Hotung Investment Holdings (HIH SP) - UOB Kay Hian 2017-07-05: Undervalued

Hotung Investment Holdings (HIH SP) - UOB Kay Hian 2017-07-05: Undervalued HOTUNG INVESTMENT HLDGS LTD BLS.SI

Hotung Investment Holdings (HIH SP) - Undervalued

  • Ex-dividend, Hotung Investment Holdings (HIH) has been buying back shares at S$1.72-1.90, indicating management’s confidence in the firm and the undervaluation. 
  • Despite a consistently profitable portfolio, HIH is currently undervalued at 0.5x P/B with around half of its market cap in net cash, while offering 8.1% 2017-18F dividend yield. 
  • With a booming outlook in Greater China’s tech space and new-income potential, we think HIH can do better. 
  • Maintain BUY and target price of S$3.38.



WHAT’S NEW


Recent share buybacks underline management’s confidence in the company. 

  • Ex-dividend, Hotung Investment Holdings (HIH) has been conducting share buybacks at S$1.72-1.90, indicating management’s confidence in the company. 
  • We concur with management’s experienced view (HIH has been in capable hands for the last 30 years) that HIH is undervalued at 0.5x P/B with around half of its market cap in net cash despite a consistently profitable portfolio.


Share buybacks, insider purchases and dividends (8.1% 2017-18F yield). 

  • The recent share buybacks are not a new initiative. There had been share buybacks (2.7% since May 16) and insider management purchases supporting management’s confidence in HIH.
  • This is on top of generous dividend yields for the past few years. For the past five years, HIH delivered solid cumulative dividends of S$0.66/share, equivalent to a 97% payout.
  • Backed by a pipeline of investments and exits, management has guided that dividend payout will continue and we expect a 8.1% dividend yield for 2017-18.


STOCK IMPACT


Booming outlook for Greater China’s tech space. 

  • Ytd, the FTSE Taiwan tech index has risen 15.8%, thanks to the global tech recovery. Going forward, the World Semiconductor Trade Statistics is forecasting an 11.5% yoy market growth in 2017.
  • Together with immense investor interest in Greater China’s tech space and global demand for new technology, we see buoyant valuation multiples, improved earnings and ultimately greater value for HIH.

Focused on exits with at least one unlock yearly; new fund management fee income potential of 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 annually, a figure not inclusive of profit sharing.


EARNINGS REVISION/RISK

  • None.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$3.38, based on 0.94x P/B, pegged at a 10% discount to Singapore peers’ average.
  • Undervalued at 0.5x P/B with around half of its market cap in net cash despite consistently profitable portfolio. 
  • Despite a consistently profitable portfolio (where individual investment is typically less than 5% of total value), HIH currently trades at a deep 45% discount to our 2017F NAV of S$338.7m. 
  • Furthermore, around half of its market cap is reflected in its NT$2.14b net cash as of 1QFY17.


SHARE PRICE CATALYST

  • Better-than-expected results with more exits this year in view of the hot private equity market.
  • Further share buybacks will continue to support the price.




Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-05
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.380 Same 3.380



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