SINGAPORE - The name Hong Fok Corporation may not necessarily endear itself to many in the market.

The listed property company&rsquo s directors are reputedly among the best paid in Singapore. Yet it has not been known to be particularly engaging or generous with shareholders.

In 2022, the mainboard-listed property player did very well, thanks to some timely revaluation of assets. It posted a 424 per cent surge in net profit to $234 million for the year ended Dec 31, 2022. Around $197 million of this came from revaluation of its properties.

However, investors were rewarded with just one cent in dividend, amounting to a grand total of $6 million &ndash which some cynical market insiders observed was equivalent to the directors&rsquo remuneration paid to the company&rsquo s two joint CEOs. One needs only to read various investment forums to get a feel of how market players generally regard Hong Fok.

But one should not sweat the small stuff. Look at the big picture instead.

This is a company that sits on a gold mine of prime property assets. The jewel in its crown is The Concourse, a 41-storey, 700,000 sq ft building at 300 Beach Road in an area that is seeing massive rejuvenation.

In recent years, the area encompassing Rochor Road, Beach Road and Ophir Road &ndash and sitting adjacent to the exotic and exciting Arab Street precinct &ndash has been steadily transforming into a new hot spot for offices, commerce, entertainment and residences. 

This started in 2015 with the South Beach project, then developed further in 2016 when the Duo development arrived. The newest projects in the works are Guoco Midtown, followed by the redeveloped Shaw building. This will be followed by upgrades to Golden Mile Complex, slated to start later in 2023.

According to the latest available data, office rentals at The Concourse start at around $8 per sq ft (psf), while at the Duo, the rent is almost 50 per cent higher at around $12 psf. 

The chances of upward rental revisions are high as the other new developments come on stream over the coming year.

But here&rsquo s the skinny.

Hong Fok is currently sitting on around $3.4 billion in property assets (see table). Based on its 642 million shares,  its net tangible asset (NTA) per share works out to around $3.45.

Yet the stock &ndash at its current price levels of 97 cents to $1  &ndash trades at a 70 per cent discount to NTA per share.

For perspective, that is like buying The Concourse at just $451 million, or $644 psf per share.

It is also a 64 per cent discount to the 2017 transaction in the area, which saw Lian Beng and Apricot Capital acquiring Wilkie Edge for $280 million, or $1,812 psf. Also, that deal was done when property prices were much lower.

It is also worth bearing in mind that GuocoLand paid $1.62 billion for land alone for its Midtown development, which will yield 950,000 sq ft of built-up area.

 

Look at this from another perspective: If The Concourse were sold at just 20 per cent above valuation, the grand total of $1.93 billion would be enough to wipe out all of Hong Fok&rsquo s borrowings, and there still would be enough left to pay a special dividend of $2 per share to its shareholders.

Even after such a sale, the company would still have $1.78 billion worth of assets left on the balance sheet.

According to filings, the company and members of the Cheong family bought back shares some 77 times last year, paying between 90 cents and $1.03 per share. So far, they have bought back 50.2 million shares. There has been some speculation as to what is behind the large number of share buybacks.

Here&rsquo s the thing.

The Cheong family may not exactly be the darlings of the market, but one must acknowledge that they are savvy investors who have steadily grown the company and its portfolio. Generous or not, they run a tight ship, and do not take unnecessary risks in the market. This is not surprising, given that the company is the family&rsquo s nest egg.

Still, what we have here is a massively undervalued stock which anyone with little or no property stock exposure could safely consider for his portfolio.

As one wag put it, if you pay just under 30 per cent of the net value for the worst house on the street, you will still make money. Just from a valuation standpoint, Hong Fok and its jewel in Beach Road are probably that house. 

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SINGAPORE - The name Hong Fok Corporation may not necessarily endear itself to many in the market.

The listed property company&rsquo s directors are reputedly among the best paid in Singapore. Yet it has not been known to be particularly engaging or generous with shareholders.

In 2022, the mainboard-listed property player did very well, thanks to some timely revaluation of assets. It posted a 424 per cent surge in net profit to $234 million for the year ended Dec 31, 2022. Around $197 million of this came from revaluation of its properties.

However, investors were rewarded with just one cent in dividend, amounting to a grand total of $6 million &ndash which some cynical market insiders observed was equivalent to the directors&rsquo remuneration paid to the company&rsquo s two joint CEOs. One needs only to read various investment forums to get a feel of how market players generally regard Hong Fok.

But one should not sweat the small stuff. Look at the big picture instead.

This is a company that sits on a gold mine of prime property assets. The jewel in its crown is The Concourse, a 41-storey, 700,000 sq ft building at 300 Beach Road in an area that is seeing massive rejuvenation.

In recent years, the area encompassing Rochor Road, Beach Road and Ophir Road &ndash and sitting adjacent to the exotic and exciting Arab Street precinct &ndash has been steadily transforming into a new hot spot for offices, commerce, entertainment and residences. 

This started in 2015 with the South Beach project, then developed further in 2016 when the Duo development arrived. The newest projects in the works are Guoco Midtown, followed by the redeveloped Shaw building. This will be followed by upgrades to Golden Mile Complex, slated to start later in 2023.

According to the latest available data, office rentals at The Concourse start at around $8 per sq ft (psf), while at the Duo, the rent is almost 50 per cent higher at around $12 psf. 

The chances of upward rental revisions are high as the other new developments come on stream over the coming year.

But here&rsquo s the skinny.

Hong Fok is currently sitting on around $3.4 billion in property assets (see table). Based on its 642 million shares,  its net tangible asset (NTA) per share works out to around $3.45.

Yet the stock &ndash at its current price levels of 97 cents to $1  &ndash trades at a 70 per cent discount to NTA per share.

For perspective, that is like buying The Concourse at just $451 million, or $644 psf per share.

It is also a 64 per cent discount to the 2017 transaction in the area, which saw Lian Beng and Apricot Capital acquiring Wilkie Edge for $280 million, or $1,812 psf. Also, that deal was done when property prices were much lower.

It is also worth bearing in mind that GuocoLand paid $1.62 billion for land alone for its Midtown development, which will yield 950,000 sq ft of built-up area.

 

Look at this from another perspective: If The Concourse were sold at just 20 per cent above valuation, the grand total of $1.93 billion would be enough to wipe out all of Hong Fok&rsquo s borrowings, and there still would be enough left to pay a special dividend of $2 per share to its shareholders.

Even after such a sale, the company would still have $1.78 billion worth of assets left on the balance sheet.

According to filings, the company and members of the Cheong family bought back shares some 77 times last year, paying between 90 cents and $1.03 per share. So far, they have bought back 50.2 million shares. There has been some speculation as to what is behind the large number of share buybacks.

Here&rsquo s the thing.

The Cheong family may not exactly be the darlings of the market, but one must acknowledge that they are savvy investors who have steadily grown the company and its portfolio. Generous or not, they run a tight ship, and do not take unnecessary risks in the market. This is not surprising, given that the company is the family&rsquo s nest egg.

Still, what we have here is a massively undervalued stock which anyone with little or no property stock exposure could safely consider for his portfolio.

As one wag put it, if you pay just under 30 per cent of the net value for the worst house on the street, you will still make money. Just from a valuation standpoint, Hong Fok and its jewel in Beach Road are probably that house. 

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