LHT Holdings

[RBM]

Hello Weijian,

+ Compared to FY 2022 results, LHT’s FY 2023 results were not positive as regards revenue, gross profit and net profit.
+ I suggest Shareholders should be wary of any LHT intention to invest overseas. My proof point: Last time LHT tried this - in Tianjin PRC - it was a total failure, with the entire investment cost eventually written off. IMO, LHT does not possess the wordly wherewithal and management know-how to successfully embark on overseas ventures. I would much rather they “stick to their knitting”, keeping themselves to the orderly, relatively transparent Business environment of Singapore (which management know well) and pursuing Businesses which are highly synergetic to their ongoing busines - a good example if this was LHT’s Wood-chips Business. And LHT should remit surplus funds to their shareholders…. as they have just done.

Vested

[weijian]

Hi RBM,

LHT was a beneficiary of covid and so with covid subsiding, it is no surprise that FY23 is not positive compared to FY22 as "reversion to the mean" continues. But GPM looks stubborn and much above pre-covid, I wonder what has significantly improved? 1 thing I did notice would be depreciation expenses are lower now (I think LHT puts most of its depreciation expenses for its wooden pallets under COGS) but it still does not explain the higher GPMs. OR would the GPM eventually revert to historical pre covid norms??

And allow me 1 more rant on surplus funds. A lot of local towkays love to use their surplus funds of their listed entities, to buy investment properties, despite the core/parallel business is not even close to been "investment property holding" related. But by doing so, they retain the "AUM" in perpetuality. But a small subset of them, actually prefers to pay out the cash - and then they receive the majority of it anyways and build up their own "property empire" in another entity. We have to keep searching for this small subset.

[RBM]

Some recent developments regarding LHT……
+ Some shares were traded at S$ 1.15 earlier in the week, in typically thin trading. I believe S$ 1.15 is an all time high for LHT. The counter has yet to go XD and it is noticeable that the Sell Line has become rather lean in recent trading sessions.
- Three of the Company’s long-standing NED’s are standing down after the coming AGM. LHT are bringing in five new NED’s, including what appears to be needed beefed-up Real Estate & Legal know-how. A 37-year old (by far the youngest NED, if confirmed) is also slated to be brought onto the Board. One of his key “qualities” (or is it qualifications?) is that he is the son of one of the three outgoing NED’s - the departing Director is NOT a founder or a Substantial Shareholder. I suggest this raises further questions regarding Governance Standards at LHT. I also suggest that such a “dynasty-practice” is NOT healthy. It is my intention to vote “Against” for this particular AGM resolution (No. 8).

Vested, for over a decade now.

[weijian]

hi RBM,

Thanks for alerting us to this. I find it interesting that LHT Holdings, a ~40-60mil market cap company, actually has 7 directors on the BOD. Fees are pretty low at ~200k divided among 7, would be probably 30-35k of fees for the NED IDs though.

Currently, the 7 member BOD makes up of 3 EDs + 4 NED IDs + 1 alternative director to ED --> According to SGX rulebook, if the chairman is part of Mgt, which Chairwoman Yap is, then NED IDs need to make up half the BOD.

With the rule changes in 2023, 3 NED IDs are (forced) to retire and will be replaced not by 3, but 5 NED IDs? Does LHT really need a 7-3+5=9 member BOD, where 6 of them are NED IDs? Or is this just laying the foundation to allow more EDs to be appointed in the future so that the listing rule will not be violated?

[RBM]

Hello Weijian,

If the new slate of 5 NED’s is approved at LHT’s coming AGM, this ~S$ 55 Mln market cap Company will have a Board of 9 Directors, excluding the Alternate to Ms. Yap (her sister). I believe it is justified to classify the new Board as Bloated. I have sat on Listed Company Boards of >50 times LHT’s market cap and markedly more complexity, where we were able to fully dishcharge our Governance responsibilities with 5 Board Directors (2 Execs, 3 NED’s).

I believe the driver for LHT’s Bloated Board is it has 4 Non-Independent Directors, 3 of whom are Executive: i) MD Ms. Yap, ii) Founder Director Tan, iii) Billy Neo, the Son of Founder and long-standing CEO Neo (rest his soul), and iv) as of October last year Non-Execitive Director Li was classified as non-Independent (viz.: his Synectix link). Hence the compliance-driven need for atleast 4 (and preferably 5) Independent NED’s. LHT is requesting a >25% increase in total Board Fees at its coming AGM.

To my mind, the most egregious nomination is the 37-year old son of outgoing NED Low - are LHT telling us that after a no-doubt exhaustive Worldwide search, the best candidate is the son of an outgoing (non-founding) Director who holds a mere 3,750 LHT shares? LHT have never before recruited any NED anywhere near such a tender age and his qualifications for an NED role are “perplexing” (politely stated). In other jurisdictions, such a “dynasty-practice” would, at the very least, attract thorough scrutiny by the regulator.

As an aside, I would also note that the CV’s/Bio’s of the new Directors were excluded from LHT’s 2023 Annual Report. They were only Appended when the AGM Notice was seperately filed on 4th April.

Addressing the (thoughtful) question raised in your post’s final para Weijian, I can’t help noting the Real Estate know-how of the new Board, leading me to wonder if debt-free LHT is considering diversification? Is Board Bloating due to a desire to accomodate more future ED’s or due to diversification aspirations? The Singapore (& Malaysia) pallets Business is at or near saturation: are LHT eyeing growth opportunities in other sectors? Their Tianjin Pallets foray ended in failure. My hope is LHT continues to reward Shareholders with generous Dividends, as is the case this year, rather than experiments with its free cash.

LHT is a Company that has financially delivered for its Shareholders this year but there remain serious concerns and questions regarding its Corporate Governance - the latest Board Nominations do nothing to alleviate those concerns.

Finally, Thank you for the outstanding job you continue to do at moderating this valuable site Weijian. Stay well Weijian.

Vested in LHT

[RBM]

I see that the wonderful Ms. Yap has been nibbling at some LHT shares again. Yesterday MD Yap bought 68,300 shares at S$ 1.12. I cannot recall her paying at this level before. Ms. Yap now holds almost 17% of LHT. Shares are still trading CD.

I suggest those thinking of selling should consider Ms. Yap as “the floor price setter”. Her desire for more of the shares of the Company she helms in addition to this year’s dividend payout are key positives for LHT’s share price.

It will be interesting to see what questions are raised at the coming, 29th April AGM.

Vested