Research on Hafary

Background of Hafary

Hafary Holdings Limited, an investment holding company, imports, deals, distributes, and wholesales building materials in Singapore, the People’s Republic of China, Vietnam, and rest of Southeast Asia. The company operates in two segments, General and Project.

Dividend Information

Dividend Distribution

2012: 0.013

2013: 0.052

2014: 0.023 (2 more quarters left)

Fiscal year ends on June. Despite the fluctuations in dividend distribution, the yield still stands impressively at about 10%, at current price level (0.215).

Price Trend

2-year trend: Consolidating between 0.175 – 0.24 (0.065 range)

6-month trend: Uptrend channel towards 0.24 (0.035 left)

Financials

Income Statement

Income Statement

Total Revenue x Net Income

Total revenue is increasing y-o-y and net income is seeing improvements which is definitely a good sign! The obvious extremely high levels of Net Income in 2013 was explained in Hafary’s 2014 Annual Report.

Reason for High Net Income for 2013

Source of Revenue

Revenue Distribution

From this, we can see that revenue from projects is growing to almost a 50% level. The jumps y-o-y is quite remarkable actually.

2012-13

Total Revenue: 32.1% growth

Revenue – General: 16.9% growth

Revenue – Project: 59.3% growth

2013-14

Total Revenue: 11.3% growth

Revenue – General: 5.7% growth

Revenue – Project: 16.4% growth

Hafary’s revenue is linked to the number of BTOs launched. More BTOs = More business for Hafary. The management is aware of that and in view of the slowing down of BTO launches, Hafary is looking for other sources of revenue. Although nothing is confirmed, at least the Group is moving in the right direction.

Balance Sheet

Balance Sheet

When I look at the balance sheet, I feel that things are not normal with this company. It’s Assets and Liabilities are high, but it’s not supported by the Equity of the company.

Loan

Cash Flow Header

Loan

Look at the proceeds from new bank loan. A whopping 128.7% increase! I found it particularly interesting that the company chooses to take bank loan instead of expanding its equity via rights or warrants issue. Perhaps the management didn’t want to erode the share price in view of the implementation of the minimum share price rule of 20c.

Ratios

Ratios

Debt Ratio

Ratio-wise, everything would have been looking very good except for the fact that it’s debt ratio levels are ridiculously high! Personally, I’ve never been comfortable with companies with such high debt ratios. Although this is due to the fact that Equity is very little as mentioned above.

Payout Ratio

It seems like dividend payout won’t see much more of a growth until EPS begins to grow. And from what I can see, EPS won’t have much chance to grow since Equity level is already so low. For EPS to grow, the only way would be to see Earnings grow significantly. In the event Hafary issues rights, EPS will definitely shrink by quite a lot since it is quite likely to see a 50% dilution of shareholding (20m worth of capital for typical projects). Share price won’t be able to sustain or meet the minimum share price level rule.

Conclusion

Overall, due to the weird proportion of Equity to it’s Total Assets and Total Liabilities, I’m not comfortable with putting my money into Hafary. Perhaps when I have more knowledge about Hafary’s financials then will I reconsider. Or if anyone in the know regarding Hafary’s financial strategy, please shed some light on the matter and feel free to leave a comment!

Advertisements

2 thoughts on “Research on Hafary

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s