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Hock Lian Seng: Robust order book at a 3 year high.

Sunday, December 14, 2014

I have been a shareholder of Hock Lian Seng's since 2010. I accumulated a core position in the stock and also did a bit of trading for extra pocket money. In the last couple of years, however, I have mostly been accumulating the stock because I thought Mr. Market was too pessimistic.

The last time I bought more of the stock was in February 2014 at 25.5c a share. Before that, I bought more in May 2013, at 26c a share. As some readers might have guessed, I developed an interest in Hock Lian Seng because of its attractive dividend payouts. Hock Lian Seng pays out about 40% of its earnings as dividends to shareholders every year and the yield is upwards of 5%.


I was waiting for more weakness in its share price to accumulate and since the stock was hardly covered by analysts, I thought the chances were quite good. Well, I think I can stop waiting.

Why?

There could be much more interest in the stock now that The EDGE published an article on it and after UOB Kay Hian published a report that highlighted a few points regarding Hock Lian Seng:

1. Company has a net cash position of $88 million or about 58% of its market cap.

2. Its two industrial properties, Ark@Gambas and Ark@KB, in Sembawang and Kaki Bukit are 80% and 99% sold. They are expected to obtain TOP in end 2014 and early 2015, respectively. So, Hock Lian Seng's cash position will improve as it recognises net proceeds of $60 million to $70 million from the projects.


3. Consistent and attractive dividend payout of a third or more of its earnings. Special dividends possible. See point 2.


4. Order book with contracts worth $345 million as at September. This is a 3 year high.


If Hock Lian Seng should attract coverage from more analysts and if they are mostly positive about the stock like I am, I think opportunities to accumulate the stock on weakness could be harder to come by in future.

Click to enlarge.

Looking at the chart, Hock Lian Seng's share price could retrace to 27c, the support provided by the trend line. If it should happen, it could be an opportunity for me to buy more although I would have liked to buy at prices lower than that.

Related post:
Hock Lian Seng (My last done analysis in April 2014.).

16 comments:

boonchin.ng said...

Hi AK,

Any thought on Sim Lian? How is Sim Lian comparing with Hock Lian Seng? Sim Lian's ROE has been above 15% since 2006 consistently, net cash (~$70mil??), and DY above 5% as well.

la papillion said...

I've been waiting for this to go down for the longest time... I think with your post, no chance liao :(

AK71 said...

Hi boonchin,

I looked at Sim Lian some time ago. I thought it looked OK but, if I remember correctly, a big percentage of its income was from property development.

So, with the expected downturn in the sector, we will have to ask if the outlook for Sim Lian will remain as rosy as before.

AK71 said...

Hi LP,

Aiyoh, dun liddat say leh. Not me lor. :(

It is UOB KayHian lor... -.-"

pf said...

Yarrrrr....i waiting for it to go down too....now no chance already :(

pansy t said...

Dear AK71,

Will you kindly share your thoughts on the current oil prices and how it affects the economy in general?

Thank you =)

AK71 said...

Hi pansy,

I am not an Economist. My formal education in the subject is limited to the GCE "A" Levels and although I did get an "A" for it, I am not sure if my views are right. So, take them with a pinch of salt. ;)

Low oil prices are good for countries which are net importers and bad for countries which are net exporters. Singapore is an importer, for sure. So, generally, it is good for us as our cost of living and cost of production should reduce and I believe they have. Ask those who own cars, for example. ;)

However, Singapore also has a big O&G industry and house many companies in this industry. Low oil prices, if sustained over a prolonged period, is going to affect the fortunes of such companies. Keppel Corp, SembCorp and SembMarines' share prices plunged due to this concern.

However, I do not think low oil prices are here to stay for too long because the current situation came about mainly due to oversupply and not a reduction in demand. Demand is still growing but very slowly.

So, as long as the world does not go into a recession, oil prices will recover over time, all else remaining equal. The much lower prices for oil might last a year or, maybe, two. So, I will enjoy it while it lasts. :)

AhJohn said...

Hi AK, I do some research at Hock Lian Seng today, and read through all your posts by date sequence. Impressed! Very consistent analysis.

But now price is 0.365, I am thinking it's too high.

One information here:
http://valuebuddies.com/thread-3169-page-5.html
"The fund has already bought a stake of about 2 percent in engineering firm Hock Lian Seng Holdings Ltd., he said. The company has a market capitalization of S$181 million, a dividend yield of 5.1 percent and trades at 9.6 times its earnings, according to data compiled by Bloomberg.
Dektos expects the company to continue paying out attractive dividends and will take an activist approach if that doesn’t happen, Thng said."

AK71 said...

Hi AhJohn,

Oh, my. You were doing a CSI on what I had been doing to my investment in Hock Lian Seng over the last 4 to 5 years? I held up to scrutiny, I hope. -.-"

I believe that Hock Lian Seng was undervalued for a long time but being a company that didn't have much analyst coverage, it was destined to stay undervalued, I thought. I would have been quite happy to accumulate more on weakness.

Well, I guess, it would be almost impossible for that to happen now and I would just have to be contented with what I have accumulated. :)

LOL said...

Hi AK,

As even the most wonderful business would be a poor investment if purchased too high a price, wondering if you can enlighten me on how you valuate stocks? How do you determine what is the right price to enter?

AK71 said...

Hi LOL,

There are many ways in which we can value stocks. Personally, I invest primarily for income and a main consideration I have is dividend yield which should be looked at together with payout ratio. Then, there are other things to look at.

If you are interested in how I approached HLS as an investment, you could look at my past blog posts on HLS. Just have to follow the links provided under "related post" at the end of each blog post. :)

If you are interested in valuation methods, you might want to read a 2 part blog post by Solace, a regular guest blogger: Tea with Solace: Valuation.

If you are interested in value investing, I condensed all that I have learnt into 3 points and you might want to see the related posts here:3 points in stock investing.

AK71 said...

Hock Lian Seng, the civil engineering and property development company, posted a three-fold increase in FY14 earnings to $72.6 million from a year ago.

Group revenue rose three-fold to $261.6 million, boosted by the revenue recognised from Ark@Gambas, the industrial development property project that obtained TOP in November. Ark@Gambas was about 87% sold as of end December.

Hock Lian Seng’s order book for its civil engineering segment was $320 million as of end December, including projects like the Maxwell station, Changi Airport project and the balance of work for Jalan Gali Batu Depot.

The group was also awarded a $137.4 million project from LTA for the construction of Stabling at Gali Batu Depot in Jan 2015. The construction of the group’s new industrial development properties at Tuas is also expected to start in 2H15, while the industrial development property project, Ark@KB is expected to obtain TOP by 1Q15.

The construction of The Skywoods, Hock Lian Seng’s 50% joint venture residential project, is targeted to complete by 2016. 177 units of the 420-unit development has been sold as of end December.


Source:
http://www.theedgemarkets.com/en/node/186641

AK71 said...

福联盛控股: 订单创三年来新高
 A K
 2014年 12月 16日

自2010年起,我成为福联盛控股(Hock Lian Seng Holdings)的股东之一,并累积了不少股份。在过去几年,由于我觉得市场有点悲观,所以我一直都有买入这只股。

对上一次我买入较多股份是在2014年2月,当时的价位是在25.5分。在这之前,我在2013年5月以每股26分买入更多股份。有些读者可能猜对了,没错,我对福联盛感兴趣是因为它派发的股息相当诱人。福联盛每年把其盈利约40%派作股息,而其获益率达到5%以上。

我正在等待这只股的股价回落一点点再进场买入。由于这只股差不多没有获得分析师的垂青,我认为我的机会很大。慢着,我想不需要再等了。

原因何在?

因为《The EDGE》杂志刊登了一篇文章关于这只股,而大华继显也发出一份关于这只股的报告,让福联盛可能受到更多关注。这些报告强调了以下几点:

1. 福联盛拥有8,800万元净现金或大约是其市值的58%。

2. 公司两个位于三巴旺(Ark@Gambas)及加基武吉(Ark@KB)的工用产业已分别售出80% 及99%。它们预期可以分别在2014年尾及2015年初取得临时入伙准证(TOP)。福联盛的现金将会提高,由于它可以从这些项目中确认6,000万元至7,000万元净收益。

3. 持续把三分之一或更多盈利派作股息。公司也可能派发特别股息。

4. 截至2014年9月,公司拥有价值3亿4,500万元合约,这是三年来的最高位。

如果福联盛可以引来更多分析师的报道,而如果他们对这只股都像我一样持有乐观的看法,我想我以后要等这只股的股价回落才进场的机会越来越少。

Source:
http://cj.sharesinv.com/20141216/891

AK71 said...

Singapore, 4 Nov 2015 –

For 9M FY2015, revenue increased 232.2% year-on-year to S$ 149.8 million.
This was attributed to a substantial contribution revenue from property development projects. Gross profit also increased 144.1% to S$ 31.6 million. Profit after taxation increased 252.9% year on-year to S$ 25.2 million.

The civil engineering segment continued to benefit from pickup in progress of the Maxwell
Station for the Thomson Line and development work for Changi Airport. Civil engineering
revenue was S$ 16.3 million higher year-on-year.

Property development segment was the key contributor for the higher revenue for 2015.
The revenue was recognised from the completed sale of Ark@KB in Mar 2015 and additional
units sold at Ark@Gambas in this current reporting period.
As at 30 Sep 2015, Hock Lian Seng’s joint venture residential project, The Skywoods, was 75% sold. It is also on target for its 2016 completion.

Hock Lian Seng’s current orderbook for civil engineering projects stands at S$ 408 million as at 30 Sep 2015.

http://hlsgroup.listedcompany.com/newsroom/20151104_182523_J2T_1DBYKKH5Z7B1Z7YC.2.pdf

AK71 said...

FB Reader:
Hi AK, I don't know if you will reply to FB msg, but I'll just give it a shot. I have been following your blog for abt 1+ years. I have a qn on your latest FB posting regarding 'Invest for income and ignore the two Ms'.
My question is, when a stock price fall, we can't really say 'all else being equal' or 'business has not changed' as it may be due to many reasons including market sentiments, or many times, the weaker earnings report.
Lets take Hock Lian Seng as eg. After you highlighted about this company, I took a look and based on my very limited FA knowledge, I think it is a good company. Personally I think a good entry pt is $0.355 (based on my tiny bit of TA knowledge). After following for some time, I was alerted and hv bought into it on Fri. I want to accumulate more if it falls further.
However, my slight concern is on the 2016 Q1 earnings report. It seems quite bad YoY, which explains the fall in stock price. So could you enlighten me on that?
My take is quarterly reports may be an indication of cracks in the business, but we should not be as fearful as the general mass. In fact, it can b a buying opportunity. However, we should continue to monitor closely on the nx quarterly reports. But as long as the business is still sound, still winning projects, we should not be overly concerned. May I have your assurance that im on the right tracks?

AK:
Welcome to ASSI. :)
One quarter's results not conclusive of trouble especially when we are talking about construction companies because their earnings are lumpy in nature.
Construction companies which are also property developers, even more so. ;)
But I am not providing any assurances. I don't do that kinda stuff.

FB Reader:
Ok. Understand. Thks so much for ur sharing. Really grateful for your blog. It does help to shape my direction in investment..
i read up the quarter report again. noted the difference in revenue is due to property development sales vs the lack of it. i understand fully what u mean now.. thks again!

AK71 said...

On my FB wall:

Why is AK not worried?
----------------------------

Talen Blackburn Terence:
"Are you worried abt the fact that almost 95% of the Sale of Skywoods is already recognised? Revenue and net profit should be much lower and could affect share price."

AK:
"Whether a person should be worried or not would depend on his motivations and the circumstances in which he entered his investment.
I have been invested in HLS for many years primarily for income although I also traded around my core position a few times over the years.
The DPS assumption I made was based on more normalised earnings and not the extraordinary. So, I have been careful not to add as prices went up much higher. My current average price is about 26c, if I remember correctly.
Share price aside, with a strong balance sheet and prudent management, I am comfortable holding on to my current investment in HLS for a more normalised level of income."

-------
The above blog post shows how AK accumulated his investment in HLS and when.

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