Hock Lian Seng: Won a $221.8 million contract.

Despite a major contract win amounting to $221.8 million recently, Hock Lian Seng has not managed excite Mr. Market. Add this recent win to the $105.5 million win in February, Hock Lian Seng now has a very healthy order book.

If I were to hazard a guess, I would say that the lukewarm reception by Mr. Market stems from concerns about Hock Lian Seng's JV condominium development with King Wan and TA Corp, The Skywoods, which has seen a very slow take up rate. From what I know, it is less than 20% sold and it has been half a year since it was launched.

With the recent action by CapitaLand to implement a 15% discount on prices for its hard to sell Sky Habitat in Bishan, it is possible that more developers with hard to sell condominiums for various reasons might follow suit.

Analysts have estimated that The Skywoods has an average breakeven price of some $1,100 per square foot. Hock Lian Seng et. al. reduced the launch price to an average of $1,300 per square foot in September 2013, taking into consideration the more difficult conditions. So, the margin is less than 20%.



Source: www.stproperty.sg

However, given that things could get worse, prices could be dropped again. If it should be a 15% drop like what happened at Sky Habitat, then, average price falls to $1,105 per square foot. This is at break even price which means that Hock Lian Seng would spend a few years being busy on the project for nothing. In my opinion, this is an optimistic scenario and I hope that it would not get any worse than this.

So, if we think of The Skywoods as a zero contributor but, at the same time, being able to cover its own development cost (i.e. able to break even), then, we just have to focus on the rest of the business and see if Hock Lian Seng is still a good investment.

With the recent big contract wins, the civil engineering segment now has earnings visibility till 2020.  I have said a few times before that Hock Lian Seng, like Yongnam, is a natural beneficiary of the increased spending by our country on infrastructure development till 2030. So, more wins are likely in future. A stronger order book over time will overshadow Mr. Market's concerns about The Skywoods, perhaps.

Hock Lian Seng also has two development industrial properties which are mostly sold and these are due to obtain their TOPs sometime in late 2014 and early 2015. In the latest annual report, it has been stated that these will contribute significantly to Hock Lian Seng's results then.

The Skywoods is the burr in the side for Hock Lian Seng but even with a 15% reduction in asking prices, it could turn out to be a non-issue. Hock Lian Seng's business is more than just The Skywoods.

EPS, which has been declining, is likely to improve again with a healthier order book and with the obtaining of TOPs for its two development industrial properties in the next 12 months. Although a special dividend could be declared then, I would be quite happy if the conservative management continues to pay a dividend of 1.8c to 2.0c a share, which I believe is sustainable. NTA per share could increase by another 3c or so which would bump NTA per share to above 30c.

Hock Lian Seng is a sound investment for income although not a very exciting one for growth. For me, it has been a good investment so far and looks like a reasonably good investment for the future. The last time I bought more was in February this year at 25.5c a share. If share price should decline by 10% or more upon the counter going XD, I would probably add to my long position.

A 7% dividend yield? An investment that is likely to grow to be more valuable in future as NTA per share grows? Sounds good to me.

Related post:
Hock Lian Seng: DPS of 1.8c.

Helping our parents invest their money.

This blog post is inspired by what I read at Bully the Bear. The blog master is now helping his parents manage some of their savings to secure higher returns. The money would have gone into fixed deposits, otherwise. Read: Why my parents are so eager to invest.

My parents also leave money in fixed deposits which they say give them a peace of mind. Whether it is a good idea or not is, of course, open to debate. However, peace of mind is priceless. If they do not wish to put their savings in "risky" investments, I won't go against them. This also gives me a peace of mind because if the "risky" investments turned out badly and I was the one who asked them to invest, then, it would be a nightmare of epic proportions.

Photo taken when I went on a cruise with my parents.

In recent years, however, my mom saw how my investments delivered regular income and instead of being purely a market speculator, she decided to have me help her invest some of her money. She now gets more than $1,000 in passive income from stocks per month which is a nice bit of extra money for a person in her 60s.

More recently, my dad asked me if I could help him invest some of his savings as well. Of course, I have to do it. Why? He is my father. No other reason needed.

I told him that I could possibly get an 8% yield for him but the principal sum will have to be locked up for at least 5 years. That was my only condition. So, he has to be sure that it is money he will not need. At the end of the 5 year period, he will get 100% of his capital back if that is what he wants or he could stay invested.

How am I going to achieve this over the next 5 years? Honestly, all things remaining equal, with great difficulty, I suspect.

I could consider investing in the following:

1. Sabana REIT
2. Croesus Retail Trust
3. SPH
4. NeraTel
5. Hock Lian Seng

There are many things we can say about Sabana REIT but the distribution yield is rather attractive with unit price just 1c shy of $1.00 and there is a chance it could go a bit higher with an occupancy level of under 92% now. This allows ample room for improvement.

Croesus Retail Trust has retreated in price since going XD. It is now close to my entry price. This Trust is going to deliver a higher distribution yield than Sabana REIT and if things go the way I expect them to, it could do even better in future.

SPH has always been a favourite of mine as a blue chip investment for income. With the listing of SPH REIT, I like SPH more now and increased my long position in the stock last year. SPH will increasingly morph into an asset light property play even as it tries to reverse the decline in its traditional print business.

Regular readers will remember how I increased my long position in NeraTel by 10x last year in an effort to divert resources into stocks which will not be affected badly by any increase in interest rates. NeraTel is still a net cash company with strong earnings which should see meaningful improvements over time as the company sets up offices in new markets.

Hock Lian Seng is an investment I have held for a few years now. I initiated a long position in the stock shortly after its IPO. It has a strong balance sheet and rather stable earnings. It pays out about 40% of its earnings as dividends. It is one of those stocks that I almost forget I have until it is time for it to pay a dividend again.

If I were to divide my dad's money into 5 equal portions and invest in the above, I estimate that I could possibly get a yield of about 7%.

So, how am I going to deliver the estimated 8% yield?

I am going to cheat.

OMG! AK is going to cheat!

Bad AK! Bad AK!

OK, I am so ashamed of myself. You can stop reading now.

Pause.

Pause.

Pause.

Er... Still reading? You really want to know?

Let there be light!

OK, then, my plan is to keep the money that my dad is entrusting to me in my war chest. Then, I will deliver the 8% yield from my existing investments while I wait for prices to go lower before accumulating with bigger margins of safety.

There is no hurry for me to buy anything from Mr. Market. Well, maybe I could increase my investment in Croesus Retail Trust which I believe is rather attractive if 87c should be retested.

What if prices did not retrace lower but stay at current levels or go higher?

Well, anyway, I have always planned on using a good part of the income that is generated by my portfolio to support my parents when they are no longer working. So, this proposed arrangement is just a matter of utilising my passive income earlier than planned.

It will make my dad happy and that gives me a peace of mind.

Note: If anyone is wondering whether to start an investment portfolio based on the 5 securities I have highlighted in this blog post, please read the disclaimer found at the end of the page first.

Related posts:
1. A strategy to grow wealth and augment income.
2. Hock Lian Seng: DPS of 1.8c.
3. Croesus Retail Trust: Luz Omori and Niz Wave I.
4. SPH: Results are within expectations.
5. Sabana REIT: Am I buying or selling?

Hock Lian Seng: DPS of 1.8c.

Hock Lian Seng's strong balance sheet, cash flow as well as high gross profit margin attracted me. Even if it is not a good investment for growth, I believe that it is a good investment for income with its record of paying out meaningful dividends.

Hock Lian Seng reported a gross profit margin of 40% on the back of lower revenue but higher gross profit. NAV per share improved from 24.9c to 27.8c. EPS reduced slightly from 4.9c to 4.7c, year on year.

A DPS of 1.8c has been declared. This means a payout ratio of 38.3% and a dividend yield of 6.67% based on the price of 27c a share.

Realistically, Hock Lian Seng will face headwinds in future and the management has said that:

The Group will continue to participate selectively in the some of the upcoming infrastructure projects tenders called by the Singapore Government. However, the Group is expected to face stiff competition from large foreign contractors, higher construction costs and a shortage of foreign workers.

So, although there is reason to believe that Hock Lian Seng will do reasonably well based on past track record, the landscape has definitely become more challenging.

Its exposure to property development could also be ill timed:

On the property development front, the Singapore Government has implemented property cooling measures to both the residential and industrial property market. The Group believes that the measures would create a stable and sustainable property market in Singapore.

The construction of the two industrial property developments are expected to be completed by early 2015. The joint venture residential project at Dairy Farm Road was launched in September 2013.

Having said this, now, with a PE ratio of 5.75x and trading at a slight discount to NAV, the stock does not seem expensive.

See: Full year results.

Related posts:
1. Hock Lian Seng: Buying on weakness.
2. Hock Lian Seng: Dividend 1.8c per share.

Hock Lian Seng: Buying on weakness.

In my last blog post on Hock Lian Seng, I said that we could see its share price moving lower and it has moved lower. 

Do I believe that this is the lowest it could go?





Well, I certainly do not know if the stock price will stop declining although I will say that it could have found support. 

We can see this if we draw a trendline connecting various lows. 

Also, the higher low in the CMF gives us a positive divergence against a declining share price.

More likely than not, there will be a host of positive catalysts for Hock Lian Seng's share price to move higher but investors must be willing to wait. 

While waiting, the company's payment of meaningful dividends to shareholders annually will provide some comfort. 

If the dividend per share should be a more conservative 1.5c, with a share price of 26c, we will have a yield of 5.77%.





The weakness in Hock Lian Seng's share price allows me to buy more with a bigger margin of safety and any further weakness will create more opportunities to accumulate.

Related post:
1. Hock Lian Seng: Dividend of 1.8c per share.
2. Hock Lian Seng: Insider buying.

Hock Lian Seng: Dividend of 1.8c per share.

Hock Lian Seng announced a dividend per share of 1.8c. With EPS for the full year 2012 at 4.9c, we are looking at a payout ratio of 36.7%.

Although dividend is lower compared to the preceding year's 2.0 c per share, the payout ratio has actually gone up. This is because EPS is down some 20%, year on year, compared to the previous year which saw EPS improving 15.1%.

The numbers are not fantastic, for sure.

I did not expect the company to go into industrial and residential property development but they have done so. They are probably somewhat late as after seven rounds of property cooling measures by the government, it could be harder to find buyers even for industrial properties. This could be a drag on its performance.

However, with the Singapore government planning to spend some really big money on the MRT network through 2030, it is unimaginable that Hock Lian Seng would not participate in nor benefit from the exercise. So, it is probably a good idea to stay invested for this reason.

Mr. Chua Leong Hai, the Chairman and CEO, said that they are excited about the prospects for the entire local construction industry with the government's plans to improve Singapore's infrastructure.

Being a Grade A1 contractor in the Building and Construction Authority of Singapore’s (BCA) civil engineering category, it is more than likely that Hock Lian Seng would be successful in capturing their fair share of new contracts.

With share price at 30c, PER is approximately 6x. By this measure, Hock Lian Seng's stock does not look expensive. However, the technical picture hints at ongoing distribution activity. Immediate support is at 29c.

For anyone thinking of buying in, bear in mind that the company's performance could be lacklustre in the near term. Therefore, we cannot rule out the possibility of being able to buy the stock cheaper in the next 12 months.

See press release: here.

Related post:
Hock Lian Seng: 2c dividend per share.

Hock Lian Seng: 2c dividend per share.

On 17 October 2011, I looked at Hock Lian Seng's numbers after observing how insiders were buying up its shares at 23.5c a piece. I decided that its numbers were decent enough and that it would probably be able to pay a dividend of 1.5c a share.





I bought more shares at 24c a piece while waiting to see if price would fall closer to its NAV per share. Prices did go lower and touched a low of 21c in one later session but my buy order was not filled.

Today, it announced a dividend of 2.0c a share on the back of rather encouraging numbers. Mr. Market has reacted in the usual fashion and Hock Lian Seng's share price touched a high of 27c before closing at 26.5c today, up 1.5c from the preceding session.

I really like how its gross profit margin improved to 24.9% and its nett profit margin improved to 19.0%. Construction firms having thin margins is common knowledge amongst seasoned investors and being able to improve on their profit margins says something about the strength of Hock Lian Seng in the sector.





Of course, as investors, we own shares and we want to see if we are now in better shape on a per share basis. Well, EPS improved 15.1% to 6.1c. No doubt, this is one reason why a much higher dividend has been announced. 2c per share represents a payout ratio of 32.8%.

Hock Lian Seng will gun for more infrastructure projects in Singapore amidst greater spending by the government in this area. If they are successful in their endeavours, the company would be able to ride out the mild slowdown in the economy which is being forecast for the coming years.





See press release: here.

Related post:
Hock Lian Seng: Insider buying.

Hock Lian Seng: Insider buying.

There has been quite a bit of insider buying going on in Hock Lian Seng as its share price plunged in recent weeks to hit a new low of 23.5c. I know Hock Lian Seng to have a rather robust business although it is in a cyclical industry. So, I decided to take a look at its numbers.





Revenue for 1H 2011 reduced 32.3% compared to 1H 2010 due to the completion of  Marina Bay Station project. Other than this, the rest of its numbers still look good.

I like very much how its cash and short term deposits increased 11.7% from $149.7m to $167.156m. Order book stands at $272m as of 30 June 2011.





Hock Lian Seng is most probably capable of continuing a dividend payout of 1.5c per share when the time comes. At today's closing price of 24c per share, we are looking at a potential dividend yield of 6.25%.

Could its share price weaken further? It could and I would like to buy at a price closer to its NAV/share which is 17.8c. Having said this, at 24c per share, it is already a value proposition, I believe.





See 1H 2011 report here.

Hock Lian Seng: Running out of gas?

This counter had been sleeping for some time. Yesterday, it stirred, forming a wickless white candle on the back of higher volume. The bullish candlestick followed through today as price touched a high of 33.5c before closing at 32c, forming a very long upper wick in the process. 32c, thus, remains a formidable resistance with some history backing it.

Although the OBV shows sharp accumulation, both MFI and RSI are in their overbought regions. Price could have moved up too much and too quickly. In case of a pullback, I expect strong support to be found at 30c. Any attempt by the counter to move higher in price could see selling pressure once again as people who bought at 33c might try to break even and get out of what might have been a hasty buy decision.

"If price tests 29c, I would buy more. 29c is also where we find the 138.2% Fibo line. This should lend support in case of retracement." Buying more at 29c almost three months ago has proven to be a good decision.

Related post:
Hock Lian Seng: Buying more?

Hock Lian Seng: Buying more?

On 12 Oct, I mentioned that I bought some shares of Hock Lian Seng at 30c support. I also said "Although the uptrend is still intact, could prices weaken further? Why not? The MFI is still in overbought territory while the MACD has just completed a bearish crossover with the signal line.  We could see price weakening to test the 50dMA at 29.5c or even the 200dMA at 29c. The latter being a long term MA should provide a rather strong support and I would probably buy more at 29c, if ever tested." Has the technical picture changed?

The rising 50dMA is now at 30c and 29c is still where we find the 200dMA, a long term MA which should provide a stronger support. If price tests 29c, I would buy more. 29c is also where we find the 138.2% Fibo line. This should lend support in case of retracement.

The MFI is now below 50% and is no longer overbought.  OBV does not show any sign of distribution.  I believe we are seeing weaker holders selling out. The 100dMA is rising strongly and seems on course to forming a golden cross with the 200dMA in time.

Related post:
Hock Lian Seng: 30c support.

Hock Lian Seng: 30c support.

I mentioned on 5 Oct that I sold off some shares of Hock Lian Seng at the 32c target.  On 8 Oct, I said "notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels." Today, I bought some at 30c as price retreated.

Although the uptrend is still intact, could prices weaken further? Why not? The MFI is still in overbought territory while the MACD has just completed a bearish crossover with the signal line.  We could see price weakening to test the 50dMA at 29.5c or even the 200dMA at 29c. The latter being a long term MA should provide a rather strong support and I would probably buy more at 29c, if ever tested.

Fundamentally, this company is sound and investors are accumulating shares in the company which is quite obvious when we look at the OBV.  The recent price weakness as the counter retreated from a high of 32.5c on relatively low volume is an opportunity to accumulate.  What we are witnessing is a low volume pull back which shakes out the weaker holders.

Related post:
Hock Lian Seng: Retreating.

Hock Lian Seng: Retreating.

On 5 Oct, I mentioned that there was "strong demand and accumulation but buying momentum (was) muted by strong selling pressure at resistance (32c)" and that "I sold some of my shares at the 32c target .... Although I still see strong support at 30c where we find the rising 20dMA, 30.5c could very well be resistance turned support."

Today, Hock Lian Seng retreated and closed at 30.5c, the support provided by the 20dMA. However, the retreating price is on the back of much reduced volume and does not worry me. Could the support at 30.5c hold? With the MACD on the verge of forming a bearish crossover with the signal line, we could see share price tested further on the downside.  This is especially true when we realise that the MFI has been entrenched in overbought territory for a few sessions now. This could be corrected in future sessions.  The RSI has formed a higher high which suggests to me that the buying momentum is intact.

What would I do? Notice that the 20dMA has been guiding the price of this counter higher? See the uptrend support is in between the 20dMA and 50dMA? This would be at about 30c.  The 50dMA is at 29.5c.  I would buy more at these price levels.  For anyone who is not vested but would like to be, buying some at the 20dMA (30.5c) could be a nice hedge.

Related post:
Hock Lian Seng: Target hit.

Hock Lian Seng:Target hit.

On 27 Sep, I mentioned that "A support seems to have formed at 30c for this construction stock.  Further upside would give a target of 32c." Today, Hock Lian Seng's share price touched a high of 32.5c before closing at 31.5c as volume exploded.

The MACD completed a bullish crossover in positive territory as the MFI spiked into overbought territory while the OBV turned up sharply. The RSI, however, is somewhat lukewarm and has yet to break out from a series of lower highs.  This coupled with a white candle formed today with a long upper wick puts into question the sustainability of today's upmove in price. Interpretation: Strong demand and accumulation but buying momentum is muted by strong selling pressure at resistance (32c).

I sold some of my shares at the 32c target today. Although I still see strong support at 30c where we find the rising 20dMA, 30.5c could very well be resistance turned support. I would buy again if it gets to those levels. Immediate resistance remains at 32c and if that breaks convincingly, the next target is at 34c.

Related post:
Hock Lian Seng: 32c target.

Hock Lian Seng: 32c target.

Hock Lian Seng seems to be forming steps with the rising 20dMA pushing up the price at every step. The rising 20dMA would be at 30c soon.  A support seems to have formed at 30c for this construction stock.  Further upside would give a target of 32c.

While the OBV shows constant accumulation, the MFI shows lower highs forming.  So, accumulation is taking place amid lowering demand.  Not a powerful statement. A slow grind up is perhaps what we would see for this counter.

Related post:
Hock Lian Seng: Resistance broken.

Hock Lian Seng: Resistance broken.

On 9 Sep, I wondered if the 30c resistance level could be taken out soon and went on to say that "I believe so as the massive 30c sell queue was wiped out today."  Today, Hock Lian Seng touched a high of 31c before closing at 30.5c.

Although volume is lower than the previous session which saw the shares trading at only one price, 30c, we could have seen the effective weeding out of weaker holders.  30c could be resistance turned support.

OBV has continued its upward trajectory suggesting continual accumulation.  MFI shows formation of higher lows which suggests sustained demand.  RSI has lower highs which suggest that buying momentum is weak.  So, this counter has support but its share price is not going up in a hurry, it seems.  Another counter that requires more patience, perhaps?

Related post:
Hock Lian Seng: Ready to break resistance?

Hock Lian Seng: Ready to break resistance?

Hock Lian Seng isn't the most exciting counter in the market, for sure. However, today, volume expanded as all shares transacted were traded at one price and one price only, 30c.  To me, this suggests that all the weak holders have been weeded out.  If anyone wants to buy shares of this company now, buying at 30c per share is the only choice.  This is a resistance level which has been tested a few times before in the last one month.  Could this resistance level be taken out soon? I believe so as the massive 30c sell queue was wiped out today.

We could draw an uptrend support line from 15 July and this would approximate the rising 20dMA.  Nice. Could we be seeing the formation of an ascending triangle? Possibly.  If this is this case, could we see price rising to 34c? We could but I would expect rather strong resistance at 32c.

The MFI has successfully stayed above 50% and the uptrend is still intact.  The OBV has risen very gently and consistently. Demand and accumulation are present. With this fundamentally sound counter, patience is definitely required.

Related post:
Hock Lian Seng: Steady accumulation.

Hock Lian Seng: Steady accumulation.

Hock Lian Seng's share price retested resistance at 30c. That a gravestone doji was formed in the process suggests that there are many willing sellers at the current level. However, look at the OBV and we see a picture of steady accumulation.  The MFI has formed higher lows which suggests strengthening demand.  So, the sellers at 30c will probably be taken out in good time.

The 20dMA continues to rise and could provide immediate support at 29c.  Breaking 30c resistance would give an immediate target of 31.5c.

Charts in brief: 13 Aug 10 (Part 1).

Genting SP: Broke resistance, gapped up and formed a wickless white candle on extremely high volume.  Closing at $1.46, could it go higher next week?  With such strong momentum and a flurry of BUY calls from all the research houses, we could see price going higher.  To any investor who ignored the constant SELL calls from these houses earlier, congratulations!

Citigroup upgrades Genting Singapore (G13.SG) to Buy from Sell, lifts target price to $1.55 from $0.99 after increasing FY10-FY12 earnings estimates by 20%-80% to factor in robust 2Q10 results.
Friday, 13 August 2010

© 2010 - The Edge Singapore

China Hongxing: MFI has been declining gently, no longer in overbought territory.  OBV rose today, sign of a return of accumulation activity. Volume expanded significantly as price rose today.  This is promising. Closing at 15.5c shows that the declining 200dMA is still acting as resistance. Could the rising 20dMA push the price beyond the 200dMA? Immediate support at 14.5c and immediate resistance at 16c.

Hock Lian Seng: OBV shows a trend of consistent accumulation since 21 July.  This company has strong fundamentals and, technically, the immediate support is at 28.5c, provided by the 100dMA. The rising 20dMA is on track to form a golden cross with the 100dMA soon.  This would probably strengthen the support at 28.5c. Price seems to be forming steps upwards and this reminds me of HWT's chart once upon a time.  The recent uptrend is defined by the rising 20dMA.  Could the 20dMA push price higher? Possibly. Bugbear is the falling volume.

Hock Lian Seng Holdings, the civil engineer and a building materials supplier, says it posted a 61.9% y-o-y increase in net profit attributable to shareholders to $15.2 million in 1H2010 from $9.4 million in 1H2009.
Friday, 13 August 2010

© 2010 - The Edge Singapore