in investment property value and still derives fair

value ~60% north of current prices.

01,0002,0003,0004,0005,0006,0007,0008,0009,000

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Figure 5: TTM Industrial Contracts Awarded^

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Figure 4: JTC Industrial Price Index vs Vacancy Rate

JTC Industrial Price Index (LHS) Vacancy Rate (RHS)Source: Urban Redevelopment Authority, JTC

Vacancies rising

1Y CAGR: -7.8%

^ Rebased to Aug 2016 prices * Source: Building and Construction Authority, Urban Redevelopment Authority, Department of Statistics Singapore, Author’s Calculations

Construction activity continuing to slow could bring market into balance


Construction activity – a proxy for steel

rebar demand – is in a downtrend.

Overall construction activity is down over

the last few years, largely driven by a

slump in residential activity. Whilst public

infrastructure projects are expected to

buttress overall steel demand, past

economic cycles show that even with

counter-cyclical fiscal stimulus, the net

effect in a down cycle is still reduced

construction activity.

LTC’s property development business has been in a harvest period the last few years. Going forward, LTC’s operating

businesses need to step up to ensure continuous cash flow generation. LTC’s property development business has been

in a noticeable ‘harvest’ cycle over the last

few years. The transition from “sowing”

to “reaping” clearly started in FY14 when

the company’s ratio of held for sale

properties to under development

properties inverted. Since then, LTC has

not invested much in its pipeline as

evidenced by an almost unchanged

“Properties under development” line,

whilst continuing to generate strong cash

flow through the sale of completed

properties. Such cash flows however are

non-recurring and limited to LTC’s stock of properties for sale. Whilst the abovementioned forecasted 1Q17 sale of four

Singapore bungalows should help keep LTC’s cash flow robust for FY17, this segment is unlikely to be a sustainable

contributor going forward barring major reinvestment. Consequently, the company will have to find other ways to

continue generating cash flow. Rental income should form a backbone for future cash generation, but its current ~S$8m

run rate means that other business segments will need to pick up the slack.

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Figure 7: Property Development Segment in Harvest Cycle

Completed Properties Held for Sale Properties Under Development

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nFigure 6: Rolling TTM Total Construction Contracts Awarded^

Public Sector Private Sector Total

^ Rebased to Aug 2016 prices Source: Building and Construction Authority, Urban Redevelopment Authority, Department of Statistics Singapore, Author’s calculations



Appendix

Trading Statistics (18 Oct 2016)

S$ Stock Price $0.515 Fully Diluted Shares Outstanding 156.5m Market Cap $80.6m Cash $34.4m Debt $0.06m Enterprise Value $46.2m Dividend Yield 1.9% Revenue $129.6m Dil. EPS $0.04 Book value per share $1.61 P/E 11.7x P/B 0.32x EV/FCF 2.6x

Deconstructing LTC’s EPS LTC’s stock has followed its EPS lower, which in turn has been driven largely by property revaluation gains (and gross profit)

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0.90

S¢S$

Closing Price (LHS) TTM EPS (RHS)

(20,000)

(15,000)

(10,000)

(5,000)

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Change in TTM Property Revaluation Gains Change in TTM Gross Profit Change in TTM Profit attributable to Owners

Investment Summary

One industrial property in Singapore alone worth the

current market cap, meaning an investor receives a

whole list of valuable hard and operating assets for free

Net cash equivalent of 43% of LTC’s market cap

Company at an inflection point after effectively retiring

all ~S$60m of its debt over eight years. Debt repayment

obscured FCF generation in the past and debt-free +

cash rich balance sheet provides a platform for

constructive capital allocation going forward

Due to no sell-side coverage, the market is unlikely

aware of ~S$14m in FCF due in 1Q17 (the quantum is

meaningful given LTC’s enterprise value of S$46m)

0.32x P/B (bottom 8th percentile vs historical range)


Corroborating Evidence of Sale of Seven Crescent Properties Three discrete facts point towards ~S$14m of cash flow in 1Q17

Evidence 1: Reversal of provision created for Qualifying Certificate deadline extension

Evidence 2: Caveats lodged with Urban Redevelopment Authority

Evidence 3: Development’s Sales Enquiry page


Total Debt Current capital structure is eight years in the making. Debt fully paid down, the company is now at an inflection point.

Steel Bar (16-32mm High Tensile) Prices in Singapore Tentatively broken out of a multi-year slump

Median Rental of Multiple-User Factories by Street in Singapore LTC’s Arumugam Road industrial property enjoys above average rent vs similar properties island-wide

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Arumugam Road Median LTC Property

Median

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Source: Building and Construction Authority

Due to timing mismatches in fixed price contracts, in a falling price environment, LTC would have had to pre-purchase some of its inventory at

higher prices while delivering them at lower prices. A reversal of steel prices could have the reverse effect whereby inventory is accumulated at lower

prices and sold at higher prices in the future.

Premium pricing gives LTC flexibility to move down the price curve if need be

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Multi-year debt cycle complete


Industrial Property Construction Activity vs Vacancies Oversupply created by robust construction activity over the last few years, market is in early stages of correcting itself

SOGO Investment Timing and price paid questionable, but provides a toe-hold from which LTC is anticipated to grow a new business segment

Using two large publicly listed peers as proxies for the industry, one can see that the timing of LTC’s purchase of its retail

business is less than perfect, coinciding with declining industry profit margins and SSS growth. The acquisition was also

made amidst a precipitous drop in commodity prices and the Ringgit, and two months before Malaysia implemented a

Goods and Services Tax.

Valuation wise, the deal was announced at 7x trailing earnings. Post-acquisition however, earnings have collapsed and

the acquisition multiple (in hindsight) has turned out to be a much higher 46x FY16 profit after tax (0.9x sales). LTC also

paid a provisional goodwill amount of S$10.5m, implying a hefty ~80% premium to book, hardly a bargain for a narrow

moat business like bricks and mortar retailing. Furthermore, the acquired business does not own the property or land

-10.0%

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Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16

Parkson and AEON Malaysian Retail Operations

Parkson Profit Margin Parkson Same Store Sales Growth AEON Profit Margin AEON Same Store Sales Growth

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10.0%

12.0%

14.0%

0

500

1,000

1,500

2,000

2,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

'00

0 s

q m

ne

t

Industrial Property Supply by Vintage

Constructed Potential New Supply Vacancy Rate (RHS)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

Jun

96

Jun

97

Jun

98

Jun

99

Jun

00

Jun

01

Jun

02

Jun

03

Jun

04

Jun

05

Jun

06

Jun

07

Jun

08

Jun

09

Jun

10

Jun

11

Jun

12

Jun

13

Jun

14

Jun

15

Jun

16

S$m

Vacancies Loosely Follow Contract Awards with a 24 Month Lag

T24M Contracts Awarded^ (LHS) Vacancy Rate 24M Later (RHS)

^ Rebased to Aug 2016 prices Source: Building and Construction Authority, Urban Redevelopment Authority, JTC Corporation, Department of Statistics Singapore, Author’s Calculations

Construction activity continuing to slow could bring market into balance

Strong construction activity despite rising vacancies

Source: Urban Redevelopment Authority, JTC Corporation, Ascendas REIT

Profit margins are back to GFC levels

SSS growth has turned negative

Source: Parkson Holdings Bhd, AEON Co Bhd

SOGO acquisition announced Feb ‘15

*


underlying the SOGO department store, which would have gone some way towards justifying the purchase price. The

decision to expand into a new segment with no synergies to LTC’s existing business could also arguably be a case of

“diworsification”.

To provide a balanced commentary however, management is attempting to be opportunistic and contrarian in

expanding into the retail space at a difficult time. In exchange filings, management cited short term Ringgit weakness as

a timely investment opportunity for LTC to deploy its stronger Singapore Dollar cash hoard. Also, the lack of property

ownership means that the SOGO business runs on an asset light model, with 82% of sales coming from concessionaire

sales which have no inventory holdings costs for the company. For such concessionaires, the business collects a

percentage of their turnover as commission income with a minimum performance target turnover, where SOGO

receives a guaranteed minimum commission. The company also leases space to certain brands directly for rental

income. Management likely specifically chose this asset light model to allow the new retail team to scale with minimal

capital requirements. Management expects to expand the business into a multi store chain positioned for the middle

and upper middle income segment. Promisingly, the growth is expected to be funded by internally generated funds and

it is not envisaged that the business will require support from the LTC Group for further expansion (likely due to its

asset-light business model).

Familial Relationships and Company Positions

Cheng Family Ongoings Reshuffling of family members could hint at company’s future direction

Recent events suggest that LTC is in a two-fronted family transition: 1) Consolidation of interests within Cheng Theng

Kee’s lineage (in-line with legacy regional division) and 2) Transfer of responsibility from first to second generation

(possibly as part of succession planning)

Background: The seed for the Cheng family’s wealth stems from the father of the current “first” generation

(Theng Kee, William, Theng How). When the elder Cheng passed away, William inherited the company’s

Malaysian operations and Theng Kee, the Singapore business.

William Cheng’s deemed interest in LTC has fallen from 30.8m shares to 15.8m shares over the last three years,

and he relinquished his directorship role in October 2014 after 14 years on the board.

In October 2014, LTC is rebranded from “Lion Teck Chiang” at an EGM, dropping nominal ties to the legacy Lion name. Reasons provided are vaguely stated as: “[the name change] would provide a more accurate and broader representation of the Company’s current corporate profile and future business direction especially in the international business environment.”

B B Cheng Theng Kee (87 y/o) Chairman

Cheng Theng How (61 y/o) Director & GM of Angkasa Amsteel

William Cheng Heng Jem (73 y/o) Most notable member of Cheng family

Deemed 10.1% interest in LTC mostly

through flagship Lion Corp Bhd

Former LTC Director (1997-2014)

Cheng Yoong Choong (52 y/o) Director of Business Development and

Retail Operations

Previously Group MD of Parkson Retail

Asia & Parkson Retail Group

Former Chairman of Malaysia Retailers

Association

Cheng Yong Liang (59 y/o) Managing Director

Background primarily in Lion Group’s

property division

Previously a board member of Lion

Industries Corp (50% partner in steel

business)

Cheng Yong Kim (66 y/o) Deemed 33.9% substantial shareholder

Lion Industries Corp Managing Director

Due to the family’s use of investment vehicles to hold their LTC stake, it is hard to pinpoint individual effective interests. There are various

ways that one can be attributed “deemed interest” in a company holding LTC shares including ≥ 20% ownership of the holding company,

control of the board, etc. Therefore, the “deemed interest” disclosure in regulatory filings do not provide granularity on ownership of LTC.

However, as a good indicator of Cheng family interests, one can look at the recent AGM voting and in particular Ordinary Resolution 8

(Renewal of Shareholders’ Mandate for Interested Person Transactions). Due to the conflicted nature of the resolution (transactions with a

Lion Group subsidiary), 58% of shares outstanding had to abstain from a vote.

B B

F/S

B: Brother

F/S: Father-Son


Cheng Yoong Choong (Theng Kee’s son and Yong Liang’s brother) is appointed as Director of Business

Development in January 2015, bringing with him decades of retail experience, including serving as the Group

MD of Parkson Retail Ltd and Parkson Retail Group Ltd as well as Chairman of the Malaysia Retailers Association.

LTC announces its investment in USP Equity a month later, establishing a new retail business segment for LTC.

Yoong Choong is tapped to head that business.

This would suggest the narrative of a son, having spent decades building out the Parkson brand in the Cheng

family’s more dynamic Malaysian group, returning to the immediate family business to guide LTC through its

next growth phase.

The recent reshuffling suggests succession planning, with each younger family member being given a key

role/segment to helm: Steel (Theng How), Retail (Yoong Choong), and Overall Group (Yong Liang who is Group

MD but with a background in property). All are roughly within the 50 to 60 age bracket, while patriarch Theng

Kee is in his late 80s.

William’s receding interests in LTC and another of Theng Kee’s sons being brought on board and effectively

tasked with building out a new business suggests consolidation of LTC within Theng Kee’s lineage, a reversion to

the geographical delineation of the business as it was initially passed down to the current heads of the family.

Sum-of-the-Parts Valuation Very Conservative valuation yields intrinsic value ~60% higher than spot

Base Bear Bull

Net Cash 34,326 34,326 34,326 Long-Term Investments 4,651 - 4,651 Freehold Industrial Properties 84,2861a 65,5561b 118,0001c Completed Properties Held for Sale 27,9212a 14,4002b 27,9212a Retail Business 13,5793a - 23,1453b Steel Business4 - - - Property Development Business5 - - - Total Liabilities6 (32,649) (32,649) (32,649)

Fair Value 132,114 81,633 175,394

Fair Value/Share 0.84 0.52 1.12

Valuation Summary

- 0.20 0.40 0.60 0.80 1.00 1.20

P/B†

SOTP

EV/FCF*

Fair Value

S$0.77

Current Price

S$0.515

* 4.0 – 8.0x EV/through-the-cycle FCF (10Y Ave) † 0.44 – 0.50x P/B; 0.44x P/B = T5Y median multiple

1a 7.0% Cap Rate 1a 9.0% Cap Rate 1c Company’s independent appraiser (Knight Frank): 5.0% Cap Rate 2a As per AR16 2b Only 4x Seven Crescent properties ascribed value @ S$3.6m a piece 3a Book value 3b Purchase price 4 Segment net operating profit: -$2.5m (FY16) and $6.3m (T10Y ave) 5 Majority of value lies in completed properties held for sale + properties under development ($13.1m) 6 All liabilities included to be conservative

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