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2013-06-16 19:03:50.0

2013-06-16 19:03:50.0

2013-06-16 19:03:50.0

Company Digest : HAP SENG Consolidated Berhad

Hap Seng headquaters at Menara Hap Seng

Hap Seng Consolidated Berhad, abbreviated as HSC, Bursa quote: HAPSENG, is a mid-cap public listed company with diversified business and excellent track records in enhancing shareholders values.

HSC has 7 core business, most are cyclical in nature.

Plantation - suffer a setback

Hap Seng's palm oil estate in Sabah

HSC is the holding company and the largest shareholder of Hap Seng Plantation.

In the past, plantation used to be the biggest contributor to the group’s Profit Before Tax. However, the ongoing downtrend of CPO price has resulted in lower ASP, consequently a sharp decline in FY2012 profit.

For a comprehensive study on Hap Seng’s plantation arm, please refer to my in-depth coverage on Hap Seng Plantation Berhad.

Property - startling top line and bottom line growth

Hap Seng's township project in Sabah

In recent years, property holding and development has emerged as the main income driver for the group, cushioning out the effect of lower contribution from plantation division.

Started as a homegrown property developer in Sabah, with many completed projects in Kota Kinabalu, Lahad Datu, Sandakan and Tawau regions, Hap Seng has recently forayed into upscale property segment in Klang Valley.

The launching of the Horizon residences, a luxurious condominium at the prime Jalan Tun Razak area, has received overwhelming response from buyers of 20 different nationalities.

Other projects in Klang Valley include the maiden flagship development of gated and guarded township in Puchong D'Alpinia, which was launched back in 2007.

In term of property holding, Menara Hap Seng (wholly owned) and Menara Citibank (50% owned) have a combined net lettable areas of 1 million square feet, generating steady rental incomes to the group.

In FY2012, revenue and profit growth by 89% and 115%, a commendable performance amid a buyout property market.

Credit Financing – superb NPL ratio

Hap Seng Credit - one of the preferred creditor among SME

One of the top three lenders in the non banking sector, HSC credit financing division provides working capital and equipment financing needs for Small and Medium Enterprise (SME).

To date, it has 10,000 active accounts holder from various sectors, includes manufacturing, service provider, landed property and agriculture.

In FY2012, it reported an impressive NPL ratio of 0.9% vs. the industry average 2.0%.

Automobile – drag from Vietnam

Hap Seng Star Autohaus

HSC operates the dealership for Mercedes Benz via its subsidiary Hap Seng Star. It has presence in Malaysia and Vietnam.

The auto division registered a loss in FY2013 due to difficult trading conditions in Vietnam.

On 18th Mar 2013, the group has disposed 51% of its entire stake in Hap Seng Star (Vietnam), in line with the group’s intention to reduce exposure and gradually withdraw from Vietnam market.

The auto division may fare better in FY2013, returning to black seems promising. But there is little upside to overall contribution to the group profit, due to fierce competition from other brands like BMW, Audi, and Lexus.

Fertilizing trading – stiff competition

Hap Seng fertilizer products

Top fertilizer distributor in east Malaysia and one of the leading players in West Malaysia. Operations in Indonesia are carried out by its subsidiary PT Sasco Indonesia.

The division suffered a 64% decline in operating profit in FV2012, due to stiff competition in both domestic and Indonesia market, which leads to declining fertilizer prices.

Operating in an extremely competitive market with super thin margin, the division has minimal impact to the group earning in the foreseeable future.

Quarry and building material – spurred by internal demand

Hap Seng worker laying clay bricks

One of the largest quarry operators in Malaysia, quarry business is set to enjoy a buoyant years due to the ongoing large scale infrastructure projects like MRT and LRT extension

Being the 2nd largest clay bricks producer in Peninsula Malaysia, with a monthly production of 20 million bricks, HSC is a direct beneficiary of the Economic Transformation Program (ETF).

Investment holding

Hap Seng has strategy shareholding in several companies across South East Asia. All have similar business natures that are closely related to one of the core domain of Hap Seng group.

It has 49.99% stake in INVERFIN SDN BHD, company that owns Menara Citibank, a 50-storey class A office building located in the heart of KLCC.

Foreign portfolio include 20% equity stake in Lam Soon (Thailand), manufacture of a wide range oil refinement product including vegetable oils, margarine, and specialty vegetable fats.

Aceford food industry Pte Ltd, a company registered in Singapore, involved in the packaging, marketing and wholesale trading of edible oils and food products.

Paos holding Berhad, a manufacturer of soap and other oil related products

Vintage Heights Sdn Bhd, involved in property development and operation of an oil palm estate.

2013 prospect

Property and credit financing divisions are set to enjoy sustainable growth throughout 2013, backed by ongoing sales from the completed but unsold unit. Despite the lack of new launches in 1H2013, the group is beefing up its landbank in Klang Valley and Sabah, new projects are likely to follow suit.

Better prospects for building material due to robust demand from domestic infrastructure projects, but competition may lead to compressed margin. For Fertilizer business, too many players in the fields and Hap Seng does not have significant edge over its competitors, prolonged price war will result in flattish bottomline.

Auto division is facing stiff competition from BMW and Audi, the latter design portrays a younger and more dynamic profile, hence more appealing to young entrepreneur alike.

For plantation outlook, the industry players share the same view that current CPO downcycle has bottomed out, most foresee a rebound of CPO price. But upside is likely to be capped as the export to China and India, the largest CPO importers, is showing sign of decline due to economy slow down, which result in softer demand for palm oil products.

2013 is a challenging year for Hap Seng Consolidated Berhad. The group will need to strive harder to maintain its top and bottom line performance. All eyes are on its business restructuring plan, disposing of the loss making entity, notably the auto business in Vietnam, will enhance the shareholders values in the long run.

On the other hand, the potential demerger exercise, which involves spinning off its property division into a separate listing entity, may receive mixed reaction from the shareholders, as the property division is the most lucrative profit generator amidst sluggish performance from other division.

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