Powermatic Data System has the potential to receive S$80 million in proceeds if they choose to redevelop and sell their investment property in the future. Considering the market capitalization of approximately S$103 million, it becomes quite evident that the firm’s valuation is somewhat underappreciated. It is important to note that the achievement of this value depends on the timely completion of the proposed redevelopment, subsequent sales, and the distribution of cash to the shareholders.
Powermatics made an announcement regarding its plans to redevelop its investment property into Harrison Food Building Food Factory for food production and eventually sell it once the project is completed. The management has indicated that the project is driven by a strategic objective to enhance shareholder value, possibly by distributing the proceeds.
The property, with a net usable area of 61,171 sqft, has been appraised at S$757 per square foot by Knight Frank. As a point of reference, nearby properties that are zoned for food production have recently sold for prices ranging from S$1,300 to S$1,700 per square foot. According to the lowest end of the transaction prices, and assuming the net usable area remains unchanged after redevelopment, the estimated value of the completed food production property would be approximately S$80 million.
The company plans to use its own cash reserves to self-finance the S$25 million capex needed for redevelopment. In addition, there are expectations for the project to be finished within a two-year timeframe.
If the project continues as planned, there is a significant possibility of a substantial one-time dividend payout in the future. Given the company’s relatively small market capitalization of only S$103 million as of July 20th, this payout has the potential to generate a significant return for shareholders. However, it is important to consider that this would only occur if they were successful in selling and were able to avoid any additional expenses. Perhaps the most crucial aspect to consider is the potential waiting period of three to four years for this catalyst to materialise.
It’s important to consider not only the property’s value on the company’s balance sheet, but also the firm’s core business, which has demonstrated impressive performance in recent years.