Hong Fok Corp(SGX: H30) was trading at $0.7 on February 28th and after that the stock boomed, moving a whopping 40% in under 4 weeks time. The price translates to the current levels of $0.975 as of 22nd March. The stock has witnessed a very heavy trade volumes during the period as well, the 3-month average volume is 0.62 million while the latest trade volume stands at 6.59 million which suggests overwhelming trade heat in the Hong Fok stock.
Source: Singapore exchange
About Hong Fok corp., It is a real estate group with activities such as property development, property investment and management, investment trading and holding and allied businesses. The company was founded in 1967 and its activities are limited to the Singapore market. As most of the company’s business is in property development, it holds a good portfolio of assets under commercial, retail and restaurant space as well as residential and freehold high rise space.
Some meritorious properties of Hong Fok are:
The Concourse, Beach road: a 41-storey office/retail tower
International building, Orchard road: a 12-storey commercial freehold space
Jewel of Balmoral, Balmoral park: residential asset, 10-stories
Concourse skyline, Beach road: a mixed use development with 360 residential and 9 retail units with communal facilities. one of the towers shown in accompanying picture.
Why the price shot up?
The best of the questions before investing is just the why of everything. If the stock is seeing such heat in trades, one is required to ask WHY?
Briefly, the company was highly undervalued and good financials along with dividend and buybacks were triggers for the consequent event but a lot of the attribution goes to just “Mr. Market”. The value of the stock was undeniable but the way it unlocked was due to just a herd sentiment. On February 28, the company announced its financial results for the year ending FY18.
The results presented a good 20% rise in net profit to $268.95 million. Something worth looking into is the revenue vs. revaluation gains, while the revenue for the year 2018 was $131.13 million (up 87% Y-o-Y), the “Gain on revaluation of investment properties” for the year was $253.12 million(up 8% Y-o-Y). Hence, most of the play on the profit comes from revaluation gains which are not uniform long-term basis but seems so for Hong Fok corp.
The dividend announcement, to the contrary, does provide for the spiked interest of the market participants as the company has announced a 1.3 cent dividend without any previous interim or special dividends. This results to a ‘normal’ or inconsequential yield of 1.4% at the original price of $0.7 per share. Later on Feb 4, the company announced a buyback plan for 870,250,040 shares i.e. 10% of total share capital. In the following days, the company acquired shares from open market even as price shot up. The company has continued to buy shares even at price of $0.9 which strengthened the belief that the stock remains undervalued and/or the firm will buy at higher prices still.
These were good triggers altogether but not sufficient to explain the 40% jump with unprecedented trading activity. Thus, even the SGX surveillance team put a query to the company, if it had failed to revealed some important information publicly and if the company had been complaint with the rules and regulation of the exchange. To which the company released an official statement saying “The Company is not aware of any information not previously announced concerning the Company, its subsidiaries or associated companies which, if known, might explain the trading.”
Most play here is just the character of “Mr. Market” who goes swinging up and down with irrationality. Any attributes to material facts comes from the revaluation gains and the buyback announcement, The former one not even being a new event as revaluation gains have been a usual for any real estate company.
A look at present value: The company with the price at $0.975 (MCap: $843.7 million), the critical P/E and P/B ratios stand at 3.5x and 0.35x respectively suggesting its undervalued nature. But the company is not fairly prudent with its management as diluted EPS is –$0.094 and EV/EBITDA is very high at 22.92x figure. Whether to invest? can only be condensed after complete facts and figures are studied in depth.