Business Background

Hanwell Holdings supplies provisions and household consumer products in Singapore, Malaysia, and China. The company operates through Consumer Businesses and Strategic Investments.

Consumer Business engages in manufacturing, brand management, marketing and distribution of consumer goods and is organised into 3 main entities: Fast Moving Consumer Goods (FMCG), Franchise and Health solutions.

Subsidiaries under FMCG –

Topseller (Rice, Oil and Detergent)

Tipex (Consumer tissue paper, washroom cleaning products, household and automobile cleaning products)

Fortune Food Manufacturing (Soya bean based products: tofu and tau kwa)

SOCMA Trading (Grocery, Snacks and beverages in Malaysia)

Wellmart Management Services (Convenience store and Minimart).

Franchise – owns iEcon and Go2mart, the largest franchised mini-mart chain with 85 stores islandwide.

Health Solution – designed as a one-stop resource centre to provide holistic healthcare consultancy services. Additionally, it is involved in hospital and healthcare facility development, as well as related activities; construction of hospital turnkey projects; and provision of healthcare consultancy and hospital management services.

Strategic Investments – owns 63.95% of Tat Seng Packaging which a leading manufacturer of corrugated paper packaging products listed on the mainboard of the Singapore Stock Exchange. With operations in Singapore, Suzhou, Nantong, Hefei and Tianjin in China, Tat Seng serves the packaging needs of various industries in Singapore and China by supplying a range of corrugated paper packaging products of different configurations and sizes.

Key statistics

Market Cap: SGD 135.59 mil ($0.245)

52 week low: $0.27-0.21

NAV per share: $0.472

Price to book value: 0.498

Cash per share: $0.274

Total Debt to equity: 48%

Margins	2Qtr 16 $	FY15 $’000	FY14 $’000	FY13 $’000	FY12 $’000
Revenue	96,887	414,521	418,417	403,315	378,504
COGS	74,145	324,322	333,130	317,330	303,217
Gross Profit	22,742	90,199	85,287	85,985	75,287
Gross Profit margin	23%	22%	20%	21%	20%
Distribution expenses	10,529	44,101	43,731	42,754	41,258
Admin expenses	7,503	30,151	30,154	29,664	30,254
Other expenses	892	6,767	1,333	709	14,951
Operating Income	4,028	12,734	13,915	14,985	-7,387
Operating Margin	4%	3%	3%	4%	NA
Tax expenses	1522	4,736	4,922	3,615	2,546
Net profit	2597	11,362	6,269	11,647	-25,413
Net profit margin	3%	3%	1%	3%	NA

Revenue Breakdown	2015 (mil)	2014 (mil)	2013 (mil)	2012 (mil)
Consumer Business	181.5 (43.8%)	193.7 (46.3%)	187.5 (46.5%)	198.3% (52.4%)
Packaging	231.4 (55.8%)	224.5 (53.7%)	215.6 (53.6%)	179.8 (47.5%)
Others	1.6 (0.4%)	0.2 (-%)	0.2 (0.1%)	0.4 (0.1%)

Influential Substantial Shareholder

Goi Seng Hui better known as Sam Goi, Chairman of Tee Yih Jia Foods, a respectable businessman in the food manufacturing industry. He is joined by Goi Kok Ming, also a director at Tee Yih Jia Food Group, as Non executive director of Hanwell Holdings.

Undoubtedly, these 2 strategic investors provides wealth of experience and expertise. They are also potential buyers of the business or certain divisions to integrate with Tee Yih Jia’s portfolio of food manufacturing businesses. After netting an estimated $200 mil from the Super Group buyout, Sam Goi could be on a hunt for undervalued companies to reinvest his windfall.

Conservative value

It is comforting to know that almost 40% of the group’s assets are in cash. Based on 2Q 2016 figures, Net current asset value is SGD 228.86 mil or $0.41 per share. This suggest that the company is trading at 46% discount to its liquid assets. This valuation revolves around the value of its Cash and receivables, $ 155.49 mil and $ 117.6 mil respectively.

Even with a conservative net net working capital valuation of $ 135.52 mil or $0.25 cents per share, Hanwell holdings still trades below that value. These excludes investments in notable subsidiaries such as Tat Seng Packaging which they own 63.95% and has a market value of approximately $41 mil.

Concerns

The Consumer business division namely FMCG and Franchise Minimart, are highly competitive, low margin and high volume business. Products are sold quickly at relatively low cost, hence the key factor here is keeping operational cost as low as possible but with rising cost of raw materials, I foresee challenging times ahead.

Sheng Siong group would be a good reference to this business model, just like Hanwell, Sheng Siong group distributes and markets consumer goods and FMCG. Identically gross margins for Sheng Siong are 23% on 5 yr average, however EBITDA and net profit margins are much better 9% and 6% respectively. The management needs to work on decreasing expenses on distribution and administrative work to improve net margins.

Due to the razor thin margins for the Consumer business divisions, foreign exchange fluctuations presents a significant threat to profits as half of its revenue are from operations in Malaysia and China.

Conclusion

Hanwell Holdings operates in an industry where margins are low and highly competitive market. Personally, I’d like to see the consumer business division streamlined to focus on products that are doing well for them. Distribution and admin expenses represents 11% and 7% on average, investors need to keep an eye on these figures moving forward. Having said that, I feel that there is sufficient margin of safety as long as cash reserves are not squandered unnecessarily.

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