“Macau Property Penny Stock”

By Travis Johnson, Stock Gumshoe, June 21, 2007

A few of you have called my attention to a teaser that’s been making the rounds recently, from Steve Sjuggerud, for the Sjuggerud Confidential newsletter ($1,000).

He’s saying that he has found a penny stock that is safe enough for him to recommend, and it’s a Macau property play.

Unfortunately, the clues given are extraordinarily limited … so I might not be able to give a definite answer, but essentially the argument is that while the casinos get all the attention, the real winning investments in Macau may be the property developers who are building apartments for workers and visitors as Macau’s population booms.

So, I guess that makes some sense. The only financial clues we get about this investment are that it is a penny stock, which he calls anything “under $5,” and that the market cap is under $250 million, which is why it’s too small to be recommended in his main newsletter.

Other than that, we have only the following for clues:

“For example, the company is working on an incredible luxury waterfront residential development. The development is part of a six tower project with residential apartments, serviced apartments, car parks, and retail space. Located in the northern Macau peninsula, the complex will be near a proposed bridge linking Macau and Hong Kong.

“This is truly prime, grade A property… The company also plans to develop ‘downtown’ luxury apartments in the central peninsula… fix up an existing residential complex by turning it into ‘grade A’ apartments and offices… convert under-utilized office space into residential buildings… and develop a three tower apartment complex on Macau’s exclusive Taipa Island. With soaring demand for property and billions of dollars pouring into Macau’s economy from the casinos, it’s easy to see why the tiny Macau penny stock is one of the best investment stories I’ve ever come across.”

So what on earth are we talking about here? This is complicated significantly by the confusing interrelationships among companies in Hong Kong and Macau, as well as the fact that the property clues above are not all that specific — there is so much building going on in Macau right now that it’s very hard to tell one six-tower development from another.

I don’t want to be at all definitive, but I think I’ve found two good candidates … and perhaps a little more sniffing by the Gumshoe community will turn up a preference for one or the other, or yet a third candidate.

Both of these investments are AIM-traded (London) property investment funds that were launched within the past year to buy and sell and/or develop residential property in Macau:

Macau Property Opportunities Fund (MPO in London, I can’t find a pink sheet listing so that makes me suspect this might not be our guy)


Speymill Macau Property (MCAU in London, SPYUF.PK on the pink sheets), which is a little bit smaller.

So … since both match the financial clues (and almost all the other developers I’ve been able to track down do not, most of them are much bigger HK-traded companies, or divisions of the big US and HK real estate and financial firms), how do they measure up on the properties?

This is a bit of a stretch, partly because I don’t know enough about Macau to tell exactly what those things mean

Both are under $250 million, both trade well under $5. Both have properties that might conceivably match those clues.

Here’s what Speymill has, according to their releases:

“On November 29th, Speymill Macau exercised its option to purchase 243 residential units and parking spaces in Lot U from Gold Cove Property Development Company Limited for HK$906,508,929 (US$116.5mln). The high-end, seven tower development in Northeast Macau, near the proposed bridge linking Hong Kong, Macau and Mainland China, will be one of the first Hong Kong-style residential developments in Macau and will offer one of the highest quality finishes in the area. It will also boast a large club house totalling approx. 47,000sf. The units purchased, ranging in size from 1198 to 2226sf will help to raise the standard of living in Macau. The manager believes that the units will likely start pre-selling in the fall of 2007 and the investment should achieve attractive returns to shareholders.”

So … should we worry that it’s actually seven towers? Well, the initial press release from the company, which didn’t include all the info above about the location, called it a six tower development, as quoted here:

“The Company has purchased 243 residential units, ranging in size from 1,198 to 2,226 square feet, and 243 car parking spaces, in three towers of a luxury waterfront development. The development is part of a six tower project which comprises residential apartments, serviced apartments, car parks and a retail podium. While the number of units purchased remains as previously disclosed in the Company’s admission document, the Company has made the decision to swap the top 4 floors and bottom 4 floors in Tower 3 for equal number of middle floors in Towers 2 and 5 at equivalent prices per square foot. The investment manager believes that this change is beneficial to the Company. The apartments were purchased from San You Development, one of the leading residential developers in Macau.”

I don’t know why the number changed along the way, or if it was just a mistake. That’s the one that comes closest to matching the first clue, above.

And the other current holding of the Speymill Macau fund:

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[announced in March] “The Company has purchased 24 residential units ranging in size between approximately 2,600 and 3,200 square feet, plus 10 car parking spaces, in a recently completed one tower residential development in what the Company’s manager considers to be a prime location on the Nam Van Peninsula. Neighbouring developments include Hong Kong Land’s “One Central”, Wynn Macau, the recently opened Grand Lisboa and MGM, which is expected to be opened later this year. Being large units suitable for business executives, the Company plans to spend approximately HK$15m refurbishing the units to a very high standard.”

So, that could potentially be the “downtown luxury apartments on the Macau peninsula.” The company also says they have lots of other plans and negotiations, but I don’t think any of their other stuff rises to the level of being a “development” yet.

All of that, combined with the fact that you can buy this one on the pink sheets, leads me to think that Speymill is the likely pick here. It’s managed by Speymill, a big property development firm in the UK, and they actually publish a pretty informative monthly newsletter about Macau property trends if you’re interested — you can find the issues here.

Macau Property Opportunity Fund, which seems a slightly less likely match for this teaser (though not necessarily a worse investment) has three properties in some stage of development — this text is from a company report on MPO’s website:

“The 3 properties”

“Property 1 was acquired by the Company in October 2006 and is a 100% interest
in a prime residential redevelopment project, located in a very well established
and popular residential neighbourhood. The site is currently unoccupied and
is ideally suited for a mid-rise residential development targeted towards local
residents seeking to upgrade the quality of their existing accommodation and
facilities. The initial architectural design and planning processes for this site are
curently underway and, subject to planning approval, construction is planned
to commence in 2008. It is the Company’s current intention to sell all of the
residential units in this project either on a pre-sale basis or on completion.

“Property 2 was acquired by the Company in November 2006 and comprises an
entire luxury residential tower (Tower 6), forming part of a high-end mixed-use
waterfront project, ‘One Central’ currently under construction in the heart of
Macau (on-site work is currently underway on the foundations). This prestigious
project is being jointly developed by two of the region’s top developers; Hongkong
Land and Shun Tak Holdings and includes a 400,000 square foot premier shopping
complex, a 210 room 6-star Mandarin Oriental Hotel and a 50,000 square foot
club house and infinity pool for the exclusive use of residents.
The residential portion of the project, ‘One Central Residences’ comprises seven
residential towers, two of which have been sold en-bloc by the developer and the
remainder released and reportedly sold out to the public. Due for completion in
2009, One Central is a development of unprecedented quality and positioning
for Macau, which gives the Company immediate participation in one of its core
target segments, the premium luxury residential market. It is the Company’s current
intention to retain ownership of Tower 6 until completion of the project.

“Property 3 was acquired by the Company in November 2006 and is a 100%
interest in a redevelopment site located in an up-and-coming area for entry‑level
buyers situated close to the China border in the northern part of Macau.
The surrounding area is now undergoing widespread regeneration and urban
renewal as demand for entry-level residential property increases and as available
land in established areas becomes increasingly scarce. The Company intends
to develop the site into a multi-storey residential project designed to cater for
this rapidly growing market segment for entry level purchasers. The Company is
currently in active negotiations to acquire additional parcels of land in the area
to consolidate its holding in this promising location, after which planning and
architectural design processes will be initiated.”

So, dammit if they don’t have a six tower development in the works, too. The fact that the Speymill one is near the potential bridge, according to the company, makes it a better match in my opinion.

Macau Property Opportunities, unlike Speymill, actually has a decent website if you want to check it out yourself: http://mpofund.com/. Speymill Macau’s info seems to all be hosted (and hidden, to some degree), throughout the Speymill Group site.

I do find both of these to be actually a little interesting for an investment, but I do keep in the back of my mind that essentially what these guys are doing is the same thing that the condo flippers in the hot US property markets have been doing for the last few years, buying up predevelopment luxury condos and selling them when the buildings are complete. It came to a bad end for many of them, but my guess is that the huge population growth in Macau is going to be good for that market in general, though I don’t know to what degree there’s a Macau property bubble at the moment.

And of course, whether Speymill Macau, which I’d agree sounds a little more compelling, can hit it’s goal of 20% annual returns … that I don’t know.

So, two interesting small cap Macau residential property plays, one of which you can buy on the pink sheets. Speymill Macau is my best guess for the latest Sjuggerud teaser so far, but I’m afraid that without stronger clues I’m unable to be 100% certain — I haven’t see info on either one of these having an official plan to develop a “Three tower apartment complex in Taipan”, for example. Please feel free to share your opinions on this here or in the forum, maybe we can reach certainty (or find a better candidate) together.

UPDATE: for those not accustomed to reading the comments, note that two Sjuggerud subscribers have confirmed that this pick is Speymill, and inlcuded a little excerpt of Sjuggerud’s commentary. Still doesn’t mean it’s necessarily a great investment, but at least this bolsters the Gumshoe’s surmise that SPYUF.PK is the stock being touted here.



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June 21, 2007 10:55 pm



Check this out

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June 22, 2007 2:08 am

Firstly, neither Speymill nor MPOF are developers and have never built a thing. As you correctly pointed out, they are essentially condo flippers – so strictly speaking they don’t fit the description.

Of course, this entire sleuthing exercise is based on the assumption that Steve Sjuggerud has any clue what he’s talking about, and was able to find a hidden investment gem after spending a few days in Macau. If so, then the legions of investment managers based in Hong Kong who spend half their time crawling all over Macau, on the other hand, are being shown up by Mr. Sjuggerud on a tourist visa.

As for the conversions from residential to office and vice versa – to meet building regulations in Macau for office use versus residential use requires massive rectifications (think air shafts for kitchens, re-submitting for LPG approvals, and not to mention that NOBODY in Macau uses central Air Con for residential so you’ll have compressors hanging off the office building’s glass curtain wall). And since most land in Macau is leasehold, government approvals for rezoning must be obtained – not an easy process. In short, this sort of conversion simply isn’t done, since it’s simply not financially viable. So either Mr. Sjuggerud is completely wrong in his understanding/analysis of this investment gem, or the supposed investment gem has a completely unviable business model.

Either way, $1000 for this newsletter? I’ve got oceanfront property in Las Vegas to sell you.

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One Guy
One Guy
June 22, 2007 11:56 am

Thanks for the comments — I can swallow either of these being called a “developer” because they are doing financing of development to some degree, and in the smaller purchase Speymill made they’re doing significant renovations of existing condos (though there still may be a better match, obviously). If either of them is “planning” the renovation you noted, from residential to commercial and/or back again, it’s still just a pie in the sky plan and not an existing project … so if someone is actively using this questionable business plan, it’s probably not Speymill or MPO.

It’s not Hongkong Land, either — they’re way too big for this teaser, and are much, much more levered to HK office space than to Macau anything.

Soo … anyone have more ideas on this one? There are a few really tiny ones that look like nothing but scams, and many larger companies in this business, including the casino guys, Shun Tak and many of the big Hong Kong cos … but I’ve found precious few that are in the sub-$250 million range but appear to be legitimate (and trade in the US at all).

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A Sjuggerud Confidential Subscriber
A Sjuggerud Confidential Subscriber
June 22, 2007 3:07 pm

Excerpts from the May Issue of S.C.

The Greatest Growth Story on the Planet…

Macau is now one of the best investment opportunities I’ve ever come across…

this month, I’m meeting up with legendary property investor Peter Churchouse – … incidentally, is on the board of directors of this month’s recommendation. He turned me on to this idea…

As I looked for the right way to play it, I found… It’s Macau real estate. People are pouring in. But there is no land…
(This month’s recommendation is a five- to 10-year play that could make us more than 20% annually for the entire time we own it. I actually expect we’ll do much better than that…this month’s recommendation – a company that does construction, real estate investment, and property management…

Hong Kong-listed Shun Tak Holdings, a Macau-focused conglomerate, has more than quadrupled since December 2003…

Meanwhile, this month’s recommendation bought a development with 243 luxury waterfront units… these properties were recently independently valued for 31% more than the company spent acquiring them six months ago.

The company, called Speymill Macau Property Company (MCAU.L on Yahoo Finance), is this month’s recommendation. It just listed on the London Stock Exchange in November. Speymill raised $80 million and borrowed $75 million to buy Macau property. Add a $45 million increase in the property’s value, and the company should be worth roughly $125 million (or more) in the stock market… we are able to buy into Macau property at a 10% discount to the value of the buildings…

Speymill is actually a London-based property management group. Smartly, Speymill Macau hooked up with a few key local partners to be its local property advisers, including a major Macau developer and the former head of Macau operations for international real estate consultancy Jones Lang LaSalle. The focus is on high-quality residential properties. Speymill Macau will NOT invest in casinos.

It owns two major properties…

The first property is the 243-unit waterfront apartment complex, which is made up of three towers. It has 404,889 square feet of gross floor area. Speymill paid $116.5 million for this… and it was just appraised by CB Richard Ellis for $156 million.

The second property is 24 residential units in a prime location on the Nam Van Peninsula. Speymill paid $28.8 million, and CB Richard Ellis valued them at $34.2 million… the stock is so small (it has a market value of $113 million) that I didn’t want to risk this recommendation getting out in advance… Buy shares of Speymill Macau (MCAU.L). The shares closed May 3 at $1.41. I think the fair value for the buildings is closer to $1.55 right now… However, I’m willing to pay a premium for the quality management. I’d be willing to pay up to $1.70 – a 10% premium over the current value of the buildings.

This could be a great ride for the next 10 years.

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June 22, 2007 3:45 pm

I have no opinion on the pluses or minuses of Speymill OR MPO but as a subscriber to Sjugeruud Confidential I can assure you he’s recommending Speymill.

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June 22, 2007 4:08 pm