Deep-dive 2020-1: Haw Par Corporation Ltd

Tiger Balm is a unique consumer franchise with a legendary history.

The product is used to relieve pain: headaches as well as muscle sprains and aches. And Haw Par's distinctive packaging and tiger logo has almost become associated with the product itself. Even though the product was invented well over 100 years ago, Tiger Balm's recent success is due to a new management team since the spin-off in 2002. Revenues have grown at a ~8% CAGR and the product has a long runway of growth.

Haw Par Corporation itself has more businesses than just Tiger Balm. Shares in United Overseas Bank, United Overseas Land and properties across Singapore and Malaysia makes the company seem like a family holding company. Capital allocation has been seen as less than ideal, with almost half a billion Singapore Dollar stuck on the balance sheet earning very little interest. There are signs that capital allocation will improve for the better. Management has recently purchased large amount of stock in the open market. In 2019, the company paid a special dividend of SG$0.85/share, close to 10% of the current market cap. And Chairman Wee Cho Yaw is 91 years old. His lack of involvement in the company may signal a change in the corporate strategy.

Meanwhile, the Tiger Balm business keeps growing with returns on capital above 60%. The hotel management business in UOL and the banking business UOB is suffering due to Coronavirus-related travel restrictions and lock-downs. But these issues are short-term in nature.

A sum-of-the-parts valuation shows a +111% upside to intrinsic value. One can therefore view the stock as a solid high-single-digit grower with additional upside if and when the share price converges with intrinsic value.

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