Hock Lian Seng

[money]

The likelihood of a special dividend has gotten higher in my opinion. It wasnt something that i was thinking about when i first bought it though

[weijian]

The Cash balances and investment securities have risen again to $156m and $38m, which altogether eclipses the current market cap of the company at $166m ($0.325 per share at time of posting). Since the last post, I have received 1.5c per share in dividends for FY2023 distribution.

Given that for 1H alone, the earnings is 3.98c per share, and development properties balance is $54m and given the results, seem to be held on the books at a 40-50% discount, how much cash balance would one expect at end of FY2024? Is this time to reward shareholders with a special dividend?

https://links.sgx.com/FileOpen/Financial...eID=814570

Hi Squirrel,

You might have underestimated the discount of Shine@TuasSouth. From the financials, GPM for Shine@TuasSouth for 1H24 ~40% (1H23:21%, 2H23:53%, FY23:36%). Since they are held at cost, then the discount is actually 1H24=40/60=66% (a drop from 2H23 of 53/46=115% though). Although there are other practical costs like the frictional ones (sales/marketing commissions at ~2-3%), defect provisions and "extra" maintenance fees they paid while holding onto them, I would think a large portion of these costs have already been reclaimed from the rental income when the area started to have more activity.

1H24's GPM of 14% is maintained/improved compared to 2H23's 10%. It's very similar to OKP and so if we presume that precovid-19 lower margin contracts are tapering off, this bodes well for the coming few years.

While there are plenty of Chuas and Pehs (if anyone knows how are the Pehs related?) who are positioned with OPMIs, it is interesting to note the below commentary (in italics, with emphasis mine in bold):

Management will continue to tender for infrastructure projects competitively and explore other business opportunities to enhance the shareholders’ value

Let's just hope that Towkay Chua decides to explore other business opportunities on his own.

[weijian]

HLS is the only construction company in my portfolio. If you look across the industry, i seriously struggle to find another company with a strong balance sheet, with so much cash, with a decent dividend yield. Its steadily increasing net profits in the past few years due to the sale of its industrial properties makes it really attractive. What if it continues to unload all its industrial properties at the current margins? it is scary to think about it

hi money,

I do not necessarily think that "strong balance sheet, much cash and a decent dividend yield" are indicators of a good investment. There was a company with such characteristics which had "good reviews" on VB.com and got itself delisted via a low-ball offer.

The sale of its industrial properties really only picked up in the last 1-1.5years. Time is ticking on this 30year old leasehold (slightly two-thirds left) and the reduction in GPM for 1H24 half-on-half (1H24:40%, 2H23:53%) might be indicative of the HLS's sales strategy to offload asap?

The rental yield for its unsold units are relatively high at mid single digits - similar to some of the industrial REITs, which is again indicative of a "return of capital" component as well. Nonetheless, 3 out of 4 existing terminals in Spore will be consolidated over at Tuas by 2027 and so plenty of runway and margin of safety I suppose.