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Symphony International sees NAV fall reflecting uncertainties towards the end of 2016

Symphony International Holdings Limited (SIHL) has announced its results for the year ended 31 December 2016. During the period, SIHL’s fully diluted NAV per share fell by 7.9% to US$1.1988. The company’s chairman, Pierangelo Bottinelli, says that 2016 was a volatile year but that Asia experienced more of an impact in the fourth quarter as a result of uncertainty over foreign and trade policies under a new US administration as well as heightened expectations of more rate rises by the US Federal Reserve in 2017. He says that, as a result, the value of Symphony’s portfolio was also affected toward the end of the year.

At 31 December 2016, SIHL traded at a discount to NAV of 34%. Pierangelo says that, although this discount compares favourably to 46% a year earlier, they continue to try to reduce this gap. In December, SIHL announced the appointment of Numis Securities Limited as corporate broker and subsequently initiated a share buyback plan in January. Pierangelo says that the buyback programme seems to have had some success with the discount narrowing to around 24%. He also says that, subject to shareholder approval at the next annual general meeting, they plan to continue the share buyback, which he believes, together with SIHL’s existing dividend programme, should narrow the gap further.

Despite the difficult environment, Symphony made three new investments and several partial exits during 2016. In June, Symphony announced the acquisition of the Christian Liaigre Group (CLG) with a co-investor. Pierangelo says that they see significant opportunity to grow CLG’s existing business, particularly in Asia and into new complementary business areas. Symphony also invested in a portfolio of listed healthcare companies during the year. Pierangelo says that this investment is the result of over two years of development effort by the investment management team to create a platform for Symphony to gain diversified exposure to healthcare services businesses using a portfolio approach. In December, SIHL made its first investment in the education sector through a joint venture, WCIB International Co. Ltd (WCIB). Pierangelo says that this was with established Thai partners that have extensive experience in the sector. WCIB is developing the Wellington College International Bangkok, the fifth international addition to the Wellington College family of schools outside the UK. Pierangelo says that this is a very exciting project that fits perfectly with SIHL’s strategy to invest in businesses that cater to rising affluence in Asia. WCIB will also have an option to develop schools under the Wellington College name in Myanmar, Cambodia, Laos and Vietnam.

Symphony made partial exits of its listed investments through several transactions in 2016 that generated proceeds of US$34.4 million. The sale of 25.3 million MINT shares was completed at an annualised rate of return and times the original cost of the investment of 20.1% and 4.4 times, respectively, which generated US$26.6 million. The residual balance of proceeds was from the sale of 3.4 million shares and 1.2 million units of IHH and PREIT, respectively, which also generated double-digit annualised returns.

SIHL announced two transactions in December that relate to the sale of land by Symphony’s joint venture company, Minuet. Approximately eight hectares of land was sold to WCIB and Minuet entered into a binding agreement to sell an additional seven hectares of land to Land & Houses Public Company limited, a Thai listed property developer. Pierangelo says that the land sales will generate gross proceeds for Minuet of approximately US$50 million based on the average December 2016 exchange rate. The gross sale price for both transactions was over 70% above Minuet’s average cost of land in US dollars based on current exchange rates. Pierangelo says that they expect these land sales and the school development by WCIB to support incremental demand and higher prices for land in the vicinity, which should benefit Symphony’s land holdings in the area.

In terms of portfolio performance, Pierangelo says that MINT added an additional 17 hotels with 2,062 rooms and increased the number of restaurants from 1851 to 1,996 during the year. MINT’s revenue and EBITDA in 2016 grew by 19% and 18%, respectively, year-over-year. Pierangelo says that SIHL’s healthcare investments, IHH and PREIT also expanded their portfolios. IHH acquired the Tokuda and City Clinic Groups in Bulgaria, which added 750 beds and four medical centres to its portfolio. IHH also broke ground for the 250-bed Parkway Yangon Hospital and signed an agreement for a new ParkwayHealth Shanghai International Hospital, which Pierangelo says will add an additional 450 beds when completed. IHH posted revenue and EBITDA growth of 19% and 7%, respectively, year-over-year. Pierangelo says that, in addition to generating value through asset recycling initiatives that saw the divestment of four properties, PREIT also acquired one nursing home in March 2016, bringing the number of properties in its portfolio to 44. PREIT’s revenue and net property income increased both by 7% in 2016, year-over-year.

The performance of SIHL lifestyle sector investments that include WCG, C Larsen and CLG was reportedly mixed during the year. WCG continued to expand its footprint and added nine outlets, bringing the total number of outlets in South East Asia to 76. Following a difficult first half of 2016, particularly in Thailand, same-store-sales and total system sales improved in the fourth quarter. WCG saw an overall improvement in revenues, but weaker EBITDA in 2016 due to higher expenses associated with a new central kitchen and ERP system, which was required to support further store openings. Pierangelo says that they expect to see an improvement in margins as WCG continues to build scale. C Larsen reported an improvement in sales due to growth from a combination of orders for large homes, miscellaneous projects and offices. C Larsen also recently opened its second franchise of the Clinton Street Baking Company in Bangkok. CLG, the newest addition to SIHL’s lifestyle sector portfolio, had a disappointing year due to various factors including weaker general economic conditions in Europe, terrorist attacks in Paris and Brussels and Brexit. Pierangelo says that, based on recent results the business appears to be stabilising and they are working with management to expand the existing business and explore complementary businesses to further leverage the Liaigre brand name.

On the property side of Symphony’s portfolio, Pierangelo says that they continue to explore opportunities to increase value and monetise assets where appropriate. He says that the Amanresorts development in Desaru, Malaysia is ongoing and, after some delays, they plan to launch at the end of 2017. Whe says that they have received inquiries regarding villa sites at this development, which is promising as marketing has not yet begun. Pierangelo says that SIHL’s two office buildings in central Bangkok, held by SG Land, continue to provide an attractive yield. In Japan, SIHL continues to hold its interest in the joint venture that holds a key development site in Hirafu village in Niseko, Hokkaido. Pierangelo says that recent property developments in the area have been met with strong sales and together with increasing arrivals, and they are now evaluating the advantages of a development versus an outright sale of the property.

In terms of outlook, Pierangelo says that, Despite the current difficult environment, they expect our portfolio to continue to benefit from rising incomes in Asia. He says that the global shift in politics and changing policies towards protectionism, particularly in the US, could have a negative impact on Asia and investor sentiment, but the fundamental growth drivers in the region remain intact. Although they expect headwinds to continue, Pirangelo says that the majority of SIHL’s portfolio is driven more by domestic and intra-regional demand and is less susceptible to fluctuations in global trade.

Symphony International sees NAV fall reflecting uncertainties twowards the end of 2016 : SIHL

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