The potential superstock of the week is  Pacific Century Regional Developments (SGX: P15). PCRD is Singapore-based company with interests i...

Weekly Superstock Scan 26 Feb 2018 - 2 Mar 2018: Pacific Century Regional Developments (Singapore)

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The potential superstock of the week is Pacific Century Regional Developments (SGX: P15). PCRD is Singapore-based company with interests in telecommunications, media, IT solutions, logistics and property development and investment, in the Asia-Pacific region.





PCRD's result substantially dependent on the results of the Group’s major investment, PCCW Limited. Though PCCW, PCRD operates in the following segment:
  • HKT: HKT Limited is Hong Kong’s premier telecommunications service provider, providing local telephony, local data and broadband, international telecommunications, mobile, and other telecommunications businesses such as customer premises equipment sales, outsourcing, consulting and contact centers. 
  • Media Business: Includes interactive pay-TV services, Internet portal digital media entertainment platform and directories operations in Hong Kong, mainland China and other parts of the world. PCRD also operates a domestic free television service in Hong Kong.
  • Solutions Business: Offers Information and Communications Technologies services and solutionsin Hong Kong and other parts of Greater China and Asia.
  • Pacific Century Premium Developments Limited (PCPD): covers development and management of premium-grade property and infrastructure projects as well as premium grade property investments

Technical



For the whole of 2017 and most of 2016, PCRD has been trading in a range between S$0.34 and S$0.42. Last week, price broke strongly above the range to close at $0.45. The volume of the week was 6 million shares, more than 5 times its average trading volume.

There was no news released last week, and the latest set of results was just released in early February. Since PCRD's business depends on PCCW, I took a look at the share price of PCCW (listed in Hong Kong) and surprisingly there was no spike in price of PCCW.

Fundamental


Including the most recent quarter, PCRD recorded 4 consecutive quarters of year-on-year EPS growth. 

Expanding Media Business

There are two parts to PCRD's media business. The first part is the pay-tv business (Now TV), where PCRD is the leader in Hong Kong's pay-TV market. One potential catalyst will the the upcoming 2018 FIFA World Cup Russia where PCRD won an exclusive right to broadcast the matches.

The second part is the over-the-top (OTT) business. The OTT video service, Viu was launched in late 2015 in Hong Kong and subsequently expanded to Southeast Asia, India, Middle East and parts of Africa.

From how I see it, PCRD is adopting the same model as NetFlix, focusing on Korean, Chinese, Indian and Indonesian original productions. It is a highly competitive market with Iflix being the market leader now.

Undervalued Relative to PCCW

PCCW is trading at 15.5 times earnings on the Hong Kong stock exchange. PRCD, which effectively is just an investment company holding onto 22.7% share of PCCW, is trading at 12.5 times earnings. I would expect some minor differences in valuation but with a difference of 3 it will imply that either PCCW is overvalued or PRCD is undervalued.


Matrices
- Large float of 265 million shares with a average weekly trading volume of 0.3 million shares. The float is more than 800 times its average trading volume. It will be hard for the stock to move strongly with a large float.
o PRCD is trading at 12.5 times its trailing twelve months EPS.

Risk Factors/ Things I do not like:

  • Media Business is Loss-Making: Despite growing revenue of the media businesses, they are still a loss-making business, due to large amount of investments required. In 2017, the Free TV Business had an EBITDA loss of HK$244 million  and the OTT business had an EBITDA loss of $254 million. The loss worsen from 2016 for both businesses.
  • Low Liquidity: There are many days where the trading volume is less than 100k stocks, there may be issue entering or exiting a position.



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1 comment:

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