Hwa Hong and Tourism

Today, I was sitting in front of the computer feeling as sick as I have been for the past 2 years. Cannot remember the last time I was down with the flu and this virus reminds me of how strong the market feels and look before the end of the year. Looks like people are really feeling the "love" for the market in 2010. As I said before, its time to be a little cautious and I am sticking to my guns. In my outlook piece, I specifically pointed out tourism as a top play for 2010. But it seems like the market has already gone ahead and started the party early.

SIA, Hotel related plays have done well over the past 2 weeks and I hope that you all have jumped onto the bandwagon when I made the call. A very good example of how cheap hotel plays in singapore is accentuated by the premium paid for Furama holdings. The premium paid was in access of 50% of the last close price for the stock. As I have said before, value is getting harder to find in the market. I know some of you will tell me their earnings are really abysmal and most of which are registering losses for the year. Some would even say that the supply of rooms in Singapore will only rise once the IRs are open next year. That is without a shadow of a doubt true but with the introduction of the IRs will not only bring about more tourists but also the value per room should rise as the real estate prices continue to rise. In valuing a hotel, it is important for us to also focus on the revenue per average room and also the value per room. Revpar will only rise as economic recovery gains traction and the value per room will increase along with this rise. My belief is that the value per room in Singapore is going to go up as real estate prices continue to rise. So look out for hotel stocks that are trading at a significant discount to their NAV. Orchard Parade, Singland are a couple that comes to mind.

Now for Hwa Hong...I really like that fact that the company is looking to reinvent itself. For too long it has been regarded as the grand father stock of the decade. One of the earliest listed companies on the Singapore Exchange. You ask any one on the street or maybe even veterans in the market on this stock, they will give you a puzzled look. Well it has been making some headlines this year, giving a good dividend of $0.12 earlier and now...now they have sold one of their core businesses for a cool $95 million bucks! That is about 1/3 of its total market capitalisation. The best thing was that insurance arm (the one they are selling) only brings in $2 mil per year. So what does that mean? They sold it for a PE of more than 40 times! So was it a good price? Hell yes! What is the money going to be used for? Dividends? I doubt it. I think that it will be used for more investment acquisitions, most probably land as this would reinforce their property business arm. I always like companies that work on what they are good at, and this is something Hwa Hong is doing well. When a company concentrates on its strengths, that is always something a value investor should look out for. If you followed my earlier posts, I called for a buy since $0.505. Now its $0.585. A good return...you think? Ha! Well this makes me want to sing out the old Carpenters song..."Its only just begun"

Best

SVI