The 8 Most Important Things You Need To Know About Hap Seng Consolidated Bhd

Former U.S. President, Abraham Lincoln once quoted, ‘United we stand, Divided we fall.’ Today, after one and a half centuries later, these six words remain as a popular quote, commonly used to spur unity and a cooperative spirit in business and sports.

Personally, I was not sure whether Abe was known among Chinese migrants in the 1940s. But, I’m sure that the spirit of unity is universal as it transcends across regions, cultures and time. Here is a classic example. In 1946, the late Tan Sri Lau Gek Poh (LGP) founded Hap Seng Co. in Tawau, Sabah where the words ‘Hap’ and ‘Seng’ mean ‘Unity’ and ‘Success’.

Hap Seng Co. was into the timber business. Two decades later, in the 1970s, LGP was nicknamed as the ‘Timber King of Sabah’. Subsequently, LGP has ventured into new businesses in other industries, thus, giving birth to a truly diversified conglomerate known as Hap Seng Consolidated Bhd. As I write, it is worth RM 23.5 billion in market capitalization. In this article, I’ll cover 8 things that you need to know about Hap Seng Consolidated Bhd before you invest.

#1: Stock Symbol

Ticker Symbol: KLSE: HAPSENG / KLSE: 3034
Market Capitalization: RM 23.5 Billion (25 November 2017)

Share Price: RM 9.43 (25 November 2017)

Industry: Trading & Services

Syariah Compliant: No

#2: The Business

Hap Seng Consolidated Bhd derives income from six different business divisions. They include:

  1. Hap Seng Plantations Bhd
    Hap Seng Consolidated Bhd is the largest shareholder of Hap Seng Plantations Bhd with 53.04%. For more information, please read the article on Hap Seng Plantations Bhd. 
  2. Property Investment & Development
    Hap Seng derives rental income from a portfolio of office buildings which include Menara Hap Seng, Menara Hap Seng 2, Plaza Shell, and 49.99%-stake in Menara Citibank. Meanwhile, it has a portfolio of development projects located mainly in the Klang Valley and the state of Sabah, Malaysia. In 2016, this division has contributed RM 1.04 billion and RM 361.7 million in revenues and operating profits to the group respectively.
  3. Credit Financing
    Hap Seng Credit Sdn Bhd derives income from providing term loans and industrial hire purchase to small & medium enterprises (SMEs) through a network of 10 branches across Malaysia. This division has contributed RM 140.3 million in operating profits to the group in 2016.
  4. Automotive
    Hap Seng is a leading Mercedes Benz dealer in Malaysia. It operates a network of 7 dealerships where 4 of these dealerships are located in the Klang Valley while the remaining 3 dealerships are based in East Malaysia. In 2016, this division has contributed RM 1.10 billion and RM 25.2 million in revenues and operating profits to the group respectively.
  5. Fertilizer Trading
    Hap Seng is a leading supplier of fertilizer in Malaysia. It supplies and trades Muriate of Potash (MOP), Ammonium Sulphate, and Rock Sulphate primarily to the oil palm industry. This division has contributed RM 1.01 billion and RM 30.7 million in revenues and operating profits to the group respectively.
  6. Building Materials
    Hap Seng has 13 quarries, making it the largest quarry operators in Malaysia. It also manufactures ceramic tiles under Malaysian Mosaics Sdn Bhd and trades a wide range of building products such as steel bars, cement, building chemicals, marble, sanitary ware, quartz top, wood flooring and interior fittings under Harafy Holdings Ltd which is an SGX-listed company. In 2016, this division has contributed RM 1.33 billion and RM 145.0 million in revenues and operating profits to the group respectively.

#3: The Financials

Hap Seng Consolidated Bhd has recorded growth in group revenues, up from RM 3.63 billion in 2011 to RM 4.89 billion in 2016. During the period, it has grown its shareholders’ earnings from RM 375.6 million in 2011 to RM 1.0 billion in 2016. Evidently, the growth in profits has substantially outpaced its growth in group revenues.

This is because the conglomerate has recorded multiple gains from disposal of subsidiaries during the period. These include:

  1. Hap Seng Star (Vietnam) Sdn Bhd in 2013 for RM 300.0 million
  2. Aceford Food Industry Pte Ltd in 2013 for RM 160.0 million
  3. Hap Seng Capital Pte Ltd in 2015 for RM 640.8 million
  4. Hap Seng Commercial Vehicle Sdn Bhd in 2016 for RM 382.5 million

Source: Annual Reports of Hap Seng Consolidated Bhd

#4: Growth Plan

Hap Seng Consolidated Bhd has revealed its recent developments which include:

  1. Property Investment & Development
    In the property investment segment, Hap Seng has completed the development of Wisma Mercedes Benz in 2016 and is embarking on the development of Menara Hap Seng 3. Meanwhile, in the property development segment, Hap Seng has various projects which are at their early stage of construction. They include the Aria and Akasa Cheras South projects in the Klang Valley, the Kingfisher Putatan and the Kingfisher Inanam Condominiums in Kota Kinabalu, Sabah.
  2. Credit Financing
    Hap Seng Credit Sdn Bhd has expanded its loan base to RM 2.64 billion as at 30 September 2017, up from RM 2.3 billion as at 31 December 2016. It has reduced its non-performing loan (NPL) ratio to 1.77%, down from 1.89% in 2016.  
  3. Automotive
    Hap Seng has opened its 8th dealership in Bukit Tinggi, Klang in April 2017 and 9th dealership in Iskandar Johor in August 2017. It is currently renovating its dealership in Puchong South. It is expected to be opened in January 2018.

#5: Risks

Hap Seng Consolidated Bhd is exposed to risks related to the palm oil industry (refer Hap Seng Plantations Bhd), property industry, and currency fluctuation.

The weakening of the local property market would negatively impact demand for its property projects and its building material products. Meanwhile, Hap Seng Consolidated Bhd’s fertilizers division is exposed to foreign exchange risks as fertilizers are imported in U.S. Dollar and the cost of purchasing its products are subjected to global price fluctuations.  

#6: Valuation

As I write, Hap Seng Consolidated Bhd is trading at RM 9.43 a share.

In 2016, Hap Seng Consolidated Bhd has reported making RM 0.424 in earnings per share (EPS). Thus, its current P/E Ratio works out to be 22.2.

As at 30 September 2017, Hap Seng Consolidated Bhd has reported having RM 2.46 in net assets a share. Thus, its current P/B Ratio works out to be 3.83.

In 2016, Hap Seng Consolidated Bhd has declared and paid out RM 0.35 in dividends per share (DPS). If the conglomerate is able to maintain RM 0.35 in DPS for 2017, its expected dividend yields are 3.71%.

#7: Investors Relation

For further enquiries or to request for additional investment information on Hap Seng Consolidated Bhd’s Investors Relation matters, you may contact:
Andrew Kuan
Designation: General Manager, Corporate Planning & Investors Relation

Telephone:
(603) 2172 5228

Email:
inquiry@hapseng.com.my

Website:

http://www.hapseng.com.my/en/request-for-ir-information.php

#8: Major Shareholders

As at 31 March 2017, the substantial shareholders of Hap Seng Consolidated Bhd are:

– Gek Pek (Holdings) Sdn Bhd: 54.63%

– Hap Seng Insurance Services Sdn Bhd: 6.20%

– Lei Shing Hong Investment Ltd: 12.08%

Note:
Tan Sri Datuk Seri Panglima Lau Cho Kun is a substantial shareholder through his interests in Gek Pek (Holdings) Sdn Bhd, Hap Seng Insurance Services Sdn Bhd, and Lei Shing Hong Investment Ltd.

Want to know more about Value Investing In Asia? We have just launched our book “Value Investing In Asia; The Definitive Guide To Investing In Asia”, published by J.Wiley. Find out more about the book here.

Ian Tai

Ian Tai is the founder of Bursaking.com.my, a platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that sifts out stocks that grow profits consistently from a database of over 900+ stocks listed mainly in Malaysia. As a Malaysian with close family ties in Singapore, Ian publishes a series of newsletters on how anyone can invest profitability in both countries.

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