Tuesday, May 21, 2013

Shang- the Land of Elevated Valuation

Result Update

For QE31/3/2013, Shang's net profit increased by 128% q-o-q or 29% y-o-y to RM24 million while revenue increased by 4% q-o-q or 17% y-o-y to RM128 million. Bottom-line improved q-o-q due mainly to stronger profit contribution from Rasa Ria Resort and Shangri-la Hotel KL.

Table: Shang's last 8 quarterly results

Chart 1: Shang's last 28 quarterly results


Shang (closed at RM6.10 yesterday) is now trading at a PE of 37 times (based on last 4 quarters' EPS of 16.5 en). Its Price to Book is 3.0 times (based on NTA of RM2.03 as at 31/3/2013). Its dividend yield is a minuscule 1.7%. How can this stock trade at such demanding valuation? The answer is expectation of privatization by Robert Kuok. To me, Shang is priced for disappointing return.

Technical Outlook

Shang has been rising gradually over the past 5 years. Lately, its share price has rocketed higher on rumor of privatization. Only time will tell whether this will happen or otherwise. If it does not materialize, the share price would correct (to a more gradual uptrend).

Chart 2: Shang's weekly chart as at May 21, 2013 (Source: quickcharts)


Despite the improved financial performance, Shang is difficult stock to call since it has risen so sharply over the past few months. I feel that the prudent approach is to SELL INTO STRENGTH.

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Shang.

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