I have held Metro Holdings shares since 2012 and am thus very familiar with Metro’s operations and businesses. This post won’t be a detailed analysis of Metro as I have yet to fully digest the latest FY16Q4 results.
I have lightened my position in Metro Holdings the past week though, for reasons that I may discuss in a later post. The share price of $1.06 that I sold at, gave me a fairly comfortable return from my initial average purchase price of $0.75. As of the time of writing, I still own a sizable position.
It’s hard not to at least lighten my position a little, when the share price has done this since the start of 2016:
Metro has just today, announced a new CEO to replace the recently departed Jopie Ong.
“The Board of Directors of Metro Holdings Limited (“Metro” or the “Company”) is pleased to announce that Mr Lawrence Chiang Kok Sung, the Acting Group Chief Executive Officer, has been appointed as the Group Chief Executive Officer and Executive Director of the Company with effect from 1 June 2016.”
Mr Lawrence Chiang is no stranger to the company, in fact, most of his career seems to be defined by Metro, judging by his past directorships. He is the new CEO that is the oldest in terms of experience within the Metro group.
Metro has a unique, and what I believe to be a little understood business model. It is my opinion that the general market misjudges Metro Holdings and has done so for a long time, although the awareness has increased of late.
The layman would think of Metro Holdings as a retailer. This is far from the truth. The bulk of the Metro’s holdings comes from property related activities. In fact, the retail segment has been bleeding for several quarters now.
Those who have bothered to try to understand Metro Holdings further, may think of it as a property developer. Afterall, Metro has successfully developed and sold properties in China in recent years. Property related activities accounts for 90% of their profit.
This thinking though, is IMO, also inaccurate.
Metro Holdings is not a pure property developer, and certainly no retailer. They are truely, in my view…… capital allocators, aka investors.
This is a unique opinion, but one that I have formed after analyzing and studying their activities for several years. They behave like a hedge fund, without all the horrible fees. Their modulus operandi involves allocating capital to take advantage of mispricings. Property just happens to be their circle of competence. Retail just happens to be their legacy.
Back to our new CEO. Mr Chiang will want to stamp his brand of leadership onto the company. He comes in at what IMO, is an extremely difficult time for Metro Holdings. Like I said, I believe Metro is a hedge fund within the world of property. Hedge funds are generally finding it a tough environment with slim pickings. Mr Chiang has his work cut out for him.
While I currently have no opinion on whether Mr Chiang’s appointment is good or bad news, what I will be following closely is his remuneration.
I love Metro Holdings. It has been a successful investment and I still hold on to it. I love that most people don’t know what it really does. I love how they accrue value to their shareholders.
But I hate their ex-CEO’s remuneration.
Under Jopie Ong, the remuneration was rather ridiculous. In 2012, his pay was 9.58% of the net profit of the company. In 2013, it was 6.15%. He was easily one of the highest paid amongst all companies in SGX.
I have no qualms paying for talent. However, the extremely high pay comes from bonuses from successful divestments. When Metro sells a commercial property for a tidy profit, you’d expect a nice big fat bonus for Jopie Ong. (Like I said, they’re like a hedge fund and Mr Ong was the fund manager) That’s perfectly fine with me.
But what about when the investments have not been as successful? It gets stuck on the balance sheet. For this high remuneration to be justified, there should be dirt low remuneration in years where the mark to market value of the properties show losses. Perhaps even a clawback.
Hence, my interest in Mr Chiang’s remuneration. He has a chance to show his shareholders he means business. This guy has risen up through the ranks of the company. He certainly commands respect, and in his 25+ years with the company, would have gone through all sort of booms and busts. He was director of Metro China, which is currently it’s most important division.
Sure, some may say that his remuneration is determined by a committee, not by himself.
However, the board has been the made up of the same guys for many years. I have no doubt that he has a big say in his own remuneration. Bring this in line with normal figures, while continuing Metro’s value accretive business, and Mr Chiang may just prove to be the start of a new era.