Haw Par Corporation

[ghchua]

Hi weijian,

I dunno about you, but I find that the company's response to shareholders' opinion on share buyback is not convincing enough. For example, "the CEO replied that the Company had carried out share buybacks in the past but found it to be ineffective as the Company’s shares did not have sufficient liquidity in the market." Couldn't they consider an off-market purchase like EAO? Many companies are now doing that, the latest being OUE.

Then the CEO also said "Furthermore, share buybacks will shrink the balance sheet of the Company, making it worse off in the long term.". How could the company be worse off if you buyback your shares at below NAV? In fact it is net positive in terms of EPS, NAV, ROA and also ROE since there is lesser cash drag. A key to effective capital management is to raise funds at above NAV and buyback when shares are depressed. How could these actions be shrinking the balance sheet?

[Shiyi]

Hi weijian,

I dunno about you, but I find that the company's response to shareholders' opinion on share buyback is not convincing enough. For example, "the CEO replied that the Company had carried out share buybacks in the past but found it to be ineffective as the Company’s shares did not have sufficient liquidity in the market." Couldn't they consider an off-market purchase like EAO? Many companies are now doing that, the latest being OUE.

Then the CEO also said "Furthermore, share buybacks will shrink the balance sheet of the Company, making it worse off in the long term.". How could the company be worse off if you buyback your shares at below NAV? In fact it is net positive in terms of EPS, NAV, ROA and also ROE since there is lesser cash drag. A key to effective capital management is to raise funds at above NAV and buyback when shares are depressed. How could these actions be shrinking the balance sheet?

Companies buy back and cancel shares, thus shrinking the balance sheet.
As most of the sellers in the open market are likely to be retail investors, this would mean that the free float will shrink too. That would further affect the trading liquidity of the stock.

[Corgitator]

Hi weijian,

I dunno about you, but I find that the company's response to shareholders' opinion on share buyback is not convincing enough. For example, "the CEO replied that the Company had carried out share buybacks in the past but found it to be ineffective as the Company’s shares did not have sufficient liquidity in the market." Couldn't they consider an off-market purchase like EAO? Many companies are now doing that, the latest being OUE.

Then the CEO also said "Furthermore, share buybacks will shrink the balance sheet of the Company, making it worse off in the long term.". How could the company be worse off if you buyback your shares at below NAV? In fact it is net positive in terms of EPS, NAV, ROA and also ROE since there is lesser cash drag. A key to effective capital management is to raise funds at above NAV and buyback when shares are depressed. How could these actions be shrinking the balance sheet?

Companies buy back and cancel shares, thus shrinking the balance sheet.
As most of the sellers in the open market are likely to be retail investors, this would mean that the free float will shrink too. That would further affect the trading liquidity of the stock.

What's the issue with a leaner balance sheet? Excess and unproductive capital that don't earn a return above the required return on capital should be paid out either by way of dividends or repurchase (if shares are undervalued).

Co A has a $100 balance sheet, consisting entirely of cash making $1 in interest income per annum vs Co B with a $50 balance sheet, consisting of inventory, receivables, equipment that help generate $10 of income per year. Would you say that the "smaller" balance sheet is bad?

On the issue of free float, around 60% of the shares outstanding are deemed as free float by Yahoo Finance. That's not too bad of number, so I don't see the need to be overly concerned over liquidity issues arising from a smaller float. Further, it's important to use the right tools for the right problem. Liquidity issues shouldn't be commingled with capital allocation decisions.

[weijian]

SBB in the past was ineffective due to insufficient liquidity in the market - is probably right because it boosted share prices and conflicts with Wees (or their proxies) who prefer to buy cheap (just like us).

SBB shrinking the balance sheet and worst in the long term - Is mathematically right too. Seems like Wee prefer bigger balance sheet for them in the long term. After all, they need to get past the 3 generation curse, don't they?

Excess and unproductive capital that don't earn a return above the required return on capital should be paid out either by way of dividends or repurchase - Is how a rational/brilliant capital allocator will think. I wonder if the Wee proxy is allowed to act like that, despite having the capability to think like that.

On the issue of free float, around 60% of the shares outstanding are deemed as free float by Yahoo Finance - Not sure if Yahoo Finance could actually untangle the cross-holding structure. Could the "insufficient liquidity" comment be a hint that Yahoo Finance is grossly wrong?

So depending on which side one is on, everything is "rational" and "right". After all, discussion was already done 10years back with the below conclusion:

Wait for the eventual catalyst to come. The annc with
1 picture and lots of names.

[Shiyi]

SBB in the past was ineffective due to insufficient liquidity in the market - is probably right because it boosted share prices and conflicts with Wees (or their proxies) who prefer to buy cheap (just like us).

SBB shrinking the balance sheet and worst in the long term - Is mathematically right too. Seems like Wee prefer bigger balance sheet for them in the long term. After all, they need to get past the 3 generation curse, don't they?

Excess and unproductive capital that don't earn a return above the required return on capital should be paid out either by way of dividends or repurchase - Is how a rational/brilliant capital allocator will think. I wonder if the Wee proxy is allowed to act like that, despite having the capability to think like that.

On the issue of free float, around 60% of the shares outstanding are deemed as free float by Yahoo Finance - Not sure if Yahoo Finance could actually untangle the cross-holding structure. Could the "insufficient liquidity" comment be a hint that Yahoo Finance is grossly wrong?

So depending on which side one is on, everything is "rational" and "right". After all, discussion was already done 10years back with the below conclusion:

Wait for the eventual catalyst to come. The annc with
1 picture and lots of names.

The free float given by Yahoo Finance or annual report is probably over-stated. We will not know the precise number until a corporate action is launched. In addition, it is interesting to note that the chairman described Haw Par's stake in UOB as "strategic investment", i.e. not for sale for whatever price. I guess UOL is also a "strategic investment", i.e. not for sale even the yield is low or zero.

[BlueKelah]

Hi guys I'm back lol..

recently putting this value trap on the watchlist as their cash hoard has grown to 732m if i am not mistaken vs market cap 2200m. Possibly they will have to do a big bonus dividend soon if they are not acquiring anymore businesses as the cash sitting there is going to only get subpar returns as FD. (i think they did a big bonus dividend many years ago as well when cash hoard was too much)

The tiger balm business has recovered post covid and is also cashflowing well. now hawpar is doing 2c+2c divs a year vs $10+ share price almost 4% yield.
(they did EPS 55c this 1HFY and very likely able to do $1 earnings this year, which means PE is only 10)

question is whether to own this or to own UOB shares direct. UOB has more liquidity/capital appreciation and higher div yield for now, will likely drop more in a crash but also go back up much more in the rebound after that..

hawpar needs catalyst but mgt. seems to be happy just sit and twiddle fingers Tiger balm business also not really innovating much.

So I think just keep on the radar for now.

[CY09]

Haw Par has only recently hiked its payout to 20 cents bi-annually, the last bumper dividend payout was due to its 50th anniversary.

Dont expect too much from a conglomerate of UOB's to pay good dividends. It applies to other sister companies.

The web of UOB holdings is a good example of why investor aversion to Singapore stocks is high, many and many times investing here is not to retailer's favour. MAS/SIAS/SGX can right things by forcing companies such as Haw Par to adopt more shareholder friendly measures but it will be to the ire of the rich ppl in Singapore. It could force the unwinding of the complex of cross shareholdings by UOB

[BlueKelah]

Haw Par has only recently hiked its payout to 20 cents bi-annually, the last bumper dividend payout was due to its 50th anniversary.

Dont expect too much from a conglomerate of UOB's to pay good dividends. It applies to other sister companies.

The web of UOB holdings is a good example of why investor aversion to Singapore stocks is high, many and many times investing here is not to retailer's favour. MAS/SIAS/SGX can right things by forcing companies such as Haw Par to adopt more shareholder friendly measures but it will be to the ire of the rich ppl in Singapore. It could force the unwinding of the complex of cross shareholdings by UOB

well could the bumper payout have been inevitable whether 50th anniversary or not? did they also have a big cash hoard back then?

So you reckon due to all the complicated cross holdings just own UOB bank stocks direct then? there has been some good steady dividend growth and capital appreciation past decade for UOB share itself actually.

[CY09]

Haw Par is going to be a 20 cent dividend stock with slight uptick in dividends every few years, next step up 25 sg cents per half a year.

Its is part of the Wee family network to ensure UOB remains in the Wee's family control, an intricate web of strategic ownership. Haw Par will remain as just a dividend stock with the Wee family not being generous in sharing wealth. The catalyst that would happen is only when a government agency decides enough is enough and ask Haw Par/UOL & the pair of Singapore Land/UOB kayhian to unwind themselves. If that happens, the Wee family might think its not worth the effort to maintain a complicated group holding and start delisting associate companies. The delisting will be when Haw Par shareholders get a fair offer, endorsed by a group of IFA

[weijian]

Durian simplifies my brain. So maybe it is apt for another durian analogy

Let's assume there is a HDB ground floor shop house that rents the space to 2 of his relatives who are vendors - 1 durian and 1 massage. There is zero synergy between massage and durian - Well, one could argue a massage customer may not resist the constant durian aroma during the therapy session and decide to buy durian later...but we will not get so far.

The durian stall is taking in much more revenue/turnover than the massage parlor (5 vs 1). Each relative will pay a portion of rent indexed to sales (but a small one). So if any of the business see big money, the shop owner will ultimately benefit but to a much smaller extent.

Now, if there is a chance to invest in the shop (collecting rental) or durian stall (collecting net profit), which will you invest in?

By the way, there is no right or wrong answer. Each has their own pros and cons and hence suited based on each investor's situation. As OPMIs, we just be clear about it and don't deceive ourselves.