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

HL Global Enterprises (AVX.SI) - Potential exit from SGX-ST Watchlist

A few interesting facts from the completion of the complex disposal of  HL Global Enterprises' (AVX.SI) share capital of LKN Investment International  Pte Ltd (LKNII), which consists of 100% interest in Hutai that owns the 106-unit serviced apartment building Elite Residences located near Shanghai's central district as well as the 60% interest in loss-making CHQ that consists of  the 455-unit Copthorne Hotel in Qingdao, located near Qingdao's central business district. More information can be gleaned here:

Elite Residences in Shanghai, the PRC

1. The company will receive net proceeds in excess of S$100M from both deals, the bulk of it already received.

2. HL Global will become a net cash company VS a net debt company before the disposal.

3. HL Global should report positive book value VS a negative book value previously.

4. The now positive book value should also be very much more than the current market cap (I estimate it to be around S$72M or S$0.75/share vs market cap of about S$44M or S$0.455/share).

5. The company will report a significant gain in earnings this year due to this disposal.

6. Main investments and properties of the group after completion still consists of:
a. 100% interest in Augustland Hotel Sdn Bhd which owns and operates the profitable Copthorne Hotel Cameron Highlands;
b. 49% interest in a management services company to Equatorial Hotel Shanghai;
c.100% interest in Victory Heights which owns a land located in Tengah Malaysia and finally;
d. 2 other pieces of land of approximately 8,400 sqm in Cameron Highlands, Malaysia.

As guided by management in earlier reports, I believe HL Global will use part of the huge cash proceeds for the repayment of the unsecured loan which has been one of the main causes of its losses the past few years via interest expense. Coupled with loss-making CHQ already out of the picture, HL Global should be able to report reasonable earnings going forward, fulfill the financial exit criteria and be removed from the SGX-ST Watchlist that is probably causing disinterest in the shares of this company. The company has also been reporting positive free cash flows.

Lastly, the substantial cash that remains even after paying the unsecured loan in full may be used to fund suitable acquisitions of new businesses and possibly, the payment of a dividend.

Management has been trying various ways to get HL Global out of the SGX-ST watchlist for some time now and I think this is one of the more favorable (if not most favorable) outcomes that potentially will lead to the exit of SGX watchlist.

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