Hafary

Hi divads27: thanks for yr post on Hafary AGM!

Do you think you would like to write a fuller article on the AGM for publication on NextInsight? (I have sent you an email!)

thanks for yr sharing, divads27.

Just wanted yr view on the dividends. The company has been giving stunningly high dividends. We know that it's a challenge to keep dividends at the same high levels going fwd. However, the high dividends given in the past were not labelled Special Dividends. Normally, companies would say what is the Ordinary and what is the Special portions so that shareholders are not misled into thinking it's all the same. How come Hafary did not label its dividends in the same way? Is it possible that Hafary can maintain its high divs next year?

Hafary AGM: Rosy outlook for the next 2 to 3 years at least.
Time & Date: 9.30am , 25 Oct 2013.
Venue: Wilkie Edge

This is my first time attending Hafary’s AGM. What I saw was a friendly and cheerful CEO Mr Eric Low with rest of the directors which had a calming effect. The standard procedures of approving the resolutions stated in the Notice of AGM was carried out and passed without objections except for the resolution pertaining to the performance share plan with one of the shareholders expressing his opinion that the plan was too vague. But nevertheless, the resolution was passed with zero objection. The one and most important resolution which I think everyone was looking forward, was the final dividend of 2.5 cents which based on the closing share price of 22 cents on the day of AGM has a yield of more than 11%.
During Q & A session, there was a gentleman who identified himself as a private investor in bonds and shares and a new investor in Hafary shares and he posted some relevant and interesting questions during the meeting. The Executive director and CEO, Mr Eric Low See Ching was ever so friendly and patient in answering the questions posed.
Highlights of some of the questions and answers.
1) Q: What is the outlook for the company especially in the Project segment.
A: For the next 2 to 3 years, the outlook for constructions is positive and will benefit Hafary. The contribution from the HDB project (supplying tiles to HDB BTO project) will gain momentum as HDB goes full steam ahead with building of flats which in turns mean more opportunities for Hafary. Currently HDB project constitutes about 10 to 20% of total revenue from project segment.

My view: (this would mean there is lot of room for HDB project to grow as currently only 10 to 20%)

2)Q: Is Hafary the number one tiles providers in Singapore?

A: YES. A simple answer from a smiling Mr Eric Low. He estimates that market share to be about 20 to 30% locally.

My view: Hopefully can increase the market share by some acquisition of the enermies?? haha. Of course as shareholder I hope is 100% of the market. ie: Monopoly

3)Q: Can you elaborate more on the 18 SUNGEI KADUT STREET 2 ( International Furniture Park) project?

A: Two main purposes for this acquisition. First is to secure the property for setting up of warehouse to replace the one in Defu Lane as lease is expiring soon. Secondly, working with listed company Sitra to venture into other furnishing industry as stated in their announcement in SGX.

4)Q: What is the percentage of revenue from new products other than tiles.

A: Currently, the revenue from new products other than tiles, eg: sanitary products, marble etc.. forms 5 to 10% of total revenue. The company will tap on the pool of over one thousand loyal designers and contractors to grow the revenue from non-tiles products.

5) Q: Concern over high inventory.

A: The company carries 6 month worth of inventory. The high inventory is due to increase in business. For example, stocking up marbles as they are venturing into marble segments and increases in HDB BTO which requires more tiles. They are mindful of the high inventory and will manage the inventory carefully. But Mr Eric Low mentioned is normal and in fact a good sign as high inventory means the company is expanding.

6) Q: Can the high dividend be sustained ?

A: Mr Eric Low seems confident and he referred to the company’s good track record of dividends for the past few years. FY13 dividends came mostly from the gain from sale of property. Subsequent years’ dividend declared will be 20 to 30% of the profit generated. As for divestment of properties at hand, the company has no plan to do that yet currently.

My view: According to UOB Kayhian report in July, based on share price of $0.199. They expect Hafary's dividend to have a yield of 6.3% based on $0.199 share price = 1.25 cents dividend for FY14 and FY15.

But 1.25 cents is on the conservative side I think. UOB Kayhian estimated a dividend of 4.25 cents for FY13 (post share split), at 21.3% yield, but the actual dividend is 5.25 cents for FY13(post share split) which works out to be 26.4% yield.

So a conservative estimate should be UOB Kayhian's 6.5% yield or 1.25 cents dividend for FY14 and FY15. But Hafary usually surprises on the UPside.

Personally, I think with HDB building more flats in the 3 new towns, Punggol Matilda, Tampines North and the new centrally-located estate of Bidadari, I think the profit should surprise on the upside.

The CEO mentioned HDB contribute around 10-20% of the revenue for project segment. So there is plenty of room for revenue to grow for the HDB project. He seems confident of the prospect for the next 2 to 3 years. After that he mentioned, has to depend on how well the constructions sector perform.

I think 3 years later with increase of interest rate and depending on how the economy fare, it is quite difficult to predict how well the construction and property sector will perform.

7) Q: Worries over the write-off of China Hunan associate and will the company suffer anymore losses from the China Hunan operation?

A: The company faces difficulties in managing it’s China Hunan operation and has totally written off the investment. Thus the worst case scenario is over. The company will not incurred any more losses from the investment. The company has also gain valuable lessons from the experience in China.

I left the AGM hopeful of the next 2 to 3 years. As for what lies after that, only time will tell.

The above is the best I can recall and hopefully reflect as accurately what happened during the AGM

Refer to my writeout for the AGM , point 6

my prediction, price will reach 24 to 25 cents within 1 mth

Due to the impending CD of 2.5 cents

I am hoping it will go below 20 cents, so I can load up !

Still immovable at 22 cents.