02-05-2013, 11:28 AM
LLI Wrote:Assuming that the company will take 5 years to reverse this undervalue situation.
felixleong Wrote:Haw Par is a value trap that I held it for 3 years and gave up.
I think the probability of realizing its full NAV within say 5 years is very low, probably under 10%.
I personally believe the probability of Haw Par ever trading at 100% of NAV is essentially zero. To understand why we must look at the role that Haw Par plays in the Wee empire.
It is obvious at first glance that the 5% stake in UOB accounts for the majority of Haw Par's value. Less obvious is the fact that the UOB stake allows Wee Cho Yaw to cement his control of UOB. Drawing a map of the Wee empire with all the relevant companies and their various shareholdings will make clear that Haw Par's stake in UOB is needed to help ensure Wee Cho Yaw keeps control of UOB. UOB is the crown jewel of the Wee empire. Therefore anything that helps Wee Cho Yaw hang on to it will never be sold. That includes Haw Par.
The stake in UOL performs the same function - combined with UOB's stake in UOL and the Wees' direct stake in UOL, it allows the Wees to control UOL. But UOL is small potatoes compared to UOB.
Anyone who buys Haw Par hoping for the discount to vanish is in for a long wait. However the discount will vary over time, and a savvy investor could buy when the discount is large and sell when the discount is small, similar to how some people trade closed-end funds as the discounts to NAV change with time. But understand that the Wee family will never release the UOB shares (nor UOL shares) from Haw Par's grip.
As for Haw Par Healthcare, it used to be separately listed but was privatized. It is a fantastic cash cow - Tiger Balm sells itself and you spend basically nothing on capex, R&D or A&P. So it won't be sold.
Properly-run aquariums are actually low-capex businesses with significant cash flow. No reason to sell either.
Hua Han was an investment that turned into a homerun. It may be sold eventually. But even if the cash is paid out it is not much relative to the size of Haw Par.
As to WHY there is a discount, this is a common (even normal) situation for conglomerates with listed subsidiaries. The reason is that investors can recreate the conglomerate themselves by buying the appropriate subsidiaries. They can also tweak their exposure to have more of the "good" subsidiary and less (or none) of the "bad" one. So they demand a discount to own a conglomerate where the exposure is fixed. For Haw Par the same applies, one can almost replicate Haw Par by buying shares of UOB, UOL, Hua Han etc. So a discount is demanded to own Haw Par where the exposure is fixed. In fact, because Haw Par will never be broken up, I would argue that a larger discount should be required.
Also, previously Haw Par passed through all the UOB dividends it received. So owning Haw Par was a way to own UOB cheaply. But in recent years Haw Par took UOB scrip, which meant it did not have cash to pay dividends. So Haw Par's behaviour is more complicated now, which demands a further discount.
As usual, YMMV.