SEAL (4286) - Seal - The Queen's Jewel


Seal Incorporated Berhad (Seal - 4286) is primarily involved in property construction, property development, mall management and leasing as well as timber concession. Seal had a long history, dated back then when it was listed as Southeast Asia Lumber, where it's main business it's timber concession and harvesting. While Seal had a messy past with a messed up balance sheet, it had took the Fang's family a while to restructure the company through several asset disposal, putting back the company on a right growing track again.


Riding on the current management team which is the main driving forces behind Seal, how will the timber turned construction and property developer play through the rough sea water in 2016?
According to the latest price chart, Seal had seemingly broken away from the long term downtrend line. The share had found it's good consolidating base at the region of RM 0.5 to RM 0.55. Seal had saw several nice accumulation that at the consolidation period, with the immediate resistant line being at RM 0.56.
A successful break out on RM 0.56 supported with good volume will then see Seal next challenge at RM 0.65. The latest chart might suggest that Seal could be march on an uptrend, with a good anticipation on a better quarterly result from it's property construction and timber concession business.
Timber Up
Prior to the restructuring effort, Seal had disposed off one of it's key timber units - Great Eastern Mills. The inherited business of timber can be tricky and will easily see cost overruns if the concession is not giving enough yield. However, the decision of Seal keeping it's remainder timber operations might not be too bad after all when demand starts to pick up in late 2014 to 2015, with 2016 expected to continue strong due.
Seal still hold more than 5500 acres of forest in Perak and 7000 acres in Kedah for it's timber concession.
Leaping into 2016, the group is considering to ramp up it's timber business following the dry season spell from El Nino, favoring the timber harvest activities and ease of logistic due to better accessibility in the forest. It will be a good window of opportunity for this period, coupled off with better demand from local and overseas.
Seal will be looking to see a greater contribution from the timber sector in FYE 2016.
Turning Up with Queensville
The Penang based developer had finally mark it's route down to Klang Valley with it's biggest flagship project - Queensville. The project that carries a total GDV of approx RM 1 billion for a period of 5 to 6 years is by far the biggest in Seal's history.
For a relatively small property developer firm, it will be good to go for a joint venture basis in order not to burden the company balance sheet. Seal had been able to tap into the strong growing strategic location through a joint venture with Dwitasik Sdn Bhd, the master developer of Bandar Sri Permaisuri, with the land owner being the Kuala Lumpur City Hall.
The plot of land is possibly the one of the last remaining contiguous parcel within a ready township, and had a good proximity with KLCity as well as Cheras.
Under the pact, the Kuala Lumpur City Hall will have a 20% gross profit sharing, with a minimum RM 30 million guaranteed profit. The remaining profit will be shared among Seal and the master developer Dwitasik at a scale of 60 : 40.
While all of the residential, shop lots and office suites will be sold, Seal will intend to keep the 412,000 sf lifestyle mall for leasing purposes. Seal is looking to a strong recurring revenue from the mall leasing operation. Currently, Seal is still managing the leases of Selayang Mall through a leaseback from AmanahRaya after the group sold it to restructure the company balance sheet.
The response of Queensville is astounding. Currently, it is on it's final block of QSuite - Block E designer suite, which is right behind the lifestyle mall. Seal will be looking to set it's foot on launching the QResidenz in 2016, ranging from 800 - 1200 sf. Currently, Phase 1 had saw strong sales covering more than 70%.
With more than RM 300million of unbilled sales at Queensville alone, this will keep Seal's construction arm busy for the next 2 years as construction had started off since early 2015. It is noted that the property construction of Queensville will be the main contributor of revenue in FYE 2016 and FYE 2017.

Back then in 2014, the massive revenue contribution from it's project in Bayan City Phase 1 had saw the group putting up a profit before tax of RM 159.5 million at the back RM 287 as revenue. Moving forward, Seal will be looking to repeat an even greater success than Bayan City through it's flagship Queensville project in Bandar Sri Permaisuri.
Fundamental Outlook
The new management does not like to stretch the balance sheet of the group too much. While bigger property player can focus in few big projects at the same time, Seal had find it's better way of doing this right and good, manageable at the point of time. Albeit putting it's foot on a RM 1billion GDV project, Seal is still sitting on a fairly strong financial position with cash and cash equivalent totaling RM 80million, with approximately RM 55million of debts, putting up a net cash of RM 25million, almost equivalent to RM 0.11 per share.
Currently, Seal trading almost at 50% discount from it's NTA of RM 1.11 at the current price of RM 0.55.
The construction billing will continue to be the main contributor to the revenue and earning for the FYE 2016.

Conclusion
Although the property market could had see a softer landing, Seal position is much favorable due to it's lesser commitment in servicing bank loan. With the much strategic location of it's project, sales is expected to be consistent as it is located in a matured township with high demand.
Seal will be interested to be look at currently due to
- Consistent strong progressive billing from it's property construction with unbilled sales more than RM 300million
- Timber business to pick up due to favorable weather condition and logistic accessibility in 2016
- Good and strong management team in delivering result
- Flagship project Queensville to continue seeing good demand in 2016 with the launch of QResidenz
- Healthy balance sheet with a net cash/cash equivalent of RM 25 million
- At RM 0.55, Seal is trading at 50% from it's NTA value of RM 1.11.
- Seal break away from long term downtrend line.
- Current price is good position to lock in for future capital appreciation from property construction billing in Queensville.
Follow the Queen? You decide.
Bone's short term TP : RM 0.65
Cheers and have a nice day
Regards,
Bone
SEAL (4286) - Seal - The Queen's Jewel  
http://bonescythe.blogspot.my/2016/01/seal-queens-jewel.html
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