HL Tiong says he is an average Singaporean in his early 30s, has a full-time job, is happily married and caught within the sandwich class. He lives in an executive condominium with a "mountain-like mortgage". "My goal is to achieve financial freedom as early as I can. My target is 45 years old. I don't mind working but I hope to provide my wife an option not to work." The following article was published in July 2013 on his blog (http://reaching4financialfreedom.blogspot.sg/and is adapted and republished with permission.

500arowanaThe “Qian Hu” Dragon Fish is increasingly regarded as a premium brand in China. Photo: Company

IN SINGAPORE, when you think of rearing arowana, Qian Hu is the name that will pop up. They are experts in the breeding of this beautiful fish.

Qian Hu does a range of things - importing, exporting and also distribution of ornamental fish and related equipment and accessories.  

Qian Hu also has its own R&D arm and manufactures specialised plastic bags for ornamental fish.

Vital stats

Price - Qian Hu traded near its 52-week low of 8.1 cents per share and is 21% off its 52-week high.
qh_chart12.13Qian Hu recently traded close to its 52-week low. Chart: Bloomberg
There is certainly room for the fish to swim upwards.

Dividend yield - If you look at Qian Hu's "stats" provided by ShareInv.com, you might be (mis)led into thinking that Qian Hu's dividend yield is nothing to shout about at 2.4%.

If we look closely at what happened to Qian Hu's business in the past few quarters, we would notice Qian Hu had disposed a subsidiary, Kim Kang, back in Dec 2012.

More importantly, in the full year 2012 results announcement in Jan 2013, management stated on page 31 the following: " In addition, in connection with the disposal of Kim Kang, the Directors has recommended the payment of a special dividend of 0.5 Singapore cents per ordinary share (one-tier tax exempt) in October 2013, amounting to a cash payout of approximately $2.3 million."  

Had we considered this 0.5 cents per share, Qian Hu's expected dividend yield can be estimated to be 8.5%!

Gearing - Qian Hu's gearing is comfortable at 27% as at H1FY2013. Anything below 50% debt to equity ratio is a level which allows me to sleep well at night.  

Discount to Book Value - As at H1FY2013, Qian Hu was trading at price-to-book (PB) ratio of 0.71 (or 41% discount from book value).

And more importantly, this is not taking into account Qian Hu's brand value (which is renowned in the ornamental fish category), as well as some of its R&D proprietary processes.

The true discount could be greater.  

In business, to say with conviction that Qian Hu has reached the bottom and the only way is up would be sheer arrogance laced with ignorance.  

I don't believe in technical analysis, but if I take a simple 5-year chart of Qian Hu, it is comforting to note that at 8 cents per share, it is not ONLY the 52-week low, but also the price during 2008/09 Financial Crisis.

My view is that a lot of the poor sentiment towards Qian Hu's recent business performance has been priced in.  

More importantly, Qian Hu's management has committed to a set of longer-term aims:

>> To be the world’s Number 1 ornamental fish exporter;
>> To improve revenue contribution from pet accessories;
>> To have the widest distribution network in China and India;
>> To strengthen our commitment and continue our investment in research & development;
>> To be a debt-free and high dividend payout company;
>> To be able to change in accordance with the changing environment and to continue to differentiate ourselves; and
>> To stay focused in whatever we do.

qianhu_hydraQian Hu went on a big promotion of its new line of aquarium filters named Hydra at a trade show in China recently. Photo: Company

I recall reading that pet accessories is a growth area that Qian Hu wants to develop.

For every S$1 spent on a pet, the owner is expected to buy S$5 of accessories.  

Recall that our view is that any growth is a BONUS to us. We are paying ZERO for growth and we are prepared to be patient in order for Mr Market to re-rate the stock.  

I may be a bit biased but I like the family feel and down-to-earth open communication between Qian Hu and stakeholders. I can also feel the passion management has towards the business.

I recommend you read the Q&A exchanges.  I am of the view management's and shareholders' interests are aligned. Don't know about you, but I am going to take a swim with Qian Hu.

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+1 #2 HLTiong 2014-01-12 22:50
Thanks Thomasc for lending an earnings-based view. I am leaning towards the asset-side analysis for Qian Hu. While not a net-net Ben Graham stock, 82% of Qian Hu's market capitalisation is supported by its net current asset value (NCAV).

Overall, what we are seeing here is a SME that is unloved by Mr Market, share price suggests the business is eroding value (but it has turned around and is profit making). Qian Hu is also conservatively financed. Yes, Qian Hu's expensive in relation to trailing earnings, so price has the potential to fall still. Having said that, you will still have dividends to count on as a sweetener while you wait for price correction.

A business with mediocre financial track records need not be a bad investment. A business with great financial track records can similarly make you lose money. It depends on other factors such as your purchase price.
+1 #1 Thomasc 2013-12-23 10:15
For the last 10 years, ROE has hardly breached 10% with the highest at about 11% in 2008 and 2009. Rest of the years are in mid single digit. Topline growth has been more or less flattish since 2006. While I am not in the ornamental fish industry, I would take Qian Hu brand value with a pinch of salt. A good brand would be able to defend her margins and this is not so in the case of Qian Hu. In summary, buying Qian Hu is really taking a leap of faith given its mediocre financial track records.

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