Is There Still Value In Haw Par Corporation Ltd After Its 80% Stock Rally?

Listed in 1969, Haw Par Corporation Ltd (Haw Par) derives income from two key businesses. First, it owns the iconic Tiger Balm brand, which is a recognised and

well-known ointment brand in the world. Second, it holds strategic investments where it derives recurring dividends and rental income. As of 2 April 2019, Haw Par is valued at S$ 2.95 billion in market capitalisation.

In this article, I’ll revisit its fundamentals, bring an update on its recent financial results and valuation figures based on its current stock price of S$ 13.35 a share today. Thus, here are 11 key things to know about Haw Par before you invest.

  1. Asset #1: Healthcare
    Operating profits have increased by CAGR of 19.5% to S$ 77.3 million in 2018 from S$ 15.5 million in 2010. It is mainly attributable to increasing sales of Tiger Balm products in markets such as ASEAN and Europe over the last few years as a result of branding campaigns through sports and effective partnerships which led to new retail channels and better store penetrations in these markets.

Source: Haw Par’s Annual Reports

  1. Asset #2: United Overseas Bank Ltd (UOB)
    Haw Par has increased its investments into UOB to 74.85 million shares in 2018 from 63.88 million shares in 2009. Thus, the market value of its investments in UOB has increased to S$ 1.84 billion in 2018, up from S$ 1.26 billion in 2019. Haw Par has generated an increasing amount of gross investment income consistently. It has increased from S$ 38.3 million in 2009 to S$ 85.0 million in 2018.

Source: Haw Par’s Annual Reports

  1. Asset #3: UOL Group Ltd (UOL)  
    In 2016, Haw Par initially owned 44.77 million shares of UOL and 69.57 million shares of United Industrial Corporation Ltd (UIC).

    In 2017, Haw Par had entered into 2 separate agreements with UOL:

    – Agreement 1:
    Haw Par had disposed of 60.00 million shares of UIC in exchange for 27.27 million shares of UOL.

    – Agreement 2:
    Haw Par has disposed of 9.57 million shares of UIC in exchange for S$ 31.7 million.

    Thus, Haw Par has 72.04 million shares of UOL worth S$ 443.08 million in 2018. It received S$ 12.6 million in gross investment income in 2018, the highest in 10 years.

Source: Haw Par’s Annual Reports
Gross Investment Income from 2009 to 2017 includes income from UIC.

  1. Asset 4: Investment Properties
    Haw Par has 4 investment properties valued at S$ 214.1 million in 2018 and their details are as followed:

    – Haw Par Glass Tower (Occupancy Rate 2018: 100%)
    – Haw Par Technocentre (Occupancy Rate 2018: 100%)
    – Haw Par Centre (Occupancy Rate 2018: 80%)
    – Menara Haw Par (Occupancy Rate: 70%)

    Haw Par received, on average, S$ 16.5 million in rental income per year from its 4 investment properties over the last 10 years.

Source: Haw Par’s Annual Reports

  1. Group Profitability
    Shareholders’ Earnings have increased to S$ 179.1 million in 2018, from S$ 50.6 million in 2009. It is attributable to continued growth in higher profits from its healthcare business and investment income by UOB. Its earnings per share (EPS) had increased from 23.3 cents in 2009 to 81.2 cents in 2018. Haw Par has 10-Year Return on Equity (ROE) 5.0% a year. It means it had generated S$ 5 in annual earnings from every S$ 100 in shareholders’ equity from 2009 to 2018.

Source: Haw Par’s Annual Reports

  1. Cash Flow Management
    From 2009 to 2018, Haw Par has brought in as much as S$ 476.8 million in operating cash flows, S$ 370.4 million in dividends (investments in its shares with UOB, UOL and UIC) and S$ 20.5 million in interest. Haw Par, over the past 10 years, had paid out S$ 471.5 million in dividends to its shareholders. Overall, Haw Par has grown its cash balance from S$ 85.5 million in 2009 to S$ 519.4 million in 2018.

Source: Haw Par’s Annual Reports

  1. Balance Sheet Strength
    As of 31 December 2018, Haw Par has a total of S$ 23.3 million in total borrowings and S$ 2.93 billion in shareholders’ equity. Thus, Haw Par’s gearing ratio is 0.79%.

  2. Who Owns Haw Par?
    As of 1 March 2019, Wee Investments Pte Ltd and Supreme Island Corp are substantial shareholders of Haw Car Corporation Ltd with a total of 27.58% and 5.47% direct shareholdings respectively. As such, the Wee family remains as the largest ultimate shareholders of Haw Par as they hold interests in Wee Investments Pte Ltd and Supreme Island Corp.

    – Wee Cho Yaw is appointed as Chairman of Haw Par.
    – Wee Ee-chao is appointed as Deputy Chairman of Haw Par.
    – Wee Ee Lim is appointed as President & CEO of Haw Par.

  3. P/E Ratio
    In 2018, Haw Par had generated 81.2 cents in EPS. As I write, Haw Par is trading at S$ 13.35 a share. Thus, its current P/E Ratio is 16.44, which is slightly above its 10-Year Average of 15.80.

  1. P/B Ratio
    As of 31 December 2018, Haw Par has net assets of S$ 13.27 per share. Thus, its current P/B Ratio is 1.01, which is the highest in 10 years.

  1. Dividend Yields
    Haw Par had increased its dividends per share (DPS) from 18.0 cents in 2009 to 30.0 cents in 2018. Thus, its current dividend yield is 2.25% a year, which is below its 10-Year Average of 2.58% a year.

VIA’s Verdict

Haw Par has strategic assets which delivered sustainable dividend payouts to its shareholders for the past 10 years. As I write, Haw Par has a solid balance sheet with negligible gearing ratio and S$ 519.6 million in cash reserves. This is why it also has the ability to pay out special dividends which is an addition to ordinary dividends from time to time.

Clearly, its stock prices had risen sustainably over time, which is in tandem with its growth in healthcare business and the value of UOB shares.

Source: Google Finance

In terms of valuation, it is trading at above-average P/E and P/B Ratios. It offers a dividend yield of 2.25% per annum. So, would you invest in Haw Par at S$ 13.35 a share today? Please do let us know your comments below:

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