My Thoughts on Hotung Invesment Holdings

Hotung Investment Holdings is a investment company listed on the Singapore Stock Exchange and is based in Taiwan. In summary, it is a venture capital investment company. They focus on investing in start-ups and SMEs, majority in the biotechnology and e-commerce industries. The companies that they invest in are mainly in Taiwan and China.

Their investment ventures in China is a good thing. Taking a look at statistics, Unicorns (a term for private companies valued at more than a billion dollars) are increasing at a rapid pace internationally. The number of Unicorns located outside of US is also increasing year on year.

Percentage of Unicorns outside of US
2013	2014	2015	2016
30%	37%	53%	58%

Data extracted from CNBC

Half of the top 10 Unicorns outside of the US are located in China. This shows how China is growing to become a global innovation hub. In fact, this article by TechNode mentions that Shen Zhen might be the next Silicon Valley.

This post isn't about the world of start-ups, so let's jump into a more in-depth look at Hotung Investment Holdings. I chanced upon Hotung through POEM's fundamentals tools. Taking a look at the group's past 5 financial years, it can be observed that there is little growth.

All figures are in NT$

The financials of the company show that the figures are fluctuating around the average across the 5 years and there has not been any substantial growth. If we were to compute the growth rate of its NAV since 2012 to 2016, we get 0.73% compounded per year.

Before you close your browser and throw all idea of investing in Hotung out the window, I urge you to keep reading till the end of this post. Previously reviewed by Vatsa on his blog, the calculated growth rate of its NAV since 2009 to 2014 is 0.13%. Taking this almost non-existent growth rate into consideration, we can see that the growth rate of the comany, albeit very slowly.

Looking from a glass half full perspective, it is worth noting that the company has been consistent in maintaining its financials. Besides that, the company does not have long term debts and has a huge warchest under its bed.

The current share price SG$1.835 (as of 02 June 2017) gives:
1) Price-to-Earnings(PE) Ratio - 12.98
2) Price-to-Book(PB) Ratio - 0.57
3) Dividend Yield - 7.86%

PE ratio is currently neither over nor under-priced. Due to its venture capital business model, it is reflected through its PB ratio of 0.57 that the market has discounted the risk of its assets due to the risky business nature of the company. However, if the company is able to generate the true value of its assets, the share price of this counter should climb towards its value.

Finally, the main reason I was attracted to this stock was its dividend yield. Since 2012, the average dividend per share (DPS) is NT$3.181. For FY 2016, the company has announced a dividend of NT$3.1/share. Although below average, it still works out to be 7.86%.

Fundamentally, Hotung Investment Holdings is an attractive company to invest in given its steady financials, zero long term debt, huge amount of cash, stable high dividend yield and low PB ratio. In addition, the company is authorised to repurchase up to 9,720,378 shares (10% of issued ordinary share capital). Till date, they have been carrying out daily share buy-backs since 22 May 2017.

Given its risky business nature and little growth, it will be good to wait for its price to fall below SG$1.60. At SG$1.60, the PE ratio would be 11.32 and would yield a dividend slightly over 9%. I feel that with the above, Hotung Investment Holdings is a good stock to add to your dividend portfolio.

I am currently vested at $1.455.