In 1956, the hit song Love Me Tender by Elvis Presley from the movie of the same name topped the Billboard charts. The song was re-recorded, covered and performed subsequently by just about everyone from Nat King Cole and Frank Sinatra to Andre Bocelli over seven decades.
Like an excellent blue chip, this evergreen song continues to pay dividends even if Elvis’s estate — estimated to be around US$500 million ($663 million) — is currently contested following the premature passing of his daughter Lisa Marie on Jan 12.
Graceland — the estate — is still a popular attraction in Memphis, though one would imagine if it only relies on the evergreens from 50 years ago, those fans may thin out alongside its relevance. The 2022 Biz Luhrmann movie Elvis, starring Tom Hanks, may give it a shot in the arm, but only just.
In the stock market, not many companies or stocks can withstand the test of time if they don’t reinvent themselves, both in business and leadership. That is particularly challenging for family-owned businesses.
The Chinese say wealth does not last beyond the third generation and elicits either painful or gleeful responses depending on whose perspective. Having a publicly listed company with external shareholders and independent directors may help foster changes to stay relevant. But that itself is no guarantee that they are built to last.
For some families, listing a company may make it easier for the patriarch or matriarch to pass on intergenerational wealth tax-efficiently. Across generations in Asia, as family-owned businesses and shareholdings split or empires fracture, it has created opportunities for long-suffering minorities to realise the value of their investments (often with market values traded way within the value of the assets of the listed company) when a visionary scion starts a transformation, or professional managers get hired to drive growth and extract value.
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Some, like Hwa Hong Corp, recently resulted in privatisation, but only after an open tussle among relatives. Quite a few did so with the backing of private equity firms, such as Eu Yan Sang International, which saw much more value after cleaning up the shareholding register.
In most cases, the independent financial advisers appointed to weigh the offer’s merits would give their nod accordingly. On the other hand, minority shareholders would almost certainly hold the view that the offers are not good enough.
More often than not, the offers are good exits, for unless one has patience and spare cash, it is probably not a good idea to sit on shares in a private company where there are even fewer protections for minorities.
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It is one thing to hope for minority shareholders of CK Tang to look forward to the realisation of Tang Plaza assets as they turned down the privatisation offer in 2009. However, those expecting a windfall with a Hong Kong or China listing with the privatisation of an entity here can find themselves in a Heartbreak Hotel.
Always On My Mind
I promised before the Lunar New Year that I would take some of the downtimes to try and uncover gems and not merely passively go long on the Straits Times Index (STI) — not that it has not been rewarding, given its global trend-busting move last year coupled with an attractive 4% yield.
In that search, I recognised several companies and stock names from when I was a kid helping my dad in Pacific Union’s dealing room in the 1980s. It got me curious to understand how some of these companies may have withstood the test of time and economic transformation, the onslaught and competition from oppressive government-linked companies and stayed listed (even with low liquidity in some instances).
On the surface, they are counters with excellent value. But will they turn out to be value traps instead? Or have they undergone silent revolutions that we have missed? Given my interest in history, the gems I discovered also helped me re-learn a good part of Singapore’s history. First, Boustead Singapore. The legacy from Edward Boustead’s founding in 1828, the business spans from trading commodities to shipping and distribution of consumer goods. It was split three-ways post war: London, Malaysia and Singapore. The Singapore entity was listed in 1975 on the then Stock Exchange of Singapore. With real estate and assets mainly in Malaysia and staying in that entity, the grand old name was acquired by Wong Fong Fui in 1996 and became an infrastructure-related specialist engineering and geospatial business.
In April 2015, Boustead Projects, which focuses on real estate, was spun off Boustead Singapore for its separate listing, with the latter directly holding 54.87% and Wong controlling a total deemed stake of 74.16%. Some eight years on, Boustead Singapore now wants to take thinly-traded Boustead Projects back. On Feb 6, an offer at 90 cents per share was announced, valuing Boustead Projects at $282 million. While the offer price of 90 cents is 7% above its prior market close, it is just 71% of its NAV of $1.265 per share as at Sept 30, 2022.
Boustead Singapore trades at an undemanding 13 times P/E and has a market value of around $430 million. If the offer goes through, it may receive a small windfall. The sector trades at a higher P/E in general, and any future sale will include assets to be acquired (at a discount) to back it up. In addition, its yield of 4.5% is more attractive than the current T-bill rates now in vogue. As such, will there be a final act before its bicentennial anniversary? Will this be its final corporate action as a listed company?
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Next, from 1887, is The Straits Trading Company. A transformation from a loose collection of businesses and cross-shareholdings by Chew Gek Khim, including a successful foray into real estate in partnership with John Lim of ARA (now acquired by Warburg), has seen shareholder value created and capital recycled, and distributions growing.
With a market cap of around $1 billion, a dividend yield of 3.1%, and increasing liquidity following placements and distributions in specie to increase the free float in recent years, a trading 46% of $5 book value appears attractive, especially at a P/E of 4 times! It might take some time to realise the total value (as a sale appears unlikely), but even privatisation at the Boustead Projects type of valuation could see a 50% uplift from current prices.
Then there is 1899’s Cycle and Carriage, best known locally for its Mercedes distributorship. It is now part of the Jardine conglomerate and trades as Jardine Cycle & Carriage, an STI component stock. It typically trades below the index’s PE but with a higher yield of 4.4%. For international investors, Jardine C&C is a proxy to the region, with its interests in Astra in Indonesia, which is set to enjoy Asean’s most significant demographic dividend in years to come.
Can this company play catch up to the STI and lead with future growth as its environmental, social, and governance (ESG) narrative gets delivered and transforms alongside the Mercedes hybrids we see more off on the roads? At the Jardine group level in the last few years, corporate actions by Jardine Matheson Holdings may indicate a greater focus on shareholder value. There is an even chance as the rate cycle, likely to moderate in the coming year, cyclical stocks like Jardine C&C — insulated from US and Chinese macro politics — may outperform the local banks on the index.
All Shook Up
A few “newer” companies also make my cut. Haw Par Corporation was corporatised and listed in 1969 and went through its share of ups and downs with the sale to Slater Walker a year after listing. The banking crisis of 1973 to 1975 led to a bailout of its parent by the Bank of England, and in the fallout, Wee Cho Yaw took a controlling stake of 32% in 1978.
The thinly traded stock hovers at around 35% below its NAV of $14.55, giving a yield of around 3%. The business has a market cap of around $2.3 billion and unrealised real estate value embedded beyond its healthcare product and brands.
At 17 times P/E for healthcare, it is not expensive for the sector. A bit of tiger balm may soothe the patience of shareholders looking for more excitement from the long-serving board and management. With Wee on the board since 1975 and chairing the company since 1978 — a whopping 45 years — will it be time for another wind of change?
Finally, we have Frasers Property. Founded in 1963 as the real estate part of what was fondly remembered as Fraser & Neave before getting acquired by Thai tycoon Charoen Sirivadhanabhakdi, who already controls regional alcohol giant Thai Beverage. His son Panote Sirivadhanabhakdi is firmly at the helm now.
With an 89% controlling interest and such limited free float, it is not surprising that the stock trades at 34% of its NAV and a P/E of only 4. There is limited value in using the vehicle for fundraising with such a little float, and the group also has the flexibility of raising capital if needed via the various REITs it already controls in Singapore and Thailand. Their attempt to privatise Frasers Hospitality Trust last year failed by a whisker to meet the threshold, and business continues. With the potential IPO of Thai Bev’s beer business still to come, would capital raised be channelled to a discounted take out of Frasers Property?
It’s Now Or Never
True; I am sure there have been many others before me, looking through the number of other “discounted” opportunities only to be stuck in value traps of illiquidity as lack of urgency, tepid growth plans, or sheer inertia have kept minorities waiting for a long time. Hong Fok Corporation, whose key asset is The Concourse along Beach Road, trades at less than a third of its NAV of $3.10. The company, controlled by the Cheong family, routinely gets talked about in this breath, though it has been buying back shares of late.
Perhaps one other tea leaf could be awaiting the next generation of family leaders to rise and be given more rein to make a change. If they succeed and get recognised by the market, they can create even more value with a sale. When they appear more in The Edge Singapore than Tatler, that could be Valentine’s gift pack waiting to be unwrapped! Enjoy.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award. He serves as chairman of the Community Chest Singapore
