Hotung Investment Holdings Limited (HIH SP) - UOB Kay Hian 2017-05-15: Proxy To Tech Boom With Solid Discount And Dividend

Hotung Investment Holdings Limited (HIH SP) - UOB Kay Hian 2017-05-15: Proxy To Tech Boom With Solid Discount And Dividend HOTUNG INVESTMENT HLDGS LTD BLS.SI

Hotung Investment Holdings Limited (HIH SP) - Proxy To Tech Boom With Solid Discount And Dividend

  • With a solid track record of profits and dividends, Hotung Investment Holdings (HIH) represents an amazing opportunity to profit from Greater China’s tech firms at 0.52x P/B through an experienced and capable manager. 
  • With strong potential for growth (fund management fee up to NT$450m), HIH is supported by insider purchases and share buybacks. 
  • A dual/re-listing in Taiwan is also possible. 
  • Initiate coverage with a BUY and S$3.38 target price based on 0.94x P/B and a 2017F dividend yield of 7.9%.



INVESTMENT HIGHLIGHTS


Initiate coverage with a BUY and target price of S$3.38, based on 0.94x P/B, implying 79.1% upside. 

  • We value Hotung Investment Holdings (HIH) at S$328.9m based on 0.94x P/B, pegged to a 10% discount to its peers’ average.

Grand Old Dame of Taiwan’s venture capitalist scene with ~30 solid years of experience and profits. 

  • HIH boasts close to 30 years of investment experience with a leg up in deal sourcing through its rich heritage as a venture capitalist (VC) pioneer in Taiwan as well as an impressive investment team. 
  • Barring the 2008 financial crisis, HIH has built a solid track record of strong profits over the last 10 years.

Growth proxy to Greater China’s tech space with exposure to the hottest tech industries. 

  • Ytd, the FTSE Taiwan tech index rose 9.9% thanks to the global tech boom. With immense investor interest in Greater China Tech and global demand for new technology forecasted to push Taiwan’s GDP growth higher, we see buoyant valuation multiples, improved earnings and ultimately greater value for HIH.

Focused on exits with at least one unlock targeted yearly; fund management fee income up to NT$450m. 

  • With 200 IPO listings under its belt, HIH is always on the look-out for exits and cash recycling. Management has guided a strong pipeline for 2017 and beyond and we believe that HIH should be able to execute at least one exit/value unlock every year. 
  • Meanwhile, HIH’s fund management arm has the potential to provide income of more than NT$450m p.a., a figure not inclusive of profit sharing.

Generous dividend yield of 7.9% for 2017-18F with share buybacks, management purchases and solid dividends records. 

  • Over the past five years, HIH has delivered a solid dividend cumulatively averaging S$0.66/share and equivalent to a 97% payout.
  • Backed by a pipeline of investments and exits, management has guided that this will continue and we expect a 7.9% dividend yield for 2017-18. 
  • Other than dividends, there have been share buybacks (2.24% since May 16) and insider management purchases supporting management’s confidence in HIH.

Undervalued at 0.52x P/B with around half of its market cap in net cash despite consistently profitable portfolio. 

  • Despite a consistently profitable portfolio (where individual investments are typically less than 5% of total value), HIH currently trades at a deep ~45% discount to our estimated 2017F NAV of S$338.7m. 
  • Furthermore, around half of its market cap is reflected in its NT$2.14b net cash balance sheet.

Potential dual listing/re-list in Taiwan. 

  • The Taiwan exchange has amended regulations that previously disallowed VCs from being listed, meaning that HIH no longer has to tolerate depressed SGX valuations. 
  • With its strong reputation in Taiwan, we opine that there is a high chance that HIH may choose to dual list/re-list there.




Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2017-05-15
UOB Kay Hian SGX Stock Analyst Report BUY Initiate BUY 3.38 Same 3.38



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