-Faye is both a fundamental analyst and economist by nature. She is a global thinker who’s open-minded and enjoys learning from the market.
-Calvin is a fundamental analyst at heart and an ardent disciple of value investing. He relishes the process of searching for undervalued stocks and enjoys collecting dividends from his stocks.
-Gordon has a demonstrable interest in equity investments, financial markets, and negotiating deals. As @NTUInvestmentClub president, he has an understanding of what factors drive an organisation’s success.
Together, they are your analysts on demand!
If you like this column, please start voting which of these 3 stocks you would like them to write on in their next article! This is your chance to interact with them and they will write on the most voted stock of your choice!
How to vote: Comment the stock of your choice: either $Haw Par(H02), $Baker Technology(BTP) or $Maxi-Cash Fin(5UF). The most number of likes/comments by tomorrow morning will be chosen. It’s that simple!
Voting starts now and ends at tomorrow (23 May) when market opens (9am)!
Disclaimer: this article simply provided analysis on stocks from the fundamental perspective, it does not represent any buy/sell recommendation from Investingnote. *All the dollar unit ($) in this article refer to SGD.
Haw Par Corporation Limited is engaged in manufacturing, marketing and trading healthcare products; providing leisure-related goods and services, and investing in properties and securities. The principal activities of the Company are licensing of the Tiger trademarks and owning investments for long-term holding purposes, the history of the brothers Haw and Par traced back to the 19th century. The company distributes its products in the Americas, Africa, the Middle East, Asia, Australasia, and Europe.
Haw Par operates in four segments, namely
1) Healthcare – principally manufactures and distributes topical analgesic products
such as Tiger Balm and Kwan Loong.
2) Leisure – provides family and tourist oriented leisure alternatives through its owned
and operated oceanarium, including Underwater World Pattaya in Thailand.
3) Property – owns and leases out various investment properties in the Asia region.
This division’s investment property portfolio comprises 45,399 square meters of commercial and industrial space in Singapore and Malaysia. Haw Par will continue to leverage on its Tiger Balm brand, widening its product offerings, distribution network and marketing efforts to deepen market penetration in its key markets. Historically, Haw Par has been successful in introducing numerous new product extensions to Tiger Balm such as mosquito repellents and plasters, boosting revenue. Haw Par may also seek to exploit its cash position to do horizontal integration of other healthcare products to add to its Tiger Balm brand. Such an acquisition will support the overall business-level strategy of dominating the topical analgesic market through consolidation under a single brand.
Some of the headwinds involve increasingly stringent pharmaceutical requirements
especially in the developed markets, new developments in competitors’ product offerings,
as well as general changes in consumer tastes and preferences.
Haw Par recorded a dip in profit from operations and investments of 2% mainly attributable to lower dividend income from investments. However, it should be noted that all operating segments generated higher profits in FY16. The healthcare business segment continued to contribute significantly to the Group’s revenue with a 16% increase in revenue from $152.6 million to $176.4 million. Correspondingly, healthcare’s profit increased 37% from $48.1 million to $66.1 million with higher sales and reduced operating expenditure. However, revenue from the leisure business segment registered a sharp drop of 34% to $8.4 million due to the closure of Underwater World Singapore (“UWS”) in June 2016. Therefore, leisure recorded profit of $0.9 million in FY16 compared to loss of $4.3 million in FY15 due to the one-off impairment charge in fixed assets of UWS in 2015.
2. $Baker Technology (SGX: BTP)
a. Business Description
Baker Technology Limited (BTL) is an investment holding company that manufactures and provides specialized marine offshore equipment and services for the oil and gas industry. It offers offshore pedestal cranes, anchor winches, skidding systems, jacking systems, and raw water tower structures; steel products and components, including rack chords and pinions; ancillary equipment comprising elevating systems, skidding systems, raw water towers, and winches; and mechanical handling equipment, as well as design and engineering services. The company also designs and constructs mobile offshore units and critical equipment/components for the offshore marine industry; and provides offshore marine logistics support services. In addition, it offers project management, quality assurance, and construction supervision services.
The company has operations in China, Singapore, the Middle East, the Asia Pacific, and internationally. Baker Technology Limited was incorporated in 1981 and is based in Singapore.
b. Overall performance for the past 5 years
Source: Capital IQ
Amidst the challenging O&G conditions and downbeat Exploration & Production spending, BTL’s financial performance has suffered. Most of BTL’s products such as offshore cranes and steel products are completely reliant on oil prices. For almost every year since 2012, Baker’s revenue has fallen, and the 1Q17 performance continues to disappoint. In fact, reversing the foreign exchange gain (US-SIN) and the one-time impairment of goodwill for BTL’s subsidiary, Baker’s FY16 net income is still negative. Although BTL’s subsidiary Baker Engineering is expected to complete its Mobile Offshore Liftboat in 2H17, in light of the depressed O&G industry, uncertain of the eventual net realisable value of Liftboat and its effects on overall Group profitability.
Source: Capital IQ
CF from Ops was negative in FY16 due to higher working capital requirements, a sign of accumulation during an O&G downturn. Some of the growing WIP is also attributable to the Liftboat. In 1Q17, CF from Ops remain negative at -4.5. CF from Investments is positive mainly due to lower CAPEX (near-completion of Liftboat) and maturities of investment securities. As BTL does not have debt, CF from financing comprises of only the dividend payouts. However, on a total CCE basis, BTL has burned through 34m in FY16 alone to leave it with a CCE of 107m.
c. Revenue Segments by Product and Geography overview
Source: BTL Annual Report 2016
For FY16, Middle East and China were the two most important markets for BTL’s marine offshore business. Contribution from China dropped significantly from 50% to 27% in FY16, and Middle East increased from 15% to 45%. Contribution from Singapore has also dropped significantly from 21% to 10%. In absolute terms, BTL only did well in the Middle East market for FY16, and suffered in Singapore and China. These numbers highlight BTL’s uncompetitiveness when bidding for projects in a market-wide downturn.
Source: BTL Annual Report 2016
Moreover, BTL has two sources of revenue: a stable sales revenue and a volatile project-based revenue that is correlated heavily with demand for exploration in O&G. Even though project revenue has steadily shrunk, it still occupies over 75% of the total revenue.
Difficult to do comps as O&G companies that have the most similar market cap, growth and risk profile all also suffer from equivalent financial losses in FY16 and 1Q17.
d. Stock Information
Source: Capital IQ
e. Stock Information
Baker Tech is a net-net stock, having over 100m in cash reserves and no debt, making it an attractive acquisition target. Another upside is if the O&G industry recovers and Baker returns to profitability. One indicator is to keep track of how much their valuable Liftboat sells for, as it will have an outsized effect on their balance sheet. Nevertheless, it has consistently negative operating profit and FCFF and may be a long-term value trap, based on the rate it is burning
through its cash reserves.
Banking on Maxi-Cash: Brief background
Maxi-Cash Group (SGX:5UF) offers financial services in the form of pawnbroking and the retail and trading of pre-owned jewellery and watches through pawnshops and retail outlets in 41 locations as at the end of 2016 in Singapore.
The Group aims to differentiate itself from its competitors by providing a “bank-like” pawning experiences where trust, transparency and reliability are the basic hallmarks of the Group’s services.
Maxi-Cash Group is owned by Aspial Corporation (SGX: A30), the leading jeweller in Singapore and the only listed jeweller on the Singapore Exchange. Aspial Corporation owns the Aspial, Lee Hwa, Goldheart and Citigems brands. Apart from jewelry retail and financial services, Aspial Corporation has a diverse portfolio of commercial and residential projects in Singapore, Malaysia and Australia under World Class Land.
Amidst a challenging operating environment, the Group delivered a revenue increase of 34.8% from S$121.1 million in FY15 to S$163.2 million in FY16. The increase was primarily attributable to the higher interest income from the pawnbroking business and higher sales from the retail and trading of pre-owned jewellery, watches and branded bags, as well as the Group’s expansion into the new gold jewellery retail business, with its new “LeGold” product range.
The Group improved its healthy cash position, from $9.5 million in FY15 to $10.5 million in FY16
As part of its strategic initiatives, Maxi-Cash expanded into the retail market with its foray in the sale of pre-owned luxury designer bags. The Group is cognizant of Singapore’s ever-growing luxury goods segment as an opportunity to extend its product line, customer base and tap into a new growth avenue. The Group will also continue to establish its brand via online engagement to continue strengthening and increasing its digital presence, as well as exploring another avenue to communicate with its customers.
Don’t forget to cast your vote in the comments before the market opens tomorrow at 9am!