Rivera (Holdings) Limited (‘Company’) is listed in Hong Kong and engages in securities and property investments. Being an investment company, its value is more meaningfully derived from analysis of the balance sheet.
Surveying the balance sheet, we find several assets and minimal liabilities. The significant assets are as follows:
a) Investment property in Macau: on the books at $29m but valued at $647m (as at December 31st, 2019)
b) Interest in associate: 37% interest in a Shanghai property investment company valued at $756m, generating net profits of about $125m/year with a very strong balance sheet.
c) Equity investments (non-current): includes 12.5% ownership of Tomson Group valued at $423m at market. (And $9m in unlisted start-up partnerships.)
d) Equity investments (current): valued in the market at $255m including $124m in Bank of China shares.
e) Cash and bank balances: $932m
Total liabilities, including deferred tax liabilities and non-controlling interests, amounted to only $44m.
Adjusted equity value (including Macau at market) amounts to over $3b.
The stock is valued at $965m ($0.38/share) or less than one-third of asset value.
The company experienced declines in rentals and values of Shanghai (and likely Macau) commercial and residential properties due to Covid-19. Further, the equity investments had to be marked down in the six months ended June 30th.
The margin of safety relative to updated asset values, however, seems rather substantial to us.
We are not particularly excited about buying cash boxes at a discount. In this case, however, management has paid out consistent dividends of over $100m in the last three years. This is a significant plus, and yields over 10% in dividends alone while the market takes its time to revalue the stock.
Although past stock prices are meaningless in determining business value, it’s worth noting that the stock has traded as high as $0.66/share twice in the last three years. Therefore, even a normal market re-appraisal of value should result in reasonable profits, in addition to dividends.