Hanwell Corporation - KGI Securities 2021-10-05: Resilient Consumer Goods Business And Growing Paper Packaging Segment


Hanwell Corporation - Resilient Consumer Goods Business And Growing Paper Packaging Segment

  • Hanwell Holdings (SGX:DM0) is involved in the manufacturing, brand management and marketing of fast-moving consumer goods (FMCG). The company also has a 64% stake in SGX-listed Tat Seng Packaging (SGX:T12), a paper packaging business whose products cater to the Singapore and China markets.
  • Riding on logistics growth. Hanwell’s packaging business is expected to be the main growth driver amidst robust global logistics demand.
  • Buoyant demand for consumer goods. While Hanwell’s consumer business has been stable over the past few years, the company plans to expand its consumer goods offerings by 30% in the next 3 to 5 years.
  • We initiate coverage on Hanwell with a NEUTRAL recommendation and target price of S$0.42, based on 11.0x FY22 EPS.

Hanwell Holdings : Company overview.

  • Hanwell Holdings (SGX:DM0) has a total of 4 subsidiaries involved in the fast-moving consumer goods (FMCG) business. Its subsidiary
    • Topseller Pte Ltd is a distributor of rice and oil, which includes popular proprietary brands such as Royal Umbrella rice.
    • Tipex Pte. Ltd. distributes paper goods, washroom hygiene products as well as baby and adult diapers.
    • Fortune Food Manufacturing Pte Ltd manufactures noodles, desserts and soya bean-based products such as tofu. Lastly,
    • SOCMA Trading (M) Sendirian Berhad is one of Hanwell’s marketing and distribution arms in Malaysia.

Paper packaging business the key growth driver.

  • Hanwell’s stake in Singapore-listed Tat Seng Packaging (SGX:T12) contributed approximately 62% to 66% to Hanwell’s total top line over the last 4 years. Amidst the acceleration in e-commerce sales and increased demand for storage materials due to logistics bottlenecks as a result of port congestions and labour shortages, demand for corrugated cardboard boxes is expected to increase.

Stable contribution from consumer goods

  • Hanwell’s consumer goods segment has been generating a consistent revenue stream, contributing approximately 33% to 37% over the last 4 years. We expect further growth in this segment as the company expects to expand its offerings by 30% over the next 3 to 5 years.

Hanwell's 2020 financial review.

  • Hanwell’s revenue increased 2.2% y-o-y to S$471.4mil in FY20, while net profit surged 180% to S$33.1mil. Even though revenue from the consumer business segment decreased 2.3% y-o-y, the overall increase in revenue was mainly backed by the packaging business which rose 5%. Eliminating one-off government grants of S$5.3mil distributed in FY20 and one-off expenses of S$5.5mil incurred in FY19 from the loss of disposal of asset held for sale, core PATMI stood at S$11.5mil for FY19 and S$16.9mil for FY20, representing an increase of 47% y-o-y.

Hanwell's 1H21 financial update

  • Revenue increased 19.5% y-o-y to S$257.8mil in 1H21 and gross profit increased 13.7% to S$57.5mil, even though gross profit margin for 1H21 decreased by 1.14% points to 22.30%. The drop in margins was mainly due to the consumer business segment, as shipping disruptions and the pandemic spike in Thailand drove up rice prices. Net profit increased by a modest 3.2%, mainly due to the decrease in other income on lower government grants.

Hanwell - Valuation & Action:

Hanwell's Singapore peers.

  • Hanwell’s mid-cap fast-moving consumer goods (FMCG) peers (S$350m to S$360mil market cap) are Yeo Hiap Seng (SGX:Y03), QAF and Delfi (SGX:P34) of, whereas small-cap FMCG peers ( < S$30mil market cap) are Khong Guan, Envictus and Hosen. We have used Yeo Hiap Seng and Delfi as mid-cap peer comparisons as these companies are involved in a wide array of food manufacturing and distribution mainly in Asia.

Yeo Hiap Seng (SGX:Y03).

  • Yeo Hiap Seng (SGX:Y03) is involved in the manufacturing, marketing, distribution, sale, and export of food and beverage products in Singapore, Malaysia, Cambodia, and internationally. The company operates through two segments, Consumer Food and Beverage Products; and Others, such as Asian drinks, culinary sauces, instant and canned foods.
  • Yeo Hiap Seng currently trades at 0.8x historical P/B, whereas Hanwell is trading at 0.6x historical P/B, representing a discount of 25%. Yeo Hiap Seng generated losses of S$10mil for FY20. For the first half ended 30 June 2021, Yeo Hiap Seng remained at a loss-making position of S$1.2mil.
  • Given that Hanwell is profit-making and is trading at a discount to Yeo Hiap Seng, Hanwell’s valuations are attractive.

Delfi (SGX:P34).

  • Delfi (SGX:P34) is involved in the marketing and distribution of its own brand of chocolate confectionery products in its core markets of Indonesia, Philippines, Singapore and Malaysia.
  • Delfi currently trades at 1.4x P/B, more than double Hanwell’s P/B of 0.6x. Delfi has a historical and forward P/E of 18.2x and 15.6x respectively, whereas Hanwell has a historical P/E of 10.2x. We currently have a 11.0x forward P/E based on FY22 EPS for Hanwell, which is at a 29.5% discount to Delfi’s forward P/E.
  • Given that Delfi’s net income after tax declined 38.1% y-o-y to S$17.8mil in FY20, compared to Hanwell’s outstanding revenue growth of 180% to S$33.1mil over the same period, Hanwell’s valuations are much more attractive.


  • Our estimate of 11.0x P/E is based on the weighted average of Hanwell’s revenue spread between its consumer business and paper packaging business. As benchmarks, we used the average P/E of its Singapore and HK-listed peers. We peg FY22’s forecasted paper packaging business revenue contribution of 64% to the average historical P/E of 5.7x for HK-listed peers Nine Dragons and Lee & Man Paper. As for the consumer business, we pegged the remaining 36% revenue contribution to the average historical P/E of 20.8x for Singapore-listed peers.
  • Hanwell’s historical P/B of 0.6x is relatively attractive given that the overall historical average of Singapore peers is trading at 0.8x P/B. Compared to Singapore-listed peers, Hanwell’s valuations are attractive. However, when factored in the paper packaging business, we see current valuations already in line with that of its peers.
  • In addition to Singapore peers, DKSH, an international peer, has significant presence in Singapore as a distributor. DKSH is listed on the Swiss Exchange (SWX) and has a market cap of around US$5bn. It provides services in Asia focusing on FMCG, luxury goods, fashion and lifestyle products and hair and skin cosmetics, spanning across 65 distribution centres in Asia. Consumer goods make up 42% of net sales hence it is an appropriate peer. DKSH is trading at 25.0x P/E, while our forward P/E forecast for Hanwell is well below DKSH.


  • Power crunch to affect manufacturing capacity in the second half of the year; Slowing down of China’s economy likely to affect consumers’ e-commerce spending; Increase in raw material costs will lead to downward pressure on margins.
  • See the 15-page report attached below for complete analysis on Hanwell Holdings (SGX:DM0).

Megan Choo KGI Securities Research | https://www.kgieworld.sg/ 2021-10-05
SGX Stock Analyst Report NEUTRAL INITIATE NEUTRAL 0.42 SAME 0.42