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Nam Tai Property Shares More Than Doubled in May; Here's Why

By Anders Bylund - Jun 7, 2021 at 4:35PM

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The Chinese real estate manager posted solid earnings, magnified by an ongoing battle with activist investors.

What happened

Shares of Nam Tai Property (NTP 0.00%) more than doubled May 2021. Nam Tai's stock gained 110% last month, according to data from S&P Global Market Intelligence. The owner and manager of technology parks in China started this surge with a strong earnings report in the last days of April. The jump was amplified by an activist investor's ongoing attempt to reshape Nam Tai's boardroom and business strategy.

So what

Nam Tai recorded first-quarter revenues of $69 million, up from just $0.7 million in the year-ago period. The bottom line swung from a net loss of $3.2 million to net income of $25.6 million. It's no surprise to see a stock rally starting on the heels of this impressive report.

However, the same report also provided support for alternative strategy ideas. The company's unwieldy amount of current and long-term liabilities made Nam Tai's auditors raise "substantial doubts" about the company's ability to continue as a going concern. A couple of large lease contracts made this quarter look good but didn't change Nam Tai's business prospects to any significant degree.

A judge's gavel resting on a wooden stand, with hazy digital numbers superimposed.

Image source: Getty Images.

The company is a party in several high-profile legal disputes right now, but one of these courtroom fights stands head and shoulders above the rest. The Eastern Caribbean Supreme Court has ruled that a $170 million private placement of Nam Tai shares was void, ordering the company to set aside the funds. That verdict is under appeal, scheduled for a hearing on June 14. The Eastern Caribbean Court of Appeal will also decide whether or not Nam Tai will be required to respect a shareholder vote on activist investor firm IsZo Capital Management's proposed new slate of directors. The court-ordered Special Meeting of Shareholders is already in the books, with 60% of the votes being cast in favor of IsZo's director candidates. Nam Tai's existing board would rather not accept these results.

Now what

Nam Tai's future has never been cloudier than it is today. The tech-focused real estate manager is scoring some deals and executing a few development projects amid the IsZo Capital controversy, as proven by April's impressive revenue jump. IsZo argues that Nam Tai's real estate assets should support a stock price of at least $40 per share, more than 25% above today's prices. Unlocking that latent value could be a messy affair that drags along for years.

Investing in a company that's knee-deep in legal battles always makes me nervous. The path to strong shareholder returns runs directly through a courthouse in Kingstown, Saint Vincent, and it's tough to predict exactly what will happen in those hallowed halls. As much as I like Nam Tai's business potential, I wouldn't recommend investing in it until the IsZo conflict has been settled.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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