StockPick

NOTE : As of 14-Jul, I hv sold off my stake at $1.43 and will suspend this study unless HPL drops below $1.30 :D

Background

HPL, at $1.37 is trading at a 38.6% discount to NAV ($2.23). Trading volume is usually low and the stable price is aro' $1.20 for the most part of the year. Over the years, there has been regular spike up in volumes and price, esp. when rumours arises of the Quek family (Hong Leong Group) planning to do a takeover of HPL. The Queks now holds a deemed interest of 21.24%. Recently, with the demise of Mr Fu YS, we start to see another run up of HPL, which closes at $1.46 on 11-Jul.

This study will try to examine the following,

1. Is HPL undervalued, as per its large discount to NAV
2. Is there a likelihood of a change in ownership, esp. with the passing of Mr Fu

Financial Data

All the data in this case study are extracted fm the HPL 2004 Annual Report. Some of the figures in the fllwg table are extracted fm the periodical "Shares Investment",

Issued Shares = 453,024,410 @ $1 Par

Substantial Hldgs :

• Peter Fu YS - 21.92%
• Ong BS - 22.61%
• Peter Fu CC - 14.13%
• Kuo Investment - 6.85%
• Hong Leong Investment (ie Quek Family) - 21.24%
• Free Float - 32.41%

Highlights

• Business : Hotels (88.2%) , Properties (5.7%), Retail (6.2%)
• NAV = $2.23 vs Share Price $1.21 (27-Jun) - $1.46 (11-Jul)
• PE 29.9, Yield 1.8% @ $1.41 (8-Jul)
• Large bank borrowings >$500Mil, ie highly geared and D/E doesn't look good

Comments

• I don't like the look of the large bank borrowings even tho' a large part of it is long term
• HPL has carved out a corner by itself between Orchard Rd n Tanglin area where they hv their condo, hotel, shopping mall, Hard Rock Cafe,... but I don't see that area being a very vibrant part of town.
• Some of their hotels has been hit by natural calamities, like tsunami in Bali, Mauritius. Also in terrorist areas(?)
• Looked at Stamford Land (Hotel - 92.9% , Property Devt & Investment - 2.9%)
  - NAV $0.48 (46.9% Discount @ Share Price $0.255) ; PE 15.5 ; Yield 5.9%
  - Borrowings $253.2Mil ; Cash + S/T Investment = $63.4Mil
  - 2005 : Turnover 215.91Mil ; EPS 1.6cts ; Div 1.5cts (2001-05)
  - 862,833,482 Shares @ $0.10 par ; Ow Chio Kiat 32.24% Free Float 62.73%
  - Similar industry, same High Discount to NAV and Large Borrowings but Better Yield, PE
  - Biz concentrated in Australia + NZ vs HPL Aseans and others

Preliminary Conclusion

The Queks are unlikely to make a move soon as they are busy with the takeover of BIL. Also, like what the papers mentioned, the estate of Mr Peter Fu will take a while to settle. Thus recent price run-up may not be sustainable, so it's better to sell at $1.4x and try to buy back at $1.2x if I can find good reasons to hold this stock. Initial comparison with a similar co., Stamford Land (am vested in CPF, got it fm split of HSH to Stamford + SSC long ago but is below split price since then) seems to show Stamford may be a better stock to buy! I always thought HPL is a much bigger co. but looking at their turnover, that doesn't seem so.

I was vested at $1.90 fm Sep-97. Only a very small hldgs and I can't even remember why I bought it back then. But sold off on 14-Jul-05 after drawing the above preliminary conclusion.

Possible Future Scenarios :

1. Fu Junior sells off stakes to Ong
   Comment - Prob bad for shareholders with HPL share price at status quo


2. Fu Junior sells off stake to Quek family
   Comment - May be good for shareholders as Quek unlocks value in HPL shares


3. HPL gets taken over by/merge with M&C or other Hotel co.
   Comment - Will definitely be good for shareholders but unlikely to happen

Announcements :

1. 3-Jul ($1.29) : Demise of Founder and Chairman, Mr Peter Fu Yun Siak on 2-Jul
   - $1.29 on 1-Jul rises to $1.35 (4-Jul) and continue to rise and peak at $1.46 (11-Jul)
2. 19-May ($1.32) : Sale of Concorde Hotel, Gold Coast @ A$ 27.5 million. The Company is of the view that it is timely for the HPL Group to realize its investment in the Property and deploy the funds for other new investment opportunities. Suseem will record a total gross gain of approximately A$ 11.2 million (or approximately S$14 million based on the current exchange rate of A$ 1.00 : S$ 1.25) arising from the sale of the Property.
   - $1.35 (20-May) and peak at $1.37 (24-May)
3. 11-May ($1.38) : Unaudited First Quarter Financial Statement for the Period Ended 31 March 2005
   - $1.42 (12-May)
4. 3-May ($1.47) : Withdrawal of bid for IR
   - $1.52 (4-May) before sliding down till low of $1.18 (6-Jun)
5. 26-Apr ($1.57) : Announcement of Joint Bid for IR with Metro
   - Run up fm B/05 and peaked at $1.60 (27-Apr)
6. 23-Feb ($1.29) : Full Year Audited Results
   - On the uptrend since B/05 and continue to rise after announcement
7. 8-Nov-04 ($1.06) : 3rd Q Results
   - Price goes up and peaked at$1.20 (3-Dec)

Disclaimer : Use the above at your own risk! We'll not be responsible for any losses incurred but you can give us credit if you make money :D

# posted by Anonymous @ 7/14/2005 11:08:00 PM