Oei's exit from SC Global is food for thought

Hock Lock Siew
Published January 12, 2007

Oei's exit from SC Global is food for thought

By WONG WEI KONG


STOCK sales by substantial shareholders are often watched for clues on where the market is heading. In that sense, Oei Hong Leong's sale of his entire stake in upmarket residential developer SC Global Developments this week is notable. The tycoon - notwithstanding one or two unprofitable investments - is still widely regarded by many investors as a savvy market player with an impeccable sense of market timing. So the sale of his shares in SC Global could be saying something about the high-end property sector.

On Monday, SC Global announced that Mr Oei has ceased to be a substantial shareholder of the company after his holding company, Oei Hong Leong Foundation, disposed of 9.824 million shares, making up all of Mr Oei's deemed stake of 6.78 per cent in SC Global.

Mr Oei is exiting with a handsome profit. He first bought into SC Global back in July 2005 at $1.23 per share. While the price at which he sold his shares was not disclosed, SC Global shares closed on Monday - the day of the disposal - at $2.71. If that is taken as an indication of the sale price, then it represents an appreciation of about 120 per cent.

The question for investors, of course, is why Mr Oei has decided to quit SC Global at a time when there is growing excitement over the top-end property market.

Recent weeks have seen luxury homes fetching record prices. Marina Bay Residences was sold out in three days before its official launch, with prices of the condominium units reaching levels of about $2,700 per square foot (psf). Entire floors at One Shenton were snapped up, some at over $2,000 psf. Official figures also showed private home prices rising 3.7 per cent in the fourth quarter, the highest quarterly increase since 1999, and driven mostly by the upscale segment.

It's an environment that appears well-suited for SC Global. Among all the listed developers, SC Global, controlled by property entrepreneur Simon Cheong, is often cited as the purest play on the luxury residential market. The group focuses on high-end homes, eschewing the mid-tier and mass market segments. SC Global has also been actively building up its land bank. Last year, it paid over $600 million for two en-bloc freehold sites - $382 million in Cairnhill and $266 million in Paterson Hill - a total of about 800,000 square feet of buildable real estate. According to estimates by the company, the two projects could sell for a total of $1.5 billion based on $2,000 psf.

And yet, Mr Oei has decided to sell out of SC Global before all of this comes to fruition.

Investors may read several things into this. First, the tycoon's sale could signal the view that prices in the high-end property segment may have peaked, or are close to their peaks. For one thing, analysts have pointed out that the sharp price appreciation last year was partly fanned by the buzz over the award of the two mega Integrated Resort (IR) contracts.

Likely reasons

The mood may be more subdued this year if there is no fresh impetus. Also, the top-end price gains have not been supported so far by a similar revival in the mid-tier and mass markets. And a bigger supply of luxury homes may moderate future price gains.

The sale could also support the view that SC Global's share price gains going forward may be slower, after the steep climb over the past year or so. Recent earnings have been choppy. While its net profit for the second quarter of 2006 surged to $8.1 million from $2.4 million a year ago, net profit in the third quarter fell 68 per cent to $1.48 million - with the company explaining that the previous quarter was an exceptional period.

Of course, the tycoon's disposal of shares in SC Global may mean none of this. He may be exiting simply because his investment has met its target. He may be taking money out because he wants to make a new investment, or buy a floor or two in a luxury condominium. Still, his exit from SC Global may yet turn out to be premature - if luxury home prices continue to defy gravity. Regardless, Mr Oei's decision to take profit on SC Global still gives investors something to think about.