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SI Research: Hong Lai Huat Group – Ready To “Huat”

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In June 2018, we featured Cityneon Holdings (Cityneon) for its attractive valuations as its shares were changing hands at just below a dollar. Four months later, West Knighton, a special purpose vehicle indirectly owned by Cityneon’s chief executive officer Ron Tan and Hong Kong entrepreneur and investor Johnson Ko, launched a privatisation offer for Cityneon at $1.30 per share. While some may feel the deal undervalues the company, shareholders who had been on board since June 2018 would have easily made over 30 percent in just four months.

Having one of our favourite companies on track to privatisation, we now seek to find the next hidden gem.

The Business

huatHong Lai Huat Group (HLH), formerly known as HLH Group, is a well-established and reputable real estate and property developer with 30 years of successful track record. Founded in 1988, the group has completed numerous projects in Singapore ranging from public and private residential developments, to commercial and industrial buildings.

In 2008, the group diversified into the agricultural sector in Cambodia with the development of a 10,000 hectares farmland that cultivates cassava, as well as an investment in a cassava starch production factory.

HLH has also expanded into property development in Cambodia with the development of its first freehold mixed-use project, D’Seaview, which comprises 737 residential units and 64 commercial units.

Financial PerformanceHLH

HLH’s strong performance for 9M18 was largely driven by the property segment, which accounted for 91 percent of its revenue. Going forward, the group expects positive sales response for the balance units in the D’Seaview mixed development project. The commercial segment is expected to be completed by the end of 2018 and the residential segment by 1H19.

The group’s war chest continues to grow, with cash balances increasing to $11.5 million as at 30 September 2018, placing the group in a net cash position of $7.3 million or $0.032 per share.

In August 2018, the group’s Cambodia subsidiary entered into a sales and purchase agreement for sale of an investment property located in Preah Sihanouk Province. The consideration sum is about US$22.1 million and the completion is expected to be in November 2018. The sale will unlock the value of the investment property and provide a huge boost to the group’s war chest.

Building On Its Success

Having found much success in Cambodia’s property sector, HLH is looking to build further. The group recently entered into a joint venture agreement with Royal Group, one of the largest investment conglomerates in Cambodia, to launch its second mixed development project in the capital city of Cambodia, Phnom Penh.

The new project site is located on a freehold plot of land that is centrally located in one of Cambodia’s most affluent areas and good class residential and commercial development zone. The group intends to launch the new project, which will have an estimated built up area of 80,000 square metres, in the next three months.

Opportunities Abound In Cambodia

According to a World Bank report, Economic growth in Cambodia remains strong and is projected to accelerate slightly to 6.9 percent in 2018, supported by a rebound in textile and apparel exports as well as tourism and agriculture.

It is no doubt that China’s Belt and Road initiative will also play a huge part in the development of Cambodia’s economy. Apart from enhancing connectivity and cross-border trade within Asia and across the globe, Cambodia signed an investment contract of approximately US$7 billion with China in December 2017.

Cambodia’s transformation, with the aid of Chinese investment, will create more job opportunities for locals. For instance, Sihanoukville, a coastal town has been reshaped into a casino hub with nearly three dozen Chinese-run casinos and another 70 under construction.


In terms of trailing price-to-earnings (P/E) ratio, HLH’s shares are valued at 8.8 times. Meanwhile, the attractive component comes from the group’s price-to-book value which is currently at 0.3 times. Although the group has yet to pay out any dividends, we believe that there could be a possibility of dividends for FY18 based on the performance for the year, which could result in an upward push to its share price.

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