Cash-rich Hong Kong developer CMB surges after hedge fund challenge over undervalued stock

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File photo of CMB’s Irene Ngan Kit-ling at a 2002 news conference as she explains why the company is rejecting a hostile bid by offering to pay a special dividend. Photo: SCMP Pictures

Jennifer Li

Published: 3:15pm, 26 Jan 2017Updated: 3:24pm, 26 Jan 2017

Shares of China Motor Bus, a Hong Kong property developer, have surged more than 15 per cent in the past two days to a record high after an activist fund manager urged the company’s controlling shareholder to buy back shares and pay more dividends to investors, claiming that the stock has been undervalued for years due to “poor effort” by the management.

CMB shares rose 3.7 per cent to a new all-time high of HK$112 as of 1.40pm Thursday, after soaring 13.6 per cent on Wednesday. The gains came after media reports that Argyle Street Management, a Hong Kong based fund manager that holds 3 per cent of CMB, issued a letter in early January asking the board to buy back shares as they were hugely undervalued.

The net asset value of CMB should be HK$233.7 per share based on conservative assumptions of property market data, while the company reported only HK$167.9 per share of total equity as of June 30 last year, the fund house said in the letter which was obtained by the South China Morning Post. The letter also said the decision to hire a little-known surveyor was “perplexing”, hinting that this may have contributed to the asset undervaluation.

The assets include office buildings, residential units and land in Hong Kong and London.

Argyle Street estimated that CMB holds HK$2.6 billion in cash, or HK$57 per share, claiming that such a large sum in cash is unnecessary for a mature developer with income-generating projects and various financing tools.

The board of CMB has not responded to the issue yet. The company, controlled by chairman Ngan Kit-ling and her family, was first listed in 1988 as a bus operator. It has a market value of HK$5 billion based on its closing price at Thursday lunchtime.