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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