Excerpts from Evaluate Research report
Analyst: Ajeya Patil
Q2FY2017 Earnings Update
+6.8% EPS
+15% Revenue Growth
 Haw Par reported another quarter of strong performance driven by solid healthcare segment sales partially offset by lower sales from the leisure segment. Revenues for the quarter were up 15% YoY to SG$60.5 mn while lower cost of sales and absence of one-time expenses resulted in a 23.8% increase in gross profits. EPS for the period came in at SG23.6 cents vs. SG22.1 cents for the corresponding period last year, an increase of about 6.8% YoY. The relatively lower EPS growth was a result of higher marketing and administrative expenses and a higher tax rate. The company has been aggressively growing its “Tiger Balm” business by expanding its product line as well as by increasing its presence in different geographies. |
As a result, distribution and marketing expenses went up by 18.1% during the period to SG$14.6 mn or 24% of sales. We expect these expenses to remain at similar levels for the next 2 to 3 years as the company continues to invest in its future.
Reported income tax expense came in at SG$3.8 mn increasing by 36% YoY on account of higher profits from the base healthcare business. Other income, which includes the company’s investment and interest income, was at SG$35.2 mn, down 0.8% for the quarter. For the entire 1H2017, revenues were up 15.6% YoY at SG$121.4 mn while EPS was up 10.6% YoY at SG31.5 cents.
Net Cash + Investments = 122% of Market Cap
Haw Par has net cash of SG$282.7 mn or SG$1.29 per share on its balance sheet. The value of its investment holdings is SG$2,372.3 mn or SG$10.78 per share and the company carries its investment properties at a fair value of SG$211.6 mn or SG$0.96 on its books.
Together, the value of its net cash and investments add up to SG$13.03 per share which is almost 22% higher than the company’s current stock price of SG$10.66 per share.
Maintain Estimates and PT
We maintain our FY2017 revenue and EPS estimates of SG$226 mn and SG65 cents, respectively. The company’s healthcare business has grown at a CAGR of more than 19% over the last few years from SG$103.5 mn in revenue in FY2013 to SG$176.4 mn in FY2016.
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Target price: $15.00 |
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We expect this business to maintain its double-digit growth rate over the coming years as the company continues to expand its product line and geographical coverage.
We forecast the segment revenue to grow from SG$176.4 mn in FY2016 to about SG$275 mn by FY2020 at a CAGR of 12% for the period.
Our sum of the parts [SOTP] valuation of the company comes to SG$19.43 per share, which includes a value of SG$13.03 per share for its cash and investments and a value of SG$6.40 per share for the healthcare business, derived by applying a 20x multiple to its FY2017E earnings of SG32 cents per share.
Our target price implies an upside of about 40% over the current stock price of SG$10.66 per share with a potential for further upside as the conglomerate discount decreases in the future.
Evaluate Research is an independent equity research firm based in Singapore and India, and provides institutional quality research on global public midcap companies.
