Asked by Anonymous
Asked on 18 Apr 2019
Discuss anything about share price, dividends, yield, ratios, fundamentals, technical analysis and if you would buy or sell this stock on the SGX Singapore markets. Do take note that the answers given by our members are just your opinions, so please do your own due diligence before making an investment!
TL;DR Haw Par has a very stable and mature business with a rich history. Financially they look quite stable, and see well diversified across different geographical regions.
What is their Business Profile?
When we think of “Haw Par”, we think of Haw Par Villa. But we should also think of Tiger Balm, because this is the company that produces it. Born in the 19th century, the business was started with Aw Boon Haw (the Tiger) and his brother, Aw Boon Par (the Leopard) in the British colonial days.
The recipe of tiger balm was created after the brothers perfected the recipe passed from their father. Fast forward a 100 years till today, and the business has a market cap of $3bn and operates all over the world.
What are some strong points about their business?
Strong Business Model
Growing revenue and profitability are very good signs that demand for the products are growing. I also believe that the Haw Par brand name is very strong, and so the business as a whole carries a strong brand equity. Also, the business model seems quite defensible, and Haw Par is likely able to maintain its market position and grow further in time to come.
The business also seems diversified in the sense that revenue flows proportionately from different regions. This reduces the risk from revenue being affected too much if one region is particularly affected.
What do their financials tell us about the business?
Revenue has increased consistently over the years, at quite a good rate. Revenue increase for last year was $237m, an almost 7% increase from the previous year. The highest contributing sector for profits are investments, followed by healthcare.
Net profit has also grown tremendously over the past FY, with an increase of almost 50% to 180m. This led to an Earning Per Share of 81.2 Cents, much higher than 55.7 cents of the previous FY.
Return on Equity
With a Return on Equity (ROE) of 6.1%, this means that for every one dollar of equity, 6 cents of profits are generated. ROE has been actually increasing over the past few years.
With a Debt/Equity of 0.8%, this shows how little leverage the business has. This means that the company holds very little debt as compared to equity. This is a good sign, since it could mean more debt can be taken on to fund future operations as well as cheaper costs of financing. Moreover, it also means that the company has less debt to pay off in the future, which means lesser risk for shareholders but it could also mean more cash could be paid out in dividends.
Being vested in Haw Par stock is akin to having exposure to 3 key sectors:
1) Healthcare medicinal products (Tiger balm ointment & sister products)
2) Bank (via stakes in UOB, one of the 3 blue-chip local banks)
3) Property (via stakes in UOL, one of the leading property company in SG).
The interesting thing about Tiger Balm is that its a age-old household brand name, which carried tons of brand awarness when it comes to pain-relief solutions. The Tiger Balm ointment recipe is also difficult to be replicated by its competitors. Hence, its heartening to know that the company had been effectively exploiting this strategic advantage and carried out product extensions such as mosquito repellent patch, pain-relieving patch etc. They also seek to distribute their products via 3rd party networks & partnerships, reducing/eliminating the need to set up storefronts which result in capital layouts & recurring maintanence expenses.
When it comes to their investments holdings in UOB & UOL, they are quite the shrewd investor. Quoted from their 2018 annual report "The Group elected to receive $47.6 million (2017: $25.2 million) of dividend income as scrip shares in lieu of cash dividends during the year. With the higher share base as the Group progressively opted for scrip shares in lieu of cash dividends, coupled with the increase in dividend rate, dividend income from strategic investments increased 64%". So at first instance, it might seem that in 2016 & 2017, their dividend income had shrank. But in reality, they are opting to re-invest and took advantage of lower share prices to hold on to more shares that had consistent dividend growth.
Last but not least, not only Haw Par had very low liabilities in total, it also had very limited interest bearing debt, such that its trade & other payables exceed its borrowings. This speak volumes on the conservative & prudent financial approach that the mgmt take. No fancy financial instruments, very straight forward, clean & lean debt profile.
All in all, H02 is not really an exciting growth or high yield stock. Its more of a "slow & steady" stock that rewards shareholders over the long horizon, with more gradual upward price movements than sharp downward movements.