On 11 August 2015, Haw Par delivered a good set of 2Q 2015 performance. Profits for the period was $115.877 million and the 6 month period was S$129.33 million, representing an increase of 88% and 75% increase compared to 2014 results. On the surface, this might seem like an impressive showing by Haw Par. However, upon closer scrutiny, the profits was actually bolstered by the S$55.8 million gain arising from the partial disposal and reclassification of one of its assets, Hua Han.
In terms of operating cash flow, the 2nd quarter saw a healthy cash flow of $48.3 million due to the investment income of $38.6 million. As I have touched in my previous article on Haw Par, the company has substantial investments, consisting mainly of strategic holdings in United Overseas Bank Limited, UOL Group Limited and United Industrial Corporation Limited. This investment portfolio provides a stable source of funding – through recurring dividend income – and financial strength – at marked-to-market valuations – over the years.
Is Haw Par an undervalued stock and thus merits investment from wealth builders? After all, it is currently trading at $8.240, well below its Net Asset Value of $12.93. However, it should be noted that the company currently holds about S$2 billion worth of shares in UOB, UOL and UIC. So what this means is that any major stock market correction will see the company’s value been affected correspondingly. On the other hand, a bullish stock market will push the value of Haw Par due to the increased value of its stock assets. This explained why Haw Par has rocketed 100% since 2011 to reach a peak of $9.240 in June this year.
What I like about Haw Par is its excellent financial position. It has a cash holdings of S$271 million and net assets of S$2.8 billion, therefore it has the financial power to withstand potential impact of adverse market conditions. Except for 2011, the company has enjoyed at least $100 million profits for the past 5 years.
Furthermore, its healthcare unit has strong investment moat in the famous Tiger Balm brand, thus enabling it to enjoy continued sales from key markets. Its weakest link among the business units should be the leisure arm which consists of Underwater World Singapore in Sentosa and Underwater World Pattaya in Thailand. The company has stated that their leisure business is likely to continue suffering from weak tourism outlook in Singapore. Indeed, what I would like to see in Haw Par is that they would dispose their non-core business, such as the leisure and property development, and focus instead on healthcare and investment.
Five-Year Financial Summary
Source: Haw Par 2014 Annual Report
Looking at other financial metrics, Haw Par may not be an attractive buy for investors with higher risk appetite. The ROI is merely in the range 4 to 5% for the past 5 years and at 2.43% dividend yield, investors have better options to invest their monies for better returns. Thus, it may be prudent to wait for the price to drop before entering this counter. From a value investor’s point of view, the most important point about buying stock is that at the point of buying, you must have a paper gain. To do that, investors need to look out for stocks trading below their intrinsic value. At the moment, it is hard to determine if Haw Par is indeed undervalued but the potential for upward swing in prices looks limited as well.
Not vested but is monitoring closely this counter.
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