Monday, 26 February 2018

HL Global Enterprises (AVX.SI) - Cloud of Uncertainty Removed

In my previous post here, we discussed about HL Global Enterprises' relatively complicated disposal of LKN Investment International Pte Ltd (LKNII) and some salient features about why the shares of the company were worth a bet. Looks like most (if not all) of the points covered went through nicely and things are indeed looking very well for them.

In Summary:

1. Disposal of LKNII and CHQ is completed and the >S$100M proceeds are already received.

2. Part of the proceeds are used to pay off the Venture Lewis loan in full.

3. HL Global Enterprises' future earnings will be relieved of the heavy interest expense as a result of payment of the loan and we should reasonably expect positive earnings going forward.

4. The free cash flows of the group remains positive as usual.

5. The group has applied for removal from the SGX-ST watchlist and they had undertaken to provide a reasonable exit offer for minority shareholders should SGX-ST somehow rejects the application (in my opinion, this scenario is unlikely).

6. A 3-cents dividend is declared, giving a yield of 6.4% on current price of 46.5-cents. This is the first dividend declared since probably >10 years ago.

7. The group is reviewing the proposed development of their Melaka property as well as sourcing for sustainable and viable businesses with the huge excess cash that remains even after the payment of the 3-cents dividend.

8. There are some changes to the Board.

HL Global Enterprises has essentially gone from net debt to net cash of about 60-cents per share. Book value also went from negative to about +84-cents per share (higher than my previous estimate of 75-cents per share). As mentioned previously, even after this disposal the group still have various profitable operations, investments and properties. At just 46.5-cents today and considering that much of the uncertainty related to the disposal removed, HL Global Enterprises is still significantly undervalued and definitely worth a bet.

Disclosure:
Long HL Global Enterprises (AVX.SI) since Jul '17

5 comments:

  1. My dad has held this counter for many years. Glad to see some improvements in the company's fundamentals.

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  3. According to page 107(segment results) of the annual report, earnings would be approximately -500k for the next year(assuming it remains unchanged) after removing the one off "other income" of 87mil -> meaning this firm will continue to be loss making even after the disposal of the subsidiary?

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    1. without the interest expense of 600-700k after paying majority of the debt down, it should at best break even or have around 100k-200k net profits for the next year? This is assuming the hospitality operations doesnt deteriorate any further like what management had stated this year - with the oversupply of hotel rooms at cameron highlands

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