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Hock Lian Seng: Testing 39.5c resistance.

Thursday, February 26, 2015

The last time I blogged about Hock Lian Seng was in December last year. Since then, the stock has seen its price rising almost relentlessly. Drawing some Fibo lines shows that share price is now probably testing the resistance at 39.5c. It is a golden ratio and probably quite a strong resistance.

I have readers asking me if they should sell their investment in Hock Lian Seng in the last month or so. I said it is really up to them.

I am not ready to sell because I invested in Hock Lian Seng for income and even at 36c a share, a 1.8c dividend per share (DPS) would still mean a 5% dividend yield and that is based on a 40% pay out ratio. Still a pretty good income generator. So, even at 36c, it wasn't a price I would sell at.

Just now, I was alerted by a reader that Hock Lian Seng is declaring a 4c DPS and although I thought a bumper dividend possible before, it is still a pleasant surprise. This means a dividend yield of as much as 16.67% based on my lowest entry price in October 2011.

Over the years, Hock Lian Seng has been a very rewarding income investment for me and the higher DPS declared today is the icing on the cake.
What about the future?

Hock Lian Seng has been winning projects and their order book is now worth about $457 million. Even without new order wins which I think is unlikely, they will be kept busy for many years. This is in line with my initial investment thesis that Hock Lian Seng is a natural beneficiary of our country's escalating investment in infrastructure projects till the year 2030.

Hock Lian Seng has another industrial development property project which will obtain TOP probably in the next month or so. This will mean recognising more net proceeds as the project is almost 90% sold. An interim dividend, perhaps? Well, we can always hope although given the conservative nature of Hock Lian Seng's management, I doubt that it would happen.

Now, let us look at the burr in Hock Lian Seng's side, the Skywoods. Although the Skywoods condominium is less than half sold, I have written a pretty detailed piece before on how Hock Lian Seng's business is much more than just Skywoods. This residential development project, a joint venture, is expected to obtain its TOP sometime in 2016.
Recent transactions for Skywoods.
I would have been quite contented to stay invested in an income generating business that Mr. Market wasn't paying much attention to as I would have liked to build a bigger long position at lower prices. With the attention that Hock Lian Seng is now getting, I feel that its stock is no longer undervalued but, taking everything into consideration, it isn't expensive either.

See financial statement: here.

Related post:
Hock Lian Seng: Robust order book.


BP said...

Hi AK, What are your thoughts about yong nam?
Clinching the airport contract didn't seem to stop its continual decline.

yeh said...

thank you, ak
i sold Hock Lian seng.

well, no time to read marco polo financial result yet:P

hahha, too lazy recently

blazingruby60 said...

hi AK
You mentioned you are holding on to this share because you bought in way lower in price but you didnt say at 0.39 or higher would you consider buying and at what price you would think its over-valued.
Stock market has gone up and looking to buy shares that give me passive income.thanks for educating us,the readers and giving us a heads up in shares :)

AK71 said...

Hi BP,

I can say confidently that Yongnam is trading at a huge discount to its NAV. I cannot, however, explain why its share price is declining. :(

I am looking to add to my long position in Yongnam as it appears undervalued to me. I am prepared, however, for its share price to possibly go lower as Mr. Market seems to be feeling so negative about it. -.-"

AK71 said...

Hi Yeh,

It is never wrong to take profit, as the saying goes. Congratulations. :)

AK71 said...

Hi blazingruby,

Hmmm... I don't think I said I am holding onto the stock because I bought in way lower in price. I decided to hold on because even at 36c, I felt it was still a relatively good investment for income and it wasn't a price I would sell at. ;)

As for whether I would consider buying more or whether it is overvalued, I think there are some hints in this blog post. Some things, I rather not say too explicitly. I scared. -.-"

blazingruby60 said...

hi AK

You are way too funny. We are all adults, decisions made are ours alone.
tHere you are indemnified :) the cue

AK71 said...

For FY ended Dec 31, Hock Lian Seng's revenue spiked from $86.7m to $261.6m, PATMI grew 204% from $23.9m to $72.6m.

After paying a DPS of 4c, HLS will still have 27.5c of net cash and 5.4c of investment securities per share on its balance sheet. Therefore, the company remains undervalued as its existing businesses are only valued at 6.6c based on its existing share price of 39.5c.

Intrinsic value: 50.5c

Source: Voyage Research, 3 March.

AK71 said...

For 1Q FY2015, revenue increased 420.8% year-on-year to S$103.9m. This was attributed to a substantial contribution revenue from property development projects.

Gross profit also increased 472.8% to S$ 24.8 million while gross profit margin improved from 21.7% to 23.8%. Profit after taxation increased 689.9% higher year-on-year to S$ 18.6 million.

As at 31 March 2015, Hock Lian Seng had a cash and short term deposits of S$ 188.8 million.

Hock Lian Seng is currently focused on executing its civil engineering projects on-hand. Its current orderbook as at 31 March 2015 stands at S$ 440 million. This includes the Maxwell Station for the Thomson Line, development work for Changi Airport, Stabling at Gali Batu Depot and Jalan Gali Batu Depot project. The construction of Hock Lian Seng’s industrial development in Tuas will also be undertaken by its construction arm. This is expected to start in the second half of this year.

The Tuas Industrial Development project is a 25,700 sqm site for a 5 and a half storey industrial building with ramp-up units. The site was acquired in a successful tender in January 2015.

Going forward, Hock Lian Seng will continue to tender for large scale civil engineering projects in Singapore. This will be done selectively and competitively. Hock Lian Seng is also exploring opportunities in the property development space. These opportunities will be undertaken to enhance shareholder value.

Hock Lian Seng's News Release dated 7 May 2015.

betta man said...

betta man said...

Hi AK,

I read from the Q1FY16 report that the NAV at group level is 44 cents while NAV at company level is 20.6 cents. Do you know what is the difference between the two ?

HLS is trending at 36 cents currently, which is below NAV (group level) of 44 cents. Do you think it is a good buy at the current price ?

AK71 said...

Hi betta man,

You are looking at HLS too har?

When we are invested in a listed entity, we are invested at the Group level. So, look at the Group NAV. It includes all subsidiaries HLS has a stake in.

If I did not have a significant investment in HLS now, I would buy some. ;p

betta man said...

Order filled today at $0.35 :)

AK71 said...

Hi betta man,

You have been patient. ;)

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