Venue: Orchard Hotel

Time & date: 11.30 am, April 30

Until recently, property developer Hiap Hoe Limited was pretty low key and its stock was illiquid, though it was sometimes highlighted by value investors in various forums (including NextInsight's).

Seen at the AGM: Goh Han Peng, an analyst at DMG & Partners, who has a 'buy' call on Hiap Hoe stock.

Among analysts, hardly anyone covers the stock. A close follower is DMG & Partners' Goh Han Peng, who in a recent report, estimated its RNAV to be $1.22, which means that at 50 cents currently, the stock's trading at a 59% discount.

Then came media reports last month, which sent the stock flying and it has traded in big volumes ever since.

The reports were about chairman Teo Guan Seng taking his case to court to dissolve the family’s investment holding company, Hiap Hoe Holdings, in order for him to cash out of his shareholding in the listco, Hiap Hoe Limited.

Mr Teo is 81, by the way, and understandably wants to turn his stake into cash.

His two sons from the first marriage – Roland Teo and Teo Ho Beng -- are executive director and CEO/MD, respectively, of the listco.

(The listco has a current market cap of S$237 million and 3,463 shareholders as at 16 March 2012).

These two sons are also shareholders of the investment holding company which owns almost 70% of the listco.

The media reported speculation that the shareholding of the listed company would become fragmented when the Teo patriarch sells out, paving the way for a possible takeover.

Hiap Hoe stock spiked up recently on news of a possible fragmentation of the major shareholding.

The publicity, which included salacious references to the chairman’s wife and mistresses, stoked the stock price run-up from 45 cents to 68 cents.

Then it all came back down to earth pretty quickly as the media attention shifted elsewhere in the absence of further developments. Speculators and traders took profit and went away.

Nonetheless, Hiap Hoe is a value stock to some investors, who eye its S$400m of progress billings from property sales that would be recognised over the next 2-3 years.

Here are my key takeaways from the AGM, at the start of which Roland Teo (as chairman of the AGM) announced that Teo Guan Seng would not be re-appointed as a director of the listco:

1. Court case: When asked for an update on the court proceedings, executive director Roland Teo said: “This is a case involving a major shareholder of Hiap Hoe Ltd, and it is a private issue.”

Another shareholder then said: “But it has an impact on the stock price.”

Mr Roland Teo basically repeated himself when he said: “The stock price has gone up and corrected. This is a private issue involving a major shareholder of Hiap Hoe Ltd.”

Talking to the Right People after the AGM, however, some shareholders learnt that the case would likely go for mediation and the personal family matters including mistresses (and details of any settlement) would not get a public airing.

2. Land parcel: When asked about the status of its plan for its land parcel in Kallang Pudding, CEO Teo Ho Beng said it is in talks to sell it. However, nothing is finalised.

How big is the land plot? Answer: 43,000 sq ft and it has a plot ratio of 2.5.

3. Directors’ remuneration: A shareholder offered his compliments to the board for keeping the directors’ remuneration “reasonable,” unlike that of another property developer he didn’t name (Hong Fok Corporation – who else?) that was in the media spotlight recently.

For the record, Hiap Hoe top management's remuneration for FY2011 was:

Non-executive chairman Teo Guan Seng: below $100,000

CEO Teo Ho Beng : Between $700,000 and $799,999

Executive director Roland Teo: Between $200,000 and $299,999.

Another shareholder, however, pointed out that the three Teos’ remuneration should be seen in the light of the fact that they are also board directors and top management of Superbowl Holdings, and collect remuneration from there too.

For the record, the remuneration was $1,100,000-$1,199,999; $300,000-$399,999 and $200,000-$299,999, respectively.

4. Dividend payout: The first shareholder who spoke on the directors’ remuneration also asked if the dividend payout (0.5 cent for FY2011) would be governed by a dividend policy when the Hiap Hoe-Superbowl JV project – two hotels in Balestier – is completed in 2013/2014, and provide recurring income. (By the way, the land cost of $173 psf awarded for the project was the lowest ever awarded in government tenders in the last 15 years.)

Artist's impression of Hiap Hoe's 2 hotels and Zhongshan Park along Balestier Road -- whose land cost was the lowest ever awarded in government tenders in 15 years.

Teo Ho Beng replied that Hiap Hoe has been consistently paying 0.5 cent a year for several years, and the company would consider how much it could pay going forward by considering its business’ needs for funds, its gearing and the amount of recurring income.

“As a developer, the gearing is there and the projects are big nowadays – easily $100-200 million.”

The second shareholder who spoke on the directors’ remuneration also praised the board for the ‘good job’ thus far on the Zhongshan Park/hotel project and for its astute investment (which the company bought at a rock bottom price during the 2008 financial crisis).

Then came his plea on dividends. Saying he has been a shareholder for several years, he lamented that the dividend of 0.5 cent (or 1% dividend yield on current stock price of 50 cents) was small vis-à-vis the earnings per share of 10 cents.

“I’m looking for 10-15% of earnings. Some property developers give 30% of earnings.”

He held up examples of property developers which have declared higher dividends: Guthrie is giving 5.5 cents a share, translating into 10% yield based on the stock price just prior to the announcement, Roxy-Pacific (2 cents a share), and Heeton (1.1 cent).

“When will our company be more generous to minority shareholders? The dividend you give is just like the fixed deposit interest only.”

More than the dividend return, it would appear that this shareholder is banking on a sizeable capital gain. “I’m among your top 20 shareholders. When the stock price drops to a certain level, I would keep buying. I’m sure this company is worth at least 50% more in its stock price.”

Roland Teo: “We note your comments. We are moving to relatively big projects and funds will be needed. As and when it’s appropriate, we will try our best to offer whatever dividend we can.”

5. Hotel buffet: I should say that Hiap Hoe showed more than a touch of generosity at the AGM. It held the event in the late morning, so that on its conclusion it could treat attendees to lunch.

This was at Orchard Hotel, so you can imagine the buffet was a pretty hearty one. On top of that, everyone received a door gift in the form of a laptop bag.

For NextInsight's forum thread on Hiap Hoe, click here.

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#3 G 2012-08-08 14:43
I note the article & postings above. It's been 3 months. The stock price then was 50 cents (after the correction). Today, 54 cents. And there is an interim dividend of 0.5 cent. Overall, pretty cool stock with low risk, dont you agree?
#2 Guest 2012-05-28 03:40
In Year 1, lots of start-up costs and marketing costs. The Average Occupancy Rate will not have taken off yet. It will be a great result if the hotels turn out to be v profitable as early as in Year 1.
#1 Earthman 2012-05-03 18:21
Regarding dividends, investors who know property developers' business can understand that they won't be able to pay out generously. As the Hiap Hoe management has said, you have to have cash reserves in order to seize opportunities to buy landbank -- you also need to have cushion in the event of a downturn -- you are dealing with a high-capital industry.

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