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.

[You must be registered and logged in to see this image.]
Table: Shang's last 8 quarterly results

[You must be registered and logged in to see this image.]
Chart 1: Shang's last 28 quarterly results

Valuation

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).

[You must be registered and logged in to see this image.]
Chart 2: Shang's weekly chart as at May 21, 2013 (Source: quickcharts)

Conclusion

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.

Note:
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.

Author: Alex Lu