Tuesday, January 16, 2007

Charismatic CEO is a true value add to a firm

Last Monday I attended a CEO forum organized by CUHK, the speaker was Mr. Ronnie Chan, CEO of Hanglung property.

Apart from CUHK alumni, in the same room were reporters from various newspapers. Extract of Mr. Chan's speech was quoted the next day, it was the same week that there were significant corrections to the Hang Seng Index, however, if you check on 0101.hk Hanglung Property, it was one of the few stocks which countered gravity and went up.

101 has been under my watch list for over 6 months, and I've been telling myself I would buy some when there is correction.

I did buy some last week, and the return as of today (ie, in 8 days) is 10%.

That's not my point,

  1. 10% is no big deal in a volatile market and
  2. my investment capital is so tiny that the absolute gain is insignificant
OK, back to the subject...

Mr. Chan's talk was really impressive to me in the sense that he not only well demonstrated his unique insight of the property market dynamics, but also the way how his strategy can have a better winning chance in this very competitive business.

Here are some bullets he gave us in that event:
  1. Residential is no brainer, you need no strategy
  2. Office will require some skills
  3. Shopping mall is the most skill-demanding
That's why his PRC projects (new projects) are all focused on shopping mall and office space rental, as it requires skillsets and strategies and can avoid no brainer competition in residential projects.

Besides, according to Mr. Chan the effective tax rate on property sales is around 50% (PRC taxes on both top and bottom line and regardless of whether you make money or not you still have to pay tax), while for rental income the tax rate is much less.

His pitch has really convinced me in believing 101 would have a better future than the other HK based PRC developers, but that's only half of the reasons why I bought 101, here are my other reasonings:

  • 101 focused on high end shopping mall with tenants like Gucci etc. It is definitely difficult to gain the trust of those first class brands to bet on your mall. 101 with its showcase Plaza 66 in Shanghai has successfully demonstrated that and Mr. Chan is duplicating the same model to other high GDP cities in PRC

  • At this moment Mr. Chan has no intention to sell those malls, how about 10 years or 20 years down the road when the land price has appreciated to such a level that selling those properties and materialize the capital gain is not a bad idea?

  • I once was a tenant in both Plaza 66 and CITIC Plaza (owned by CITIC Pacific 0267.hk) in Shanghai, I can say that apart from 'hardware', the 'software' part of Plaza 66 is much better than CITIC Plaza though both are rated as grade-A office and both are also landmark buildings in Shanghai. Nowadays people really need to compete with 'software' because $$ can buy you any 1st class hardware as you wish. Software is the only sustainable competitive edge. This strengthened my belief that 101 can really do a better job in commercial building and mall management.
Finally, again further back to my subject....

I've been to a number of CEO forums and listened to pitch/speech from top tier CEOs like Daivd Pang of HK Airport Authority, Allan Zeman of Ocean Park (and founder of Langkweifong) etc. My conclusion is that a CEO with charisma and vision is probably the most valuable assets of a company.