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Thursday, October 15, 2015

Hapseng: Nothing succeeds quite as well as success!

In September 2013, I called a BUY on Hapseng because the price of Hapseng broke above its recent high of about RM2.00 while Hapseng-WA & broke a strong resistance of RM0.54-0.55. These are clearly shown in the charts below.


Chart 1: Hapseng's monthly chart as at Oct 15, 2015 (Source: ShareInvestor.com)


Chart 2: Hapseng-Wa's monthly chart as at Oct 15, 2015 (Source: ShareInvestor.com)

To be frank, I am not sure what's really driving the share & warrant prices through the roof. Haoseng's latest quarterly result was pretty good (here) but it includes an exceptional gain of  RM508.8 million arising from the disposal of Hap Seng Capital Pte Ltd. If we do not adjust for this huge gain, and simply annualized the earnings (i.e. multiply by 2) to arrive at the FY2015 earnings, then the trend of the company's earnings and CAGR would be phenomenal. See Table 1 below.


Table 1: Hapseng's last 12 years' P&L, with FY2015 earnings computed using simple annualization of unadjusted 1H2015 earnings

If we were to exclude the exceptional gain, then the recurring earnings for 1H2015 would drop from RM668 million to RM159 million! If we annualized the earnings to arrive at FY2015 earnings, the numbers are horrific! Diluted EPS would adjust to only 9.12 sen. See Table 2 below.


Table 2: Hapseng's last 12 years' P&L, with FY2015 earnings computed using simple annualization of adjusted 1H2015 earnings

Alternatively, if we were to exclude the exceptional gain and estimate that the 2H2015 earnings were similar to 2H2014 earnings, then the earnings for FY2015 earnings would still be lower than those shown on Table 1 but better than those shown on Table 2. Diluted EPS would adjust to only 15.18 sen. Check out the numbers below.


Table 3: Hapseng's last 12 years' P&L, with FY2015 earnings being the aggregate of the adjusted 1H2015 earnings & the actual earnings for 2H2014 (assumed to be the earnings for 2H2015).

Hapseng (closed at RM6.10 today) would be trading at a diluted trailing PER of 13 times the unadjusted last 4 quarters' EPS of 46.8 sen (or a diluted trailing PER of 19 times the adjusted last 4 quarters' EPS of 32.2 sen). Current year earnings & PER as per the 3 tables above have been summarized below:



It would be imprudent to compute FY2015 EPS based on a simple annualization of the unadjusted 1H2015 earnings. It could be unfair to compute FY2015 EPS based on a simple annualization of the adjusted 1H2015 earnings. I think it is probably generous to compute FY2015 EPS based on the aggregate of the adjusted 1H2015 earnings & the actual earnings for 2H2014 (assumed to be the earnings for 2H2015).

Let's be generous. Based on an estimated EPS of 15.18 sen for FY2015, Hapseng's PER would be 40 times. I think it is fair to say that Hapseng is handsomely valued.

Based on the above, I think it is advisable to TAKE PROFIT on this stock.

Note: 

In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Hapseng.

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