Mamma mia here I go again

Posting has been quite sporadic recently due to other commitments and will continue to be over the summer months due to a project I’ve codenamed “beach”.

This write-up is about a $300m market cap, Greece heavy, London listed luxury real estate developer so if you feel like you can stop reading right here. The company is called Dolphin Capital Investors and for me it’s the second time around with the stock. I was involved back in 2012 and since then have been a spectator.

To give you a brief background Dolphin is a luxury real estate developer focusing on emerging markets (and now Greece fortunately or unfortunately classifies as one). It’s essentially like a junior mining company that goes around prospecting on a piece of land in hope of finding whatever minerals they are after, however in this case the outcome is considerably more sexy. The company’s strategy since inception in 2005 has been to acquire coastal land and develop high-end hotels and resorts with world class partners. This meant that they have acquired a large amount of land in sight in many countries for which realistically speaking they didn’t have the money to develop and the company turned into a hodgepodge of assets. I could spend pages about the history of the business but I think to an extent it is not as relevant as what’s happening at Dolphin currently.

But before we get there just a brief overview of the business. The company owns and develops projects in 6 different countries and breaks their projects into two categories: core and major projects with the first being the more advanced ones. In terms of NAV, around 80% is in Greece and Cyprus with the rest in Croatia, Turkey, Panama and the Bahamas. Below are some slides from a recent corporate presentation.

Source: Company. Note the figures are as of June 2014. For more recent, though less colourful data refer to pages 16-17 of the Q4'14 report

Dolphin published their Q4’14 update just a few days ago. NAV is currently €557m or around £68p on a per share basis (both € and £ will be used here as the company reports in € but listed in London so the share price is in £). The share price is £21.5p and is getting closer to 2012 levels. This translates into a discount of around 70%. And you might think that’s great…but why on earth should I care, it’s been cheap for a very long time. And if you glance at the below 5 year chart you are absolutely correct. Investors have been reluctant to give full credit for Dolphin’s NAV due to questions on the underlying valuation (i.e. how much of a decline in Greece is captured in the figures) and risk of higher than expected cash burn (not unheard of for a property development company). It also didn't help that on top of the ListCo there is a privately held investment manager that charged 2% on the AUM (now you understand the asset hoarding).

Source: FT

This time is (likely, maybe, potentially…hopefully) different. Let me take you back a bit to 2012. In October that year Third Point took a stake in a company via an equity raise, participating in an aggregate €50m round at a price not too different from where we are today. The macro situation in Greece hasn’t been supportive, I think we can agree on that, and I’ve also heard the same stories that you probably heard about the management of the company so we can assume that Third Point must have been getting pretty frustrated with this position. But they are still hanging in there.

I’m going to conveniently skip a few years and fast-forward to February 2015. Dolphin put out a press release where they announced plans to do the following (i) change the board of directors and add directors who either have significant real estate background or represent key shareholders, (ii) review the business plan, with focus on developing the core assets coupled with disposals, (iii) review management/investment manager compensation and (iv) less onerous governance. So far so good.

To follow up on this the company announced the following a few days ago: (i) separation of assets into core and non-core buckets with divestments on the cards, (ii) lowering the investment management fee and (iii) €75m capital raise (inc. conversion of the 2016 converts). Let’s take these in turn.

The core projects are as follows: Greece - Amanzoe, Kilada Hills and the Kea Resort; Playa Grande Club & Reserve (Dominican Republic) and Pearl Island (Panama). The company aims to develop these into resorts but further capital allocation is controlled by the board. Regarding the non-core bucket (which is basically everything else) the company plans to sell these eventually and will continue developing them to an extent to increase value. Considering the company’s 49.8% stake in Aristo (Cypriot residential real estate developer) the plan is also to sell out.

For what it’s worth, the company sees total net cash flows from the development of core projects and asset sales of €320m during 2015-19 (majority in 2018-19). In addition, they estimate €384m residual value post 2020 and €101m NAV of the undeveloped land for a total value of €805m (pre-tax basis). The company also plans to reduce gross debt from €265m in 2015 to €42m by 2019. More details starting from page 50 of the attached. Returns from core projects and proceeds from asset sales will be distributed to shareholders via buyback or dividend.

The management fee, which is currently 2% of total equity (€681m as of June 2015 – annual fee of €13.6m) will we be cut to the lower of (i) €8.5m flat fee or (ii) 1.25% of GAV from 2017 onwards. All in the board sees around €23.5m savings over five years. The performance fee has also been reworked substantially both on the returns from core assets and sale from the non-core bucket. The investment manager has been granted options totalling 6% of shares outstanding with the target share prices ranging from £35-80p for a five-year period (subject to periodical vesting and hitting performance targets). Worth noting that three board members will also spend more time on Dolphin matters so they’ll receive annual fees ranging from £150-200k and options totalling 1.25% of shares outstanding (less strict target share prices ranging from £35-50p). This is quite generous.

And last, the €75m capital raise provides the “sources” for this new strategy. The company issued 219m shares at £21p (c. 7% discount to prior closing price). As part of the capital raise Fortress, the investment manager and another investor also agreed to convert $14m of the outstanding at a lower conversion price (the remaining c. $15m holders will stay put). The overall proceeds will be used for working capital, 2015/16 opex, investment manager fees, interest and repayment of the 2016 converts. On top of the €79m funding needs the company also requires about €27m to fund the core projects, which they plan on sourcing from asset sales, JV project financing or debt (you’ll find the details on page 9 of the following document. Third Point subscribed to the capital raise and maintain their 20% holding (approx. £11m additional investment). Combined with the other investors they’ll hold around 50% of the shares, while the investment manager will own 9.7% of the shares PF for the capital raise. All in, share count increased from 640m to 905m.

Assuming all of the above doesn’t work out the board will put the continuation of the company to a shareholder vote before December 2016. If the outcome of this is a vote of no confidence, the company could be wound up, liquidated, or restructured. Thus there is additional time pressure on the management to deliver.

Coinciding with the release of the strategic review Dolphin released the 2014 results, but honestly it was a bit of a non-event amongst all the changes announced. The company generated €22m in net income (first time ever!) though mostly helped by gains on real estate revaluation. This implies around 12x P/E on a fully diluted basis.

Per the Q4’14 numbers NAV is £68p and the current share price of £21.5p for a discount close to 70%. If you make the adjustments to take into account the recent capital raise the discount closes to around 60%. And while discounts can move, perhaps it is somewhat reassuring that historical project exits took place at a money multiple of around 1.7x to cost.

Despite the positive developments and announcements the share price has gone exactly nowhere in the last few days. Perhaps the capital raise spooked people, though not sure why as the business was in need of funding if they wanted to continue development. Of course there is a small matter of execution as well.

Not even sure where to begin with the risk factors: Greece, largely illiquid land investments, so-so track record, asset hoarding and really I could go on. However, with the changes around the board, governance, strategy, compensation etc there might be something here warranting a closer look. I see this idea essentially as a deep value, long-term option on the recovery of Greece and improvement in the company's strategy and execution.

If you prefer to see what these guys do there is a short documentary on YouTube. It’s worth a watch, some of their stuff is really sexy. Oh yes and in closing, the company posts broker reports on their website. Read those with a pinch of salt.

On the Orient Express

When it comes to trophy assets few companies do it like Belmond. It owns hotels such as the Cipriani in Venice, Grand Hotel in St Petersburg, 21 Club in New York and operates the fabled Venice Simplon Orient Express train, amongst others. Now combine this collection of assets with an awkward shareholder structure and you have an interesting situation on your hand.

Source: Belmond

The company (originally Orient Express Hotels) was founded in the late 1970s with the acquisition of the Hotel Cipriani followed by the Orient Express. OEH was housed under a shipping company called Sea Containers founded by James Sherwood, which later filed for Chapter 11 and was forced to spin off OEH. Over the last few years the company hasn't been managed in the best possible way and there was a lot of shareholder discontent, while the liabilities side of the balance sheet began to baloon. To bring the story to the current years, the CEO resigned in 2011 for personal reasons and the board began a search for a new one. In 2012 it hired John Scott, which also marked the beginning of a turnaround of the company (profile on him in Fortune). He has a good track record in the hotel business and previously was the CEO of Rosewood Hotels, which he turned around then sold to a company belonging to HK’s New World group.

He began to restructure OEH's operations, initiate $50-70m asset sales and seek out management contracts. His team also began a rebranding effort to move away from OEH to Belmond. Apparently, most people thought that what OEH does is operate old trains between London and Venice only. With the new branding they can consolidate hotels and use it to cross sell customers. In addition, by establishing themselves as a strong hotel operator they can position the company better for management contracts. In short, the new team aims to rid the business of non-core assets, reinvest in what’s core and pay down debt. The company entered the recession with a lot of leverage (at some point over 9x EBITDA) while currently it's at a more manageable (though still high) 4x. In addition, a new board was also brought in (more on this and governance below).

All of the above was reflected in the share price which has steadily climbed from around $11 to over $15 but then 2014 came and things started to go wrong in a few markets, such as the exposure to Russia (the St Petersburg hotel is about 10% of keys) and the share price started to tumble to the $11 levels.

It’s worth noting two things here: (i) these sort of assets attract a lot of attention from suitors and (ii) an odd governance structure.

In 2007/2008 Indian Hotels (publically traded leisure arm of Tata) tried to make a run for the company when it owned over 11%. It did the same in 2012 when it had a 7% stake (you can read a good summary here from the Economist). In 2013 the bid was ultimately rejected by the board on low valuation but Indian Hotels still owns that stake. In addition to Indian Hotels, the Reuben Brothers (UK based investors, mostly involved in real estate) also own a 6% stake in Belmond. Back in pre-recession times there were rumours that they were looking to buy the company (at a $3bn valuation!).

Recently I re-read Peter Lynch’s classic “One Upon Wall Street” and he talked about trophy assets. At some point in his career he came across a company trading OTC that owned Pebble Beach with a $25m market cap. He didn’t buy the stock but Twentieth Century Fox did buy the whole company for $70m a few years later. They eventually sold assets off, starting with one piece of land that was alone worth $30m i.e. there was substantial underlying value but it needed a catalyst.

Apart from better operational performance a key catalyst would be getting rid of the current governance structure. Basically, there are class A and B shares. While it’s generally not such a big deal in this case the B shares don’t trade, instead are held by a subsidiary of the company, which also happen to carry a 10x vote vs class A shares, essentially giving control to the board / company (this is a legacy setup by the previous owner). While it enables mgmt. to act for the long term (assuming the incentives are aligned) it also makes people jittery given missteps from the old guard.

Now, what is it worth? Current market cap is $1.2bn and $1.7bn EV trading around 15x current and 14x forward EBITDA vs historical avg of 16.5x. Current EBITDA is estimated to be around $110m and mgmt. guides for $18-32m to be added by 2017 (vs 2014) from renovations / additions, increase in mgmt. fees, cross visitation etc on top of organic growth. Taking this at midpoint (and assuming no organic growth) indicates $8m increment p.a. so Belmond could be around $135m by 2017 (implied share price of $17, assuming historical multiples).

Based on the historical multiples for the various segments, the market implies around $700k/key valuation for the owned hotels. Now assuming the valuation would get back to pre-crash levels ($800-900k/key) it would imply $14-17 per share. Global trophy hotel asset transactions have been pushing $1,000k/key recently; assuming this for a second would imply valuation of $19/share. The two M&A attempts were made at average EV/EBITDA of 18-19x. Applying this on 2017 earnings gets you to similar valuation. Looking at an absolute downside, Belmond has traded at book before when things looked really bleak, which would imply $8/share.

While it appears that there is value in Belmond, keep in mind that history shows a lot examples of investors falling in love with trophy asset hoping for a greater fool, only to find their hands burnt in the process. However, I think that mgmt. has every incentive to carry on with their plan and so far they’ve made rational decisions, which (as noted above) were reflected in the share price before all the events around Russia etc kicked in.

The two key catalysts for getting to the above valuation ranges are (i) mgmt. delivering on their plan and (ii) board doing away with the shareholder structure (for those wishing for some kind of activist involvement…there is no chance). Also for the same reason M&A is unlikely for now (unless they get a $30/share offer tomorrow).

Having said all the above about the shareholder structure I do think there is hope. I’d urge you to listen to the company’s November 2014 investor day (or read the transcripts) where the topic of the shareholder structure has been debated to death. The CEO noted that this is being discussed in board meetings but actual progress has been slow to date. Let’s see. If the board would eliminate this the valuation uplift would be accelerated for sure.

Immofinanz and the tale of Russian exposure

Now for something a bit closer to home. I’ve been looking for ways to slowly start taking advantage of the current mess that’s happening in Russia and think the best approach is having a basket of securities. Immofinanz could make an interesting addition to this basket.

The company was started back in 1990 and is now one of the largest European real estate companies, listed in Vienna and Warsaw. The company has an integrated operating model of developing properties, servicing and managing, and trading as and when interesting opportunities arise (they call it the “real estate machine”…the machine).  The current portfolio consists of 470 properties with rentable area of 3.5m sqm. Their core markets are CEE/SEE (c. 70%) while the rest in Austria/Germany. Around 85% of the portfolio is in office/retail with the rest in logistics (under consideration for an eventual exit) and other non-core assets. The portfolio is very well developed, with 86% in rent generating properties and 7% each for properties under construction and pipeline. All of the above is carried at €6.8bn (€5.9bn in revenue generating assets). The average LTV on the various properties is 42%, while it’s 52% at the consolidated level with financing cost of 4%. Mgmt said they are comfortable with this level going forward (indicated 45-55% on a recent call). The below illustrates what Immofinanz owns as of October last year.

Source: Immofinanz

In addition, the company owns a 49% stake in BUWOG – collection of residential real estate assets in Germany and Austria. It was originally acquired from the Austrian government in 2004 and last April it spun-off this business to focus on core assets both geographically (mostly CEE/SEE) and segment wise (commercial). Immofinanz retains a 49% stake in the business and doesn’t consolidate it. This stake is worth around €820m currently and given the nature of the business, offers a solid dividend yield of 4-5%. Actually, part of the reason of the spin-off was to increase the yield on the overall portfolio. Prior to the spin gross running yield was 6.8% that increased to around 7.8% on Immofinanz. The company expects to be out of BUWOG in the mid-term.

Source: Immofinanz

The single largest exposure is Russia, which makes up 25% of portfolio and over 35% of the rental income, which seems to have spooked a lot of people in 2014 (Immofinanz share price down from €3 to €2 currently). The company has 6 assets in Russia, of which 5 are retail in Moscow, generating a 10% gross yield (for now). Unfortunately, the looming recession in the country is dampening consumer spending, which makes it harder for retailers to cover rent. The rent is either in USD or EUR, against which the RUB substantially devalued so as you can see retailers are hit twice. To help them out Immofinanz is offering temporary fixing of the FX on the rents for the next three months. They’ve done the same in the 08/09 crisis. A positive element for retailers (not so much for developers) is the fact that the Russian shopping centre market has one of the largest pipelines of new projects in the region, which could push down rental prices. Granted a chunk of it will be delayed/cancelled, but certainly not helping in this environment. Nevertheless, given the situation vacancy rates will likely be increasing, while rental values have already fallen thus write-offs on the Russian assets are likely forthcoming (assets currently carried at €1.7bn). It is going to be a tough 12-18 months for sure. Excluding Russia the situation is better, with attractive yields in (an artificially) low interest rate environment with more money coming into the region (e.g. Romania and Hungary) leading to increased transaction volumes.

The company has spent considerable efforts to streamline the portfolio, selling €2.7bn worth of properties over a 4 year period (mostly non-core, residential, hotels etc) with average margin of 14% over carried value, and looks to do more going forward, which should help cash flow. Immofinanz also plans €1-1.5bn of property development over the mid-term on the retail side. Currently, there is around €390m costs outstanding on development projects, mostly in Germany and Poland, in addition to €480m already spent (vs €980m fair value).

In the last financial year the company didn’t pay a dividend (in-lieu it spun off BUWOG, which pays a solid dividend). At the beginning of the year the company planned on €0.15-0.2/share dividend and buyback (8.6% yield at midpoint), however the dividend might be cancelled (for various accounting/tax reasons under Austrian law – it basically needs distributable profits), however a buyback programme will likely be maintained. The company plans to repay a financing tied to its treasury shares, cancel these (c. 9% outstanding) and launch another buyback. Personally, at this valuation I'd prefer a buyback vs dividend.

Just a word on mgmt. Back in 2008 the former CEO was ousted (later convicted for breach of trust – urge you to read around the story a bit). The current CEO – Eduard Zehetner – was brought in and did a tremendous job turning the company around, which at one point was near bankruptcy, however he will be stepping down this year.

Now for the juicy stuff (I’m including the treasury shares for the calculations, though these are in the process of being retired). The NAV of the portfolio is €4.5bn of which €3.1bn is in Eastern European/Russian assets (€0.6bn in Austria and €0.8bn for the BUWOG assets), while the market cap is €2.3bn, for a c. 50% discount. Assuming for a second that you fix the holding discount on the W. European assets at 0, BUWOG at market, the implied discount on the Eastern European assets is over 70%! I know things are bad but this is excessive.

So what about upside/downside cases. To be super bearish, if you wanted to completely write-off the E. European/Russian assets (inc. Romania, Hungary etc) you’d get to around €1.3/share but this is a very unlikely situation. Based on my estimates, downside is around €2/share (though if dividend is not paid this year and not replaced with buyback it could dip below). Upside depends on how much you believe the discount on the E. European/Russian assets would shrink. A discount of 40-50% on these implies €2.6-2.8/share, even after taking into account some write-off on the Russian assets. The key catalyst is obviously improvement in geopolitics for which you have to look through the next 12-18 months for sure. In addition, follow-on buybacks supported by asset sales would also help.

If you don’t feel comfortable owning the equity directly you could structure the trade with convertibles e.g. the 2018 maturity, 4.25% interest, put option in 2016 with full dividend protection. You’ll get exposure to both Immofinanz and BUWOG and can pick up a c. 4% yield.

Keck Seng

Keck Seng is a real estate investor and developer with properties located in the US, Macau, Vietnam, Japan, Singapore, Canada and China. The origins of the company trace back to an entrepreneur by the name of Ho Yeow Koon, who founded the company in Singapore in the 1940s. The business is now controlled by his sons who took over ownership/management after his passing. To be clear there are two listed Keck Sengs - one in HK and one in KL - and the one discussed here is the HK listed co (HK:184). There is a connection between the two companies to the extent that the sons control and manage both businesses and the two companies invested jointly in two hotels in Canada, while new property investments are made by the HK company. The KL listed entity also owns plantations and other real estate investments.

The below is roughly how the valuation looks and as it’s a holding company I’m going for SOTP. There is a substantial discount to equity value, which might not surprise you much as it’s a SE Asian family controlled, holding company that invests in real estate (some trade at 40%+ discount, even the larger ones) but in the case of Keck Seng I think this is unwarranted, while the financials have actually been quite healthy historically as well. The company compounded book value around 10% over the last decade, free cash flow at 11% while pre-tax ROIC (ex cash) averaged in the mid teens.

United States – 47% of GAV

W San Francisco

• Acquired in 2009 in the middle of the property downturn from Starwood, which was going through a deleveraging process
• Paid $90m for a 404 room hotel ($222k/key) and a remarkable 15.1% cap rate ($13.6m NOI in 2008)
• As a comparison, in the first full consolidated year net profit after tax was HK$17m ($2m), while mostly recently in 2013 it reached HK$43m (c. $5.6m)
• Valuation: I’m using the average of (i) recent SF hotel transactions per key (avg of $350k/key) and (ii) cap rate of 8.5% (taking some discount to recent transactions) on 2013 free cash flow

Sofitel New York

• The company recently closed the acquisition of the Sofitel New York (midtown Manhattan) for $265m or 5% cap rate based on 2013 NOI of $13.5m. The hotel has 398 rooms ($666k/key)
• Before you jump to the conclusion that the 5% cap rate is high and some foreign investors paid crazy prices for a trophy asset consider that (i) asset is in prime location (ii) while not a bargain like the SF W, this rate is in line with recent Manhattan hotel transactions (iii) they’ll get recurring cash flow (iv) 70% cash financed so no real impact on leverage/balance sheet and (v) instead of repatriating cash from the W (and paying taxes…) they could use it to buy property in the US
• As a fun fact the transaction equalled their market cap at the time (which happened to equal the cash pile on the balance sheet)
• Valuation: transaction price

Macau – 34% of GAV

This is where the juicy stuff is in my opinion. The company has been involved with Macau for decades, mostly in residential and have been behind projects such as Ocean Gardens in Taipa, near the new casino developments on the Cotai Strip.

The interesting part here is that HK accounting allows the company to a hold a large chunk of their Macau assets at cost, which given the increase in property prices is nowhere near reality. You can find more details on Macau property price statistics here. KS’ property sales in Macau have slowed down since 2012 (none in H1 2014) as mgmt. is waiting for the completion of the bridge connecting Macau with HK (expected in 2016), public transport in Macau in 2015 and new casino developments.

As I noted in my post on RexLot I’ve no illusions about the Chinese government not going after excessive gambling and spending (this is a fact), however as (i) Macau has limited land supply similar to HK (ii) other trades develop such as conventions, family etc and (iii) healthy interest from mainland Chinese (though not the super rich but more geared towards well-off middle class visitors) property should continue to do well over the long term. There’ll be bumps for sure but KS will likely be less impacted as the majority of Macau assets are carried on their book at cost and any sale should be substantially profitable and result in better reflection of true value.

Properties held for sale

• Three buckets of properties with gross area of 412,500 sq. ft., which I’m valuing at 3 year average historical transaction prices
• Ocean Industrial (industrial property) with 22,900 sq. ft. at HK$2,600/sq. ft.
• Ocean Gardens (60 residential units) 163,000 sq. ft. at HK$5,000/sq. ft.
• Lot W (2x tower blocks of 40 residential units) 113,000 sq. ft. each at HK$6,200/sq. ft. (this is at a premium given that these are whole tower blocks with full serviced apartments and would command a higher price in a transaction)
• Valuation: pro-rata value of the above c. HK$1.6bn. To note these assets are carried on KS’ books at HK$280m

Properties held for investment

• Three properties consisting of two offices (Luso Bank and Ocean Tower) and one commercial building (Ocean Plaza)
• Valuation: pro-rata value of around HK$670m (based on recent transactions), which is not too far from the company’s reported figure of HK$703m in their H1’14 financials

Vietnam – 12% of GAV

• Two properties in Ho Chi Minh City (i) 64% stake in Sheraton (485 room hotel, including a casino, which is quite rare for Vietnam) and 25% stake in the Caravelle hotel, which was opened in 1959
• Now Vietnam had/has it’s own peculiar situation with state involvement and bad debt in the system (Moody’s estimates NPLs are around 10-15% of total stock vs 5% official figures) that has been fuelling a property bubble, in addition to increase in supply of hotel rooms, which pushed prices down
• Even under these circumstances the Sheraton continued to perform well and based on this experience it should continue to do OK, as well as with the government potentially opening up gambling to locals
• Valuation: I’ve the least confidence in valuing these assets so I’m taking a large discount vs numbers I came across from other sources. I’m using a 17% cap rate to value the Sheraton and 8x P/E on the Caravelle, which gets to around HK$830m

One thing to note about the Vietnamese operations is that up until now KS faced a US$55m (HK$420m) lawsuit, which was brought by one gambler whom, following an error in a slot machine, supposedly won $55m. Initially in 2013 the judge voted in his favour, however following some “mysterious” events this was withdrawn at the beginning of the year and thus the overhang from the stock is removed.

Other (Japan, Singapore, Canada and China) – 6% of GAV

• The other bucket includes (i) Best Western hotel in Osaka (ii) 5 residential units in Singapore’s Ocean Park (iii) two hotels in Canada and (iv) Holiday Inn Wuhan
• Valuation: around HK$410m; mix of book and recent market transactions

Valuation

Based on what I deem to be relatively conservative assumptions the gross asset value of the portfolio is HK$6.7bn and taking into account net debt of HK$680m (PF for the Sofitel transaction) and 20% holding discount/tax (based on weighted avg of the countries’ capital gains tax where KS operates; and a discount/tax should be applied to holding companies anyway) I get to c. HK$4.8bn (HK$14 per share) equity value vs market cap of HK$2.4bn (HK$7.1 per share) or an almost 100% upside. Kick in a 10% free cash flow yield, further growth in cash generation and a 2-3% dividend yield and it looks like an interesting story. As Macau sales resume, it should shed light on the true valuation of the properties and help the market value reflect intrinsic value better.

Looking at downside scenarios, if you assume that real estate valuations/prices in Macau go back to 2009/2010 levels, total portfolio equity value drops to HK$3.6bn (48% upside) and if you further assume that the valuation of Vietnam goes to 0 your upside is reduced to 22%. Assuming the portfolio is only worth what it’s carried on the books (HK$3.2bn; ex minorities) you’d still be picking up the company at 0.7x book. Should the stock trade down to it’s historical valuation of 0.5x book you’d get to a share price of HK$5, or HK$2 downside vs upside of HK$7 per share to my estimate.

Risks

With any controlled companies you can get mistreated by shareholders (money channelling out of the company, buying out substantially undervalued assets, stupid acquisitions, crony investments etc). While I’ve no better insight than you do, looking at past actions they seemed to have made rational capital allocation decisions and I think the shares are priced attractively from risk/reward perspective. Should things start to go bad corporate governance wise the stock is listed in HK with relatively strong minority shareholder protection in the region. Mind you the shares are quite illiquid so position sizing is key.

For further research, please see an article from Barron's on Keck Seng from this week.