If you’re not a member of the Malay community in Singapore, chances are you’ve never heard of Second Chance let alone know what this brand represents.

And if you’re a member of the Malay community, I’m guessing that you’re probably not aware that Second Chance does not only sells traditional Malay clothing and jewellery.

With market capitalisation of $170mil, Second chance owns approx 43,700 square metres worth of investment properties valued at $220.8 mil.

Second Chance Properties Ltd is an investment holding company which engages in retail ready-made garments (First Lady Apparels) in Singapore and Malaysia. More specifically, traditional Malay clothing that is usually worn for Hari Raya festivities.

It is also involved in the retail distribution of gold and jewellery (Golden Chance), targeting the same group of customers from the Malay community.

I’ve been to one of their outlets, it is interesting to note that both the ready-made garment and jewellery outlets are situated next to each other. Traffic from either outlets usually compliments each other.

Financials Summary

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Revenue breakdown Annual report FY2015
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Profit before Tax Annual report FY2015
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Revenue Aug 2016
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Profit Before Tax Aug 2016

First Lady Apparels

Despite being its largest contributor of revenue, the Apparel business generates the lowest amount of profit before tax which suggest that margins are low due to increasing competition. Statement from CEO:

“Rising business costs and labour constraints had a significant impact on the retail industry as a whole, leading to downward pressure on rentals. The rising interest rates and increased competition in the apparel sector also affected our profitability.”

Personally, I feel that First Lady Apparels needs to capture the younger generation of consumers with modern designs and trends. The company should consider e-commerce as part of future plans.

I’m seeing a growing trend of small fashion boutiques targeting to the younger consumers with niche designs and more appealing modern look. The CEO has outlined these factors as part of its plan to consolidate the business:

a.To reduce our debt and keep gearing level very low by gradually reducing our bonds and equities portfolio and continuing to monetise investment properties.

b.To reinvent our apparel business by reducing the number of non-performing or marginally profitable retail stores and focusing on a new business model under the now operational Mega First Lady.

c.To launch an online portal combining both retail and wholesale of apparel under one platform.

In its recent update of financial results on Aug 2016, the group has successfully reduced its debt levels from $95mil to $64mil, this is attributed to the reduction on short term borrowings.

The group has also reported a decrease of $4.84 mil in the revenue, resulted in $0.76mil loss from apparel business mainly because of closure of fifteen shops in Malaysia since the end of FY 2015, the introduction of GST, the weakening Malaysian Ringgit and also intense competition there.

So far things have not improved for the apparel business and this is not a surprise to me. I do expect this to persist until mid 2017.

Moving forward, I will be keeping a close eye on the development of its apparel business and the mentioned online portal.

Golden Chance

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The retail gold and jewellery business (Golden Chance) has been relatively stable over the past 5 years, as you can see, its figures in 2012 and 2011 were much better as Spot Gold was trading $1600-$1800 per ounce.

Despite Spot Gold trading at 5 year lows, the business has been able to maintain a steady margin (although not fantastic). On a good note, its contribution towards group revenues has been steady over the past years.

I’m not too concern about this part of the business as long as Spot Gold stays above $1000 per ounce.

Investment Properties

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  • Do note the difference between revenue and profit before tax is net gain/loss on property fair value.

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Rental Income Contribution by Tenant Trade Sector

With Net lettable area of 43700 sq ft and considering that half of its book value are investment properties, investors should keep an eye on development and acquisitions in this area since it is a significant driver of profits.

As you can see, its investment properties are pretty much focused on the consumer retail sector. Second Chance Properties owns freehold and leasehold units in City Plaza, Peninsula Plaza, Lucky Plaza, Sim Lim Square and etc.

These aren’t your prime location shopping malls where investments are dominated by large REITs or prominent property developers.

However, they have managed to find a niche for themselves in investing in properties of less popular areas. Although I do not have a full set of data, you can see that occupancy rates between 2012-2015 are well above 90%.

On average, the Group generates approx 4.5% on rental income from its properties.

I will be looking for clues in their next report on plans to protect this portfolio given the sluggish property market sentiment in Singapore. As mentioned earlier, the group has successfully reduced short term borrowings ahead of rising interest rates.

Investment Securities Portfolio

The recent financial statement records $88.6 mil of Financial assets that comprises of listed shares and fixed income securities. A breakdown in FY 2015 indicates that 39% of which are REITs, 38% are listed company shares and 23% bonds.

From the REITs portfolio, 72% in Retail and office, 23% Industrials, 3% Hospitality and 2% Healthcare.

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Financial Statistics

Market Cap: SGD 170 mil

Shares Outstanding: 755.4 mil

52 week low: $0.33 – $0.22

Net Asset Value: 256.255 mil

Total Liabilities/Equity: 25%

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*** Discounted Investment Securities by 30%

Frequent readers would know that I seek liquidation value of beaten down stocks. If I can buy these stocks at a discount to the perceive liquidation value, I would have a ‘floor’ to my downside.

As you can see, my valuation is solely based on property assets, investment securities (portfolio of stocks and bonds) and cash.

I valued the securities portfolio 30% cheaper than the market value to simulate a fire sale. I have excluded the apparel and gold trading business, which are cash flow generating businesses; let’s not forget that.

Although there would be value in the inventories and receivables, I would prefer to work around a valuation of marketable securities and assets.

Even by conservative measure, Second Chance still trades at discount to its tangible assets.

Why is that?

Perhaps, this stock is not widely covered or too illiquid to trade.

Or perhaps, the market is already pricing in its view that the property markets are in for a hard landing?

I have no answer to that.

My view still stands that regardless of market sentiment, I have already worked a conservative value for the business.

Disclaimer: This post is purely for educational purpose, it is not a recommendation to buy or sell any stock or financial securities. Please seek the advice of professionals before purchasing investments.