Hock Lian Seng

[weijian]

It has been a while, but I have finally gotten down to writing another piece. And this time the focus is on Hock Lian Seng Group!

The Group has released results yesterday, and it all looks rather prudent and promising at the same time. Hock Lian Seng has been continuously profitable since it was listed on the SGX in 2009, and that includes during the covid period! So I believe prudent is the right word to use.

With a market capitalisation at S$138m (S$0.27 per share), the company holds S$132m and that balance is expected to continue to rise. Would a special dividend be in store for FY2024? In the meantime, I am going to enjoy the 1.5 cents per share dividend that was announced which gives it a 5.6% dividend yield.

https://www.thesquirrelsdrey.com/post/ho...value-trap

https://links.sgx.com/FileOpen/Unaudited...eID=787328

Hi Squirrel,
Thanks for the write up. Special dividends are special and so i thought it would be nice to specially look at potentially how special history could repeat itself specially.

(1) The base scenario: There are many extended family members holding individual stakes in the business. As only Towkay Chua and his architect daughter SP Chua hold executive positions in the company (at least >100k annual salary kind that warrants a disclosure), the rest of family primarily benefits from dividends. As VB dzwm87 mentioned - can't keep family starving.

(2) The base assumption: Excess capital will be returned as special dividends, when there is excess capital. I will attempt to define excess capital as below:

Net Cash = Cash - debt
Working Capital = development property + receivables/contract assets - advances payables - contract liabilities
Excess Capital = Net Cash - working capital

Taking FY15, the sandwiched year between FY14 and FY16, where both years enjoyed good dividends.

FY15 ('000)
Net Cash = 141,353
Working Capital = 12,593
Excess Capital = 141,353 - 12,593 = 128,760

FY23 ('000)
Net Cash = 132,464
Working Capital = 77,648
Excess Capital = 132,464 - 77,648 = 54,816

So it seems like FY23 is still 129mil - 55mil ~ 74mil away from hitting "special levels"

(3) How to make it special: So how does Towkay Chua close the 74mil gap? The gap is broken down into the component parts below:

+40mil contract assets (not favorable)
+25mil development properties (not favorable)
-20mil less cash (not favorable)
+10mil payables (favorable)

In essence, Towkay Chua needs to (1) send out its invoices and then collect the money from LTA, and (2) have the same amount of sales for Shine@TuasSouth in FY24, as has happened in FY23.

P.S This is purely my imagination of how Towkay Chua may think.