i) HLIND is likely to make record FY profit ii) overall environment for motorcycle and tiles are improving, where raw material costs are declining and become a lot more stable while demand remains solid, this spells good and widening profit margin
When business is matured, profit is improving and has become more predictable, that's when dividend get thickened.
If I were the billionaire who has lots of business, I will demand the matured business to continue create and submit cash so that I could allocate it on "more interesting business / investment". There will be too much restriction to how I could use the money if it remains in the public listed company compares to my private money. The most profitable business are usually not listed. And it is good to use private money to buy those business instead of going through HLIND where the profit will have to be shared with public shareholders.
Also, if I have been already very old, and I have more than enough money, I just want to be happy. Making people whom I want to thank to be happy will then be my ultimate happiness and I certainly would not want to miss the opportunity of doing this great things while I am still alive and awake.
Haha Sardin, that's a bit too far fetched. Quek is too shrewd, astute and opportunistic to think about thanking and making people happy. The shark that he is will always be first and foremost does it make business sense to do something. Ultimate is to make money. Other things are secondary.
It has been a boring 6-7% dividend yield stock. Set apart of your boring money to own this boring stock. But I think it might fetch extra excitement for current FY and the next to come. If dividend could increase to 60 sen or more then the price will be adjusted to RM 10.
Thanks Sardin. Stock market game can broadly be grouped into 3 categories. Safe but boring, growth but can suddenly stop growing, goreng but can kena scammed. Ultimately this is an insider's game. Those not privy enough to first hand info can only buy and pray they won't kena burned. Therefore being prudent and conservative is key. I will stick to safe but boring anytime. Just auto cruise and happily ever after. Life is peaceful. Cheers.
While car and motorcycle markets are different, HLIND shareholders need to keep an eye on how the local EV market evolves. The launch of Tesla's Model Y this week and BYD's Dolphin next week already leave their marks on BAuto share price.
The biggest problem in Malaysia is B40 income could not catchup with inflation. They have no money to buy EV. Therefore, motorbikes that consume petrol (the fuel that could only be cheaper in future) will still be popular for decades. This is especially true for rural and suburban areas where charging station would be impractical and unprofitable.
As for building material sector, tile manufacturing will boom because Malaysian popular has started to age. New property development will slow down. People tend to buy 2nd-hand houses at good location and renovate it with new tiles. This will happen at both cities and suburban areas. Retirees will move from cities to suburban areas and many will do renovation before they move in.
In a PE valuation model, share price = EPS * PE multiple. It will take EV a long long time to displace ICE vehicles. So EPS will not be impacted, at least initially. However, the impact to PE multiple can be immediate This is happening to BAuto now. Despite solid market demand, its share has been de-rated by investors. 15% fall in a week
HLIND should take the lesson and prepare itself. 1. Work out a credible e-bike roadmap and communicate to the market 2. Clearly articulate its non-motorbike investments to the investing community 3. Return its mountain of idle cash to shareholders
This could re-rate the stock overnight. Surely the controlling shareholder also understand. The question is, are they willing to act on it? Until they do, the institutional investors are standing at the sideline, despite Kenanga's recent coverage.
There is no need to re-rate the stock. Serious and responsible businessman don't have hang ups with share price. Let it remain in its current deep value state. A jewel will be recognised by serious investors sooner or later. Meantime, minority shareholders can quietly and slowly buy more before it gets too expensive. Wonderful life.
The market may overlook a hidden gem for a few months, or even for a few years. But for 7 years? Note the share price has been going sideway since 2017.
Today a company fundamental data is easily accessible through various stock screeners. Not to mention professional investors who could access their Bloomberg terminals. How could a hidden gem be overlooked for 7 years in a competitive market?
More likely is, while this company has good potential, it also has defects (A more polite term will be it lacks the catalyst to unlock the value)
Yes, the company free cash flow runs into several hundred millions a year. It has accumulated 1.4b net cash. These are all very impressive. But holding idle cash incurs opportunity cost. In a stock market where cost of equity is about 10% per annum, cash gives only low single digit return.
This is the main reason that the Return on Equity has been falling from about 20% in the period of FY17 to FY19, to about 16% in FY21, and less than 15% in the past 12 months.
One major missing catalyst is when will the company better utilize the idle cash, through investment and/or return to shareholders. The least the management could do is to clearly communicate their intent to the investment community.
Clear communication is not self-promotion or inflating share price. Clear communication is actually being responsible to all shareholders - reassuring the minority shareholders that the Board and management have their best interest at heart, and outline what is being done to move the company forward.
Therefore, I do not see current situation as waiting for this jewel to be recognized by serious investors. Minority shareholders already have 7 years to “quietly and slowly” buy more. Surely 7 year is more than enough time to accumulate any position!
I see the situation as waiting for the Board and management to take steps to unlock the company value. They should take a leaf from YTL Power, where management has actively reached out to analysts and fund managers since last year to improve understanding. And now look at the results.
Sardin, if you are confident enough abt an increase in dividend, tambah now. If you wait till reality, price will have risen as insiders will be buying first and push up the price. As mentioned before stock market is an insider's game. Try and beat them at their own game. Being outsiders we have no choice but to be savvy and early. After that it's just a holding and waiting game. Life is peaceful. Cheers.
Market has not overlooked HLIND for 7 years. It's giving a low value to HLIND not because of its poor business, but because HLIND doesn't share its net cash with shareholders, leaving the market to speculate that one day, shareholders will lose out on the Net Cash.
Here's a sample snapshot of HLIND Net Cash over past years: 3/2016 = 275m 3/2017 = 379m 3/2018 = 645m 3/2019 = 1041m 3/2020 = 1232m 3/2021 = 1580m 3/2022 = 1351m 3/2023 = 1636m
Market has lost patience with HLIND for generating so much profit and cash, but only giving lip service increase in dividends. And yes, historically, market trust on Quek is too low that Quek will share with shareholders. Hence, market is penalizing Quek because current cash is worth at least RM5, the business priced at 9-5 = RM4. It's long term EPS is around 90 sen, which means the business is priced only at a PE of only 4+.
Is the business really poor? Of course not! This business generates so much cash.
So, where's the problem?
Simple. Market over the past decades doesn't trust Quek. The Net Cash grew from 200 million to 1,600 million and it is not even shared with shareholders - the dividends could have been so much larger than the lip service increment given.
The best thing analyst can do is draw this long term attention to the market. Push HLIND to share its wealth with shareholders. Else, market won't value this stock well.
It doesn't take much to increase the dividend yield from current 5.9% to say 10%. The business earnings yield is right now well over 22% or higher. This means raising dividends by another 67% higher. This won't even eat into the 1.6 billion net cash.
This is a classic situation where HLIND simply refuse to share its wealth with shareholders. No matter how great the business is, no matter how large the cash pile is, they continue to refuse to share.
I have around 2% of my portfolio in HLIND to earn a paltry 6%, when this business can easily reward shareholders twice as much without dipping into its cash.
The question is - who is going to force HLIND to share its wealth with shareholders?
This stock is really not about electric motorcycles or anything. It has a clearly superior business that generates huge amount of cash - just look at how it increases its cash pile by 8 times in 8 years. Its management is superior. It's business model is excellent.
The only problem is - when will shareholders gets their share of the cash?
In case if you think that the cash cannot disappear, it is too easy for Quek to force HLIND to buy one of its own businesses at exhorbitant price, transfer the assets into HLIND and transfer the cash out of HLIND. Then, suddenly, that huge pile of RM1.6 billion disappear.
Because of this lack of trust, this stock price has stabilized around RM9 for a very, very long time. If HLIND really want to increase its share price to RM15, this can be done very easy, by just raising the dividends by 67% and the price will quickly go up.
Problem is someone has other plans for HLIND huge cash pile of RM1.6 billion and it won't go to HLIND shareholders.
Oh, in case if you have doubts, Quek never listens to shareholders. The proof is simple: 1. Ask HLIND shareholders if they like to see some of the Net Cash position rising from 200m to 1.6 billion over past 7-8 years declared as special dividend? Yes / No? 2. Ask HLIND shareholders if they like to see a dividend payout ratio that is higher than past 8 years like 80% instead of paltry amounts like 50% in some years. Yes / No?
I can bet you that if HLIND were to survey 1,000 of minority shareholders, nearly 1000 will say Yes to both questions.
But do you think HLIND cares about minority shareholder views? Ha ha ha
@DividendGuy67, thank you for your comments. Yes, this is my main concern with HLIND, that Quek has never intended to share the cash. The track records of other Hong Leong companies are not exactly reassuring. I've mentioned a few examples earlier.
Fortunately, listing rules dictate that the controlling shareholder must seek EGM approval for any related party transaction that is above 5% of revenue/ profit/ asset value ...and the controlling shareholder has to abstain from the vote. (They could still bypass minority shareholders' votes if RPT value is just below 5%, like how Genting Malaysia bailed out Empire Resorts by buying from Lim family's private asset.) The key is the minority shareholders must be smart enough and united in rejecting any unfair deal. Such unity usually breaks down if the share price has been declining for a few years, as new shareholders/ traders may happily accept a privatization offer at 20% premium to prevailing share price, even though the offer price is a steep discount to the company's long term value. Recent example includes MMC privatization.
Fortunately, in HLIND case, the company performance has been good and consistent. I don't see any near term possibility for share price to drop to too low a level. Quek could not, for example, privatize at RM9 when share price drops to RM7 That doesn't stop Quek from trying to privatize at RM11 at current price of RM9. But I doubt it will succeed.
There could be other tricks that I'm not aware of. But as long as the Board is willing to pay dividends (dividends were paid even in mid 2020, albeit with a cut from 35sen to 25sen), the downside is limited. To be prudent, I ignore the net cash in my valuation (you're right it's RM1.6b now; I wrote RM1.4b which should be 2022 net cash). I don't like the RM400m investment in tile manufacturing, where there has been little explanation. But given that I've ignored the RM1.6b cash, I shall ignore RM400m too. While 10X PE and 6% dividend yield may not be fantastic, it's good enough. I will only think about what to do with my holding (to sell or to hold) should market changes its mind, and for no good reason pushes it to RM10-11 range.
Observatory, net cash, the PE is only 4+, and dividend yield at RM9 is 6%, so, for me, I'm happy to hold my 2% in this stock, put it in a drawer mentally,. and forget I even own this stock. My cost is well below RM9, if price drops below my cost, I'm happy to add but otherwise, not really much for me to do as it is a good boring stock. Clearly the TTM57 sen dividend is supportable for long term, I cannot imagine them cutting dividends, however, the only thing I can imagine is one day, either one time or several times, some of that cash holdings won't necessarily go to minority shareholders when it should be.
If we compare HLIND to say MAYBANK, clearly, one is more superior to dividend investor than the other. I have greater peace of mind and hold much larger in one than the other. The wierd thing is business wise, I like the other one better, only if he shares the wealth with shareholder.
Hello DividendGuy67. What you have narrated above is that HLIND is a gem of a stock with a win win balance between the safety of a consistent high dividend but boring stock while at the same time has great growth potential. Wow, this is god sent and I fully agree. This is a goldilocks stock, not too hot, not too cold. I will add more even at current price levels. No need to wait for if and when it goes lower. Life is good. Cheers.
When I first commented on i3 a few years ago, I benefited from the insights of people like kywoo. Kywoo liked three companies – Hong Leong Industries, RCE Capital, and Allianz. It happened that I also liked them. Over the next two years we discussed the merits of these stocks on and off.
The three stocks had several similarities – strong business fundamentals, domestic markets, good management, mid/ small cap, continuous records of earnings and dividend payment over at least ten years, and the valuation was also not demanding.
But they also have differences – HLIND and RCE are controlled by local tycoons while Allianz is a MNC. REC had a smaller market cap then. It also operated in a niche market of personal loans to civil servants.
I have reservation about HLIND’s cash hoarding right from the beginning. I also view HLIND as being less transparent versus the other two. For example, in its annual reports it would lump performances of different businesses together instead of providing breakdown. Unlike the other two, it also did not open to analysts through regular results updates.
Therefore it was not a surprise that HLIND share price remained range bound. In fact, on a 5-year basis (week 7-Aug-2018 to today), even after adding back dividends received, the total return was practically zero (RM8.98 to RM8.99). In fact, if dividends are excluded, the return would be -23% (RM11.70 to RM8.99)!
On the other hand, RCE Capital was a pleasant surprise. For several years, the growth was rather weak at low single digit. RCE profit records are not superior to HLIND. But one big difference is RCE Board was willing to return excess capital to shareholders, thereby improving its capital efficiency as illustrated in its robust ROE.
After adjusting for the bonus share issue, annual dividend was increased from 3 sen in 2017, to 4 sen in 2018, 5 sen in 2019, 6 sen in 2020, 7 sen in 2021, and 9 sen in 2022. And there was another 18 sen special dividend in late 2022.
The market took notice of RCE’s good corporate governance. On a 5-year basis, share price grew 163% (from RM0.83 to RM2.22) on unadjusted basis. After factoring dividend, share price actually grew 296% (RM0.56 to RM2.22)!
Out of these 3 stocks, I like Allianz the most. Allianz’s 5-year return is not as impressive as RCE, but it is still much better than HLIND. On unadjusted basis, its return was 21% (from RM12.50 to RM15.14). After dividends are included, it returned 54% (from RM9.81 to RM15.14). So, unlike HLIND, a 5-year investment in Allianz has at least earned the cost of capital for its shareholders!
More importantly, just like RCE Capital, Allianz has been returning excess cash to shareholders in increasing amount. Dividend per share has increased from 40 sen in 2018 to 85 sen in 2022, and is still increasing. So the market has taken notice recently. Share price has been moving upward in tandem.
Of course, there are many other good investment opportunities besides these three companies. I mention these three for illustration purpose – that good businesses and good management alone are no guarantee for good investment return. The Board has to be shareholders oriented, and is willing to share its fruits with the minorities!
Therefore until HLIND board shows sign by being more (minority) shareholders centric, I will continue to underweight HLIND and overweight Allianz.
Great call Observatory. Allianz is surging. Hopefully one day HLIND will be like this. It has all the necessary ingredients. After all Quek is getting old. Not implying he is sick or going to go soon. Just that when people are nearer to god or heaven, they can change to be more generous. Sort of like a calling or born again. Cheers.
Useful insight & sharing from Observatory DividendGuy67. despite the growing huge cash pile, > 60% div payout from earnings is quite reasonable, can't really accuse the company for not sharing the profit. my gut feeling is, nothing going to change (on cash pile) as long Quek is around. anyway the old man is 82, if we can hold the stock long enough; the hope is eventually someone with different mind will emerge to do something that could uplift the stock valuation & price.
For a certain reason, I think there will be a great news for all shareholders not late than 2025, and most likely to be in within next 12 months. The news that all of you have been waiting for so long.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....