Analysts Unsure About Developer’s Risk In China
China’s property market has seen an increasing risk premium of late. However, the dangers posed to Singaporean developers are unclear as investors and analysts remain divided. Property developers with Chinese exposure have been sent reeling as their share prices take heavy beating with investors walking away. However, analysts purport that the market may actually be overpricing Chinese risk. The two local developers with the largest operations in China, Keppel Land and CapitaLand have seen their share prices drop substantially since the beginning of the year. Despite cooling measures as well as current global uncertainties, both developers seem to staying on course to increase their investments in China. CapitaLand had recently just announced a Rmb21.1 billion investment in a joint venture project while Keppel Land had recently acquired a 21.5 hectare residential site in Wuxi.
Significance: While some analysts believe that CapitaLand and Keppel Land enjoy a competitive advantage over relative newcomers to China like UOL Group and City Developments, others differ. Some analysts prefer stocks such as UOL precisely for its limited exposure to China.
Dukang Distillers Enters South Korea
Dukang Distillers (Dukang) announced that it had signed a letter of intent with Lotte Chilsung, South Korean conglomerate, Lotto group’s beverage arm. Dukang intends to distribute its Luoyang Dukang brand of baijiu products through Lotte Chilsung’s network of hotels, supermarkets and departmental stores in South Korea. Dukang Distillers executive chairman, Gao Feng, said that the company believes its cooperation with an established brand like Lotte Chilsung, will help it to enter and penetrate the South Korean market. The Henan-based producer of baijiu markets its Dukang brand to the mid- to high-end baijiu market. Lotto Chilsung president, Kwak Jae-Uk mentioned that its more than 80 branches spread over South Korea will provide Dukang with broad exposure with the possibility of Dukang finding its way into the Southeast Asian market as well.
Significance: This would be Dukang’s first foray overseas as it looks to diversify its revenue base geographically. Notably, last month, the company reported a 1Q12 new profit of Rmb36.6 million ($7.4 million), almost three times that of a year ago. The large improvement was largely attributed to its acquisition of Luoyang Dukang in May last year.
NOL In New Bid For Hapag-Lloyd Stake
Neptune Orient Lines (NOL) could be bidding again to acquire a stake in container shipping group Hapag-Lloyd from Germany’s TUI for 4.45 billion euros ($7.7 billion). TUI currently owns a 38% stake in Hapag-Lloyd, which is Germany’s largest container shipper. Previously, NOL had spent 8 months pursuing a stake in Hapag-Lloyd but eventually dropped out of the race with a lower bid. NOL and Hapag-Lloyd would have formed the third largest container shipping group globally. However, investors were worried that NOL could be overpaying at a time when the industry was facing a sharp decline. In its previous bid, NOL valued Hapag Lloyd at 3.5 billion euros.
Significance: Potential ownership changes in Hapag-Lloyd are again happening at a time when the container shipping industry is facing strong economic headwinds, as trade demand slows and freight rates deteriorate. The ongoing crisis in the eurozone and in the shipping industry could impact Hapag-Lloyd’s valuation. And like in its earlier bid, NOL’s shareholders might again cry foul if they see it paying too high a price.