Friday, December 17, 2010

Hap Seng Consolidated

This will probably be the highest priced stock that I have featured... lol. Most investors will only look at Hap Seng Plantations as it is more focused, same goes for research houses. Many will consider Hap Seng Consolidated to be having a finger in too many pies. But seriously, they are in all the right industries.

Year to Sep 2010, the company has made RM275.8m net profit or 39 sen net EPS. Taking in the final quarter, the company should register a net profit of RM348m or a net EPS of 55 sen. NTA is at RM4.41 per share, not revalued.

Hap Seng Plantation's stake alone is worth RM1.3bn at market prices. Current market cap for Hap Seng Consolidated is RM3.97bn.

Issues shares: 622m (RM1.00)
Gek Poh Holdings 56.02%
Lei Shing Hong Investment 10.83%

Market Cap (RM mn) / PER(current) / PER(forward)
Berjaya Corp 4,210.6 / 26.9 / 27.8
Boustead 5,349.5 / 9.8 / 11.9
Sime 52,041.9 / 75.3 / 16.8
Hap Seng Consolidated 3,970 / 13 / 10.2

You can read all about the various business arms of Hap Seng Consolidated below, all performing creditably. Why I chose to highlight the stock now is critical. Actually I was given the tip when the stock was at RM5.50 but as I have said before, great value is not enough for me to post. Timing and catalyst have to be right. If not, its the same as buying into Boustead - although Hap Seng do run their businesses a lot better than Boustead. After checking through my network, there is conformation that we have catalyst and timing.

1) The company is supposedly mulling a 1 for 4 share split, i.e. from RM1.00 share to 25 sen share. Seriously, the Malaysian market loses a lot of investors participation once the share price scale past RM4.00, like it or not. Hence its a worthwhile and very likely proposition.

2) Hap Seng Consolidated has been riding up alongside Hap Seng Plantations owing to the run in CPO. However, if you look closely at the actual volume traded, its more than the usual upswing. This was the same pattern prior to DRB scaling past RM1.50, and we are seeing a repeat of that. Rarely do the volume go past even 1m shares traded even when its going up. On Friday it was 2.5m traded.

3) There is news that the company is going to do a double whammy, i.e. a special dividend together with share split. A figure of 20-30 sen was heard.

4) Its a value proposition as well, even at present levels. If you like Boustead, you should like Hap Seng Consolidated even more given the likelihood of favourable corporate exercises. RM8.00-8.50 is quite reachable as news of their corporate exercises gather momentum.

As mentioned before, many research houses abandoned covering the stock, I could only find one report, and quite well written too, see if you can locate it as well.

Quarry and Building Materials
Benefit from projects. The 2011 Budget announcement had largely focused on construction and development. Construction boom. Even without government support, private initiatives have been burgeoning with many property developments being sold and continued developments. Plans for towers of buildings in the Klang Valley had continued to surface constantly. With the ongoing and even more upcoming developments, demand for building materials could potentially accelerate. Hap Seng Trading was appointed by Malaysian Mosaics Bhd on 30 June 2009 as its sole and exclusive distributor of MML tiles in Malaysia. Recently there was a privatization of MML which indicates value in the company. This hints positively to the segment.

Owns 52.53% of Hap Seng Plantations. Hap Seng Plantations is predominantly an oil palm planter in Sabah. It is an efficient planter with large economies of scale. Earnings rerating. CPO prices has increased rapidly over the half a year. With the large increase, earnings of planters are expected to increase substantially. Stock price increase in the industry has currently lagged the potential increase in net profits. Moreover, the USD has been strengthening against the ringgit, giving strength and competitiveness to the CPO against other oils especially soybean oil.Hap Seng is synergistically tied to its fertilizer division as well. High Efficiency. HSP is one of the most efficient planters in the industry with FFB yields of 21.5 metric tons per hectare and an OER of 21.6%. Moreover, HSP has a contiguous plantation which offers far more efficiency and scale than planters with plots of land in various locations. The group has a FFB yield of close to 700,000 metric tonnes per year. The group also operates 4 mills.

Plantation land
The total area of Hap Seng Plantations estates is 39,803 hectares. Hap Seng Plantations operates on one contiguous block of plantation land of approximately 36,354 hectares between Lahad Datu and Sandakan region, in addition to two smaller plantations of 1,276 hectares in Tawau and 2,173 hectares in Kota Marudu. 34,467 hectares of planted area comprises 32,576 hectares of matured oil palm and 1,891 hectares of immature plantings.

Malaysia and Indonesia. Hap Seng’s fertilizer business is primarily in Malaysia and
Indonesia. We do see some growth in the sector with higher CPO prices and as Indonesia’s plantation acreage increases and matures. Currently a very large amount of plantation land is maturing and coming onstream annually. The fertilizer business is complementary and synergistic to Hap Seng’s plantation segment. This is especially the case with rising CPO prices whereby demand of fertilizer normally increases.

Property development
Hap Seng’s property focus has been primarily on low-rise residential properties in major urban centres. Hap Seng’s key development area has been in Sabah. Hap Seng has developments in Tawau, Sandakan, Kota Kinabalu in Lahad Duta. Hap Seng has developments in all 3 key segments including residential, industrial and commercial. Branching out into Klang Valley. Hap Seng has ventured into the Klang Valley in recent years through D’Alpinia located in Puchong. It is located in the fringes of Puchong close to Seri Kembangan and Putrajaya. It is a relatively large development of 76 acres of land and is of a build and sell concept. The units are of modern contemporary design. Phase 1 was launched in late 2009.

Hap Seng is involved in automotive through Hap Seng Auto Sdn Bhd,Hap Seng Industrial Sdn Bhd and Hap Seng Star Sdn Bhd. Hap Seng Auto is involved in the distribution of Mercedes-Benz logging trucks, general-purpose trucks, buses, passenger vehicles and spare parts in Sabah and Sarawak. Hap Seng Auto Sdn Bhd is also the sole distributor for Mitsubishi Fuso commercial vehicles in East Malaysia. Hap Seng Industrial Sdn Bhd fabricates and assembles logging truck trailers, tankers and other industrial transport vehicles. Hap Seng Star Sdn Bhd is an authorized dealer of Mercedes-Benz and Smart vehicles in the Klang Valley. In April 2010, Hap Seng Star Sdn Bhd took over Hap Seng Auto Sdn Bhd’s role as the sole authorized dealer of Mercedes-Benz and Mitsubishi Fuso in East Malaysia.

Group synergy
Hap Seng’s property arm plays a synergistic role with the group. Hap Seng’s property arm benefits directly from its quarry & building materials arm and provides the latter with ongoing orders. Hap Seng’s property arm could benefit from lead time, consistency in demand and product quality. Hap Seng’s property arm could also benefit indirectly from their Credit Financing arm as it also serves construction and property related businesses.

Property Holdings
The group’s flagship Menara Hap Seng has seen a high occupancy rate of 94% for its tower block and 88% for its podium. The division continues to contribute substantially to the division, providing it strong cash flows and relatively stable earnings. Hap Seng has a 1.1 acre freehold land adjacent to the building and the 31,000 sq ft 1 ½ storey Hap Seng Star Mercedes-Benz showroom. The showroom has very premium frontage of Jalan P Ramlee and Jalan Sultan Ismail in the Central Business District of Kuala Lumpur. The area has the potential to be redeveloped into a very premium and high visibility commercial block.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


Remnant 613 said...

I bought in years back when I was in Kuching and saw their auto dealership opposite hotel. Biz was brisk.
Check on share price reveal it was trading 10-20 sen abv HSP and paying better DPS than HSP. It was trading at huge discount..!
And the courage to buy Menara Citibank (?) when IOI reneges was an eye opener. Cash rich..?
When BHP bids for Potash, that's when the price surge. I think you nailed it rightly - they're largest fertiliser manuf.
I was in K. Baru recently and even HSC Quarrying/Building Matl. was there (East Coast Economic Transformation).
I sure agree with you there's more upside to its price..
I have bit & pcs info on HSC but you certainly did a good job in putting the pieces in place.
Thanks Dali for the comprehensive write-up.
Have a truly wonderful Christmas...

sanghani58 said...

I agree with your opinion but the share price had move up.Fundamental is strong but you have to look at the balance sheet and the gearing and as regards to the plantation sector of the unit other plantatation stock is more cheaper for example Kumpulan fima which have a stake in Fima corporation.TDM is also good and Kretam.You have educated a lot of investors and I am one of them.

Loo said...

Hap Seng Consolidated was strongly recommended by SJ Securities early this week as well.

Jimmy Tham said...

bulk of their fertilizer revenue comes from trading, not manufacturing. unlike other fertilizer manufacturer, HSC doesn't has to worry about increase in inputs price, they can easily pass it to their customers.

offstonee said...

Another flying stock, this should shout out those complaining fellow.