56% Profits Hidden in This Math

I’ve used Tiger Balm for years, first introduced to it by my mother-in-law back in the 1980s, when my wife and I were still dating.

The stuff is amazing. I rub a bit onto my temples and the back of my neck, and it quickly counter-attacks the violent headaches I sometimes get.

But this story isn’t about Tiger Balm, per se … it’s about Haw Par Corp., the most mispriced, undervalued stock I’ve come across in a long while.

Haw Par is the Singaporean company that makes Tiger Balm. And the stock today represents a rare opportunity to take advantage of a mistake the market is making in the way it values the company’s shares.

That’s not my opinion. It’s a mathematical fact. Let me explain…

You see, Haw Par is one of those companies that the investment community isn’t sure what to do with. It’s relatively small – just US$1 billion in market capitalization – and ignored by investment-research firms, so it gets little promotion. It operates a disjointed collection of businesses, ranging from medical to underwater theme parks, to office towers. And it owns stakes of between 4% and 5% in other publicly traded companies.

It’s that collection of other publicly traded companies where the opportunity lies for investors.

The value of the publicly traded stocks inside of Haw Par is worth nearly 30% more than the stock’s current price. That means you’re getting blue-chip stocks that trade on the Singapore exchange for a huge discount – which means you’re getting Tiger Balm and the rest of Haw Par’s businesses for free.

In essence, Haw Par is a pure play on undervalued assets. In Wall Street parlance, the sum of the parts is worth more than the whole. Let me show you the break down, and why this stock represents such a profitable opportunity for investors with the patience to allow Haw Par’s underlying value to emerge …

The Simple Math of Underappreciated Value

Haw Par owns big stakes in three, large Singaporean companies: United Overseas Bank, UOL Group, which owns real estate and hospitality businesses globally, and property-development firm United Industrial.

Here’s what that looks like:

So, inside of Haw Par you find publicly traded shares worth a combined S$1.85 billion.

Yet, Haw Par’s entire market cap is just S$1.44 billion – a 29% discount on the value of those publicly traded shares Haw Par owns.
On a per-share basis, it’s easier to see. Haw Par’s stock today trades for S$7.25, while the combined value of those public shares is S$9.33.

For every S$7.25 you spend, you’re getting S$9.33 worth of stock in three blue-chip Singapore companies … and as a Cracker Jack-like surprise, the market is giving you, for no cost, the globally known Tiger Balm business, two theme parks in Singapore and Thailand and three commercial towers in Singapore, Hong Kong and Malaysia.

If nothing else, Haw Par could sell off all of those public shares and return to Haw Par shareholders more than S$9 of value in a dividend. If the company did that, the market would suddenly be forced to value the rest of the business – Tiger Balm, the parks and the commercial towers.

The question is: What are those disparate parts worth?

Undervalued by More Than 56% Today

I did a really quick, back-of-the-envelope calculation based on the profit contributions of each of Haw Par’s divisions. I looked at numerous comparable companies in each industry – healthcare, entertainment, property development – to gauge how the market is valuing publicly traded companies in those sectors. And then I gave those valuations a sizeable haircut, just to be overly conservative.

By my very rough estimate, the combined value of Haw Par’s operational businesses is somewhere in the S$2.00 range.

All told, the stock now trading at just S$7.25 is worth, in total, somewhere north of S$11.33 a share – S$9.33 in publicly traded stocks and S$2.00 from the business operations. That means this stock is undervalued by more than 56% today.

Haw Par, to me, is quite simply one of the best buys I’ve found. The shares might not surge immediately, but the value is clearly there for patient investors. The stock trades in Singapore under the symbol HPAR. You can buy the shares all the way up to S$8 and still collect a big profit once the value is unleashed.

Oh, and as a small sweetener, the shares offer an annual yield of 2.8% while you wait for the value to emerge.

Until next time, stay Sovereign …

Jeff D. Opdyke
Executive Editor, The Sovereign Individual

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