Out of these 3 stocks, I like Allianz the most. Allianz’s 5-year return is not as impressive as RCE, but it is still much better than HLIND. On unadjusted basis, its return was 21% (from RM12.50 to RM15.14). After dividends are included, it returned 54% (from RM9.81 to RM15.14). So, unlike HLIND, a 5-year investment in Allianz has at least earned the cost of capital for its shareholders!

More importantly, just like RCE Capital, Allianz has been returning excess cash to shareholders in increasing amount. Dividend per share has increased from 40 sen in 2018 to 85 sen in 2022, and is still increasing. So the market has taken notice recently. Share price has been moving upward in tandem.

Of course, there are many other good investment opportunities besides these three companies. I mention these three for illustration purpose – that good businesses and good management alone are no guarantee for good investment return. The Board has to be shareholders oriented, and is willing to share its fruits with the minorities!

Therefore until HLIND board shows sign by being more (minority) shareholders centric, I will continue to underweight HLIND and overweight Allianz.

On the other hand, RCE Capital was a pleasant surprise. For several years, the growth was rather weak at low single digit. RCE profit records are not superior to HLIND. But one big difference is RCE Board was willing to return excess capital to shareholders, thereby improving its capital efficiency as illustrated in its robust ROE.

After adjusting for the bonus share issue, annual dividend was increased from 3 sen in 2017, to 4 sen in 2018, 5 sen in 2019, 6 sen in 2020, 7 sen in 2021, and 9 sen in 2022. And there was another 18 sen special dividend in late 2022.

The market took notice of RCE’s good corporate governance. On a 5-year basis, share price grew 163% (from RM0.83 to RM2.22) on unadjusted basis. After factoring dividend, share price actually grew 296% (RM0.56 to RM2.22)!

I have reservation about HLIND’s cash hoarding right from the beginning. I also view HLIND as being less transparent versus the other two. For example, in its annual reports it would lump performances of different businesses together instead of providing breakdown. Unlike the other two, it also did not open to analysts through regular results updates.

Therefore it was not a surprise that HLIND share price remained range bound. In fact, on a 5-year basis (week 7-Aug-2018 to today), even after adding back dividends received, the total return was practically zero (RM8.98 to RM8.99). In fact, if dividends are excluded, the return would be -23% (RM11.70 to RM8.99)!

When I first commented on i3 a few years ago, I benefited from the insights of people like kywoo. Kywoo liked three companies – Hong Leong Industries, RCE Capital, and Allianz. It happened that I also liked them. Over the next two years we discussed the merits of these stocks on and off.

The three stocks had several similarities – strong business fundamentals, domestic markets, good management, mid/ small cap, continuous records of earnings and dividend payment over at least ten years, and the valuation was also not demanding.

But they also have differences – HLIND and RCE are controlled by local tycoons while Allianz is a MNC. REC had a smaller market cap then. It also operated in a niche market of personal loans to civil servants.

All time high was RM16.9 based on closing price on 3 Jan 2020. However, on dividend adjusted basis, today closing at RM14.94 is also all time high. The company has paid over RM3 in dividend in less than 4 years.

@DividendGuy67, thank you for your comments. Yes, this is my main concern with HLIND, that Quek has never intended to share the cash.
The track records of other Hong Leong companies are not exactly reassuring. I've mentioned a few examples earlier.

Fortunately, listing rules dictate that the controlling shareholder must seek EGM approval for any related party transaction that is above 5% of revenue/ profit/ asset value ...and the controlling shareholder has to abstain from the vote.
(They could still bypass minority shareholders' votes if RPT value is just below 5%, like how Genting Malaysia bailed out Empire Resorts by buying from Lim family's private asset.)
The key is the minority shareholders must be smart enough and united in rejecting any unfair deal. Such unity usually breaks down if the share price has been declining for a few years, as new shareholders/ traders may happily accept a privatization offer at 20% premium to prevailing share price, even though the offer price is a steep discount to the company's long term value. Recent example includes MMC privatization.

Fortunately, in HLIND case, the company performance has been good and consistent. I don't see any near term possibility for share price to drop to too low a level. Quek could not, for example, privatize at RM9 when share price drops to RM7
That doesn't stop Quek from trying to privatize at RM11 at current price of RM9. But I doubt it will succeed.

There could be other tricks that I'm not aware of. But as long as the Board is willing to pay dividends (dividends were paid even in mid 2020, albeit with a cut from 35sen to 25sen), the downside is limited.
To be prudent, I ignore the net cash in my valuation (you're right it's RM1.6b now; I wrote RM1.4b which should be 2022 net cash).
I don't like the RM400m investment in tile manufacturing, where there has been little explanation. But given that I've ignored the RM1.6b cash, I shall ignore RM400m too.
While 10X PE and 6% dividend yield may not be fantastic, it's good enough. I will only think about what to do with my holding (to sell or to hold) should market changes its mind, and for no good reason pushes it to RM10-11 range.

Fair enough. Afterall each of us has different return expectation and risk tolerance.

Dividend has grown modestly from 45sen in FY17 to 57sen in FY22, representing a CAGR of 4%. The current dividend yield at 6.3% implies limited downside – the reason that I continue to hold.

I will hesitate to add until there are signs of change by the Board.

I fully agree that this stock has a place within a dividend stock portfolio. My only gripe is its full potential has not realized.

The market may overlook a hidden gem for a few months, or even for a few years. But for 7 years? Note the share price has been going sideway since 2017.

Today a company fundamental data is easily accessible through various stock screeners. Not to mention professional investors who could access their Bloomberg terminals. How could a hidden gem be overlooked for 7 years in a competitive market?

More likely is, while this company has good potential, it also has defects (A more polite term will be it lacks the catalyst to unlock the value)

Yes, the company free cash flow runs into several hundred millions a year. It has accumulated 1.4b net cash. These are all very impressive. But holding idle cash incurs opportunity cost. In a stock market where cost of equity is about 10% per annum, cash gives only low single digit return.

This is the main reason that the Return on Equity has been falling from about 20% in the period of FY17 to FY19, to about 16% in FY21, and less than 15% in the past 12 months.

One major missing catalyst is when will the company better utilize the idle cash, through investment and/or return to shareholders. The least the management could do is to clearly communicate their intent to the investment community.

Clear communication is not self-promotion or inflating share price. Clear communication is actually being responsible to all shareholders - reassuring the minority shareholders that the Board and management have their best interest at heart, and outline what is being done to move the company forward.

Therefore, I do not see current situation as waiting for this jewel to be recognized by serious investors. Minority shareholders already have 7 years to “quietly and slowly” buy more. Surely 7 year is more than enough time to accumulate any position!

I see the situation as waiting for the Board and management to take steps to unlock the company value. They should take a leaf from YTL Power, where management has actively reached out to analysts and fund managers since last year to improve understanding. And now look at the results.

In a PE valuation model, share price = EPS * PE multiple.
It will take EV a long long time to displace ICE vehicles. So EPS will not be impacted, at least initially.
However, the impact to PE multiple can be immediate
This is happening to BAuto now. Despite solid market demand, its share has been de-rated by investors. 15% fall in a week

HLIND should take the lesson and prepare itself.
1. Work out a credible e-bike roadmap and communicate to the market
2. Clearly articulate its non-motorbike investments to the investing community
3. Return its mountain of idle cash to shareholders

This could re-rate the stock overnight. Surely the controlling shareholder also understand. The question is, are they willing to act on it?
Until they do, the institutional investors are standing at the sideline, despite Kenanga's recent coverage.

I like companies that publish their QR early (except Top Glove)

While car and motorcycle markets are different, HLIND shareholders need to keep an eye on how the local EV market evolves. The launch of Tesla's Model Y this week and BYD's Dolphin next week already leave their marks on BAuto share price.

Get from BursaMarketplace

unicornbird, definitions of revenue and profits change under accounting standards. Frankly I don't know how to compare/ explain. To better understand life insurance, you need to look beyond just revenue and profit

ICPS should be more valuable if held for long term due to higher dividends. But there should be a discount if it's held for short term because of poor liquidity. Given the ICPS premium versus ordinary shares has expanded a bit, I assume the company has drawn interest of some long term investors recently. But likely retail investors due to the small trading volume.

wsb_investor, thank you for sharing.
I read the slide. Red bars represent IFRS17 operating profits, whereas blue bars represent IFRS4
The operating profits for Indonesia is USD0.2b under IFRS17, versus USD0.3b under IFRS4. Similarly, Malaysia is USD0.3b under IFRS17, USD0.4b under IFRS4. Operaitng profits at both countries have declined under IFRS17.

For the majority of consumers, yes.
But for forward looking investors, their focus is on the first 5% market share. After crossing the 5% mark, e-bikes will dominate given the self sustaining momentum and economy of scale.

It took only a few years for the inferior digital cameras to displace film cameras. Kodak, despite invented digital cameras, was wiped out.
https://www.televisory.com/blogs/-/blogs/slump-in-digital-photography-are-smartphones-to-blame-

Closer to home, QL share price was boosted from RM2 to RM5 (split adjusted) between 2017 to 2020 by its tiny but fast growing Family Mart franchise. The business only crossed 10% of group revenue recently.

Maybe Hong Leong Yamaha will continue to dominate e-bike market. But it doesn't hurt if the management could articulate its strategy and roadmap to the investment community. Unless, of course, the Quek family doesn't care about share price.

Thames Water faces financial trouble.
https://www.reuters.com/world/uk/uk-working-contingency-plan-indebted-thames-water-sky-news-2023-06-28/

Among the water companies, Wessex is one of the best, if not the best, in terms of operating performance. It scored the highest customer satisfaction in 2021-22
https://www.ofwat.gov.uk/wp-content/uploads/2022/12/WCPR_2021-22.pdf

https://evbn.org/vietnam-electric-motorbike-market-makes-waves-1677801083/

The government will promote e-bikes not by restricting or penalizing traditional motorbike sales, but rather through subsidy, tariff exemption and other incentives for e-bikes. So it won't be a vote loser. However, it will take a while for the infrastructure and regulations to be in place, buying time for Yamaha.

Given Yamaha's dominance in Malaysian market, anything less than market leading position in e-bikes will not augur well. Vietnam offers good lesson.

Vietnam market leader Honda and Yamaha in were leapfrogged by multiple e-bike competitors. The current e-bike leader is VinFast under the Vingroup.

When the market shifted to electric, newcomers will disrupt existing order. I'm sure HLI is watching closely. But it is also dependent on Yamaha.

Extracted from CIMB report on YTL
" it could unlock value over the next few years by paring down stakes in assets such as Power Seraya and Wessex Water via a possible listing as investors continue to discount its RM72bn asset base (as at FY22)."

This is the suggestion by dragon328!
Are you their banker !!?

E bikes are not popular now. But great forces are pushing the market towards electric.
Government may offer incentives/ restriction in line with its climate change pledge. Malaysia has pledged to reduce carbon intensity against GDP by 45% by 2030 as compared to 2005 level.
ESG pressure could also force Grab and Foodpanda to promote e-bike riders through differentiated rates. So are ESG funds if HLI were to attract institution money.

Gaining a foothole in this future market is important. The first electric cars from BYD in 2010 looked ugly too.
http://www.electric-vehiclenews.com/2010/05/byd-e6-electric-taxis-hit-roads-in.html
But over time, as technology improves, even Ferrari will go electric (expected in 2025).
Yamaha cannot afford to repeat the mistake of Japanese car companies. If Yamaha has a good range, HLI can formulate a roadmap and have a good story to tell investors. Investors are forward looking. The changes in future market composition gets reflected in today valuation.

Can Neo help Yamaha to maintain its market share in the future?
https://www.e-scooter.co/yamaha-neos/

But it's investing RM400m in Guocera. To realise a good disposal value, the new factory has to be up and the business turned around, At least a few years from now.

Let's see if Kenanga's coverage could stimulate institutions' interest. Now I wonder whether the Dato's Jim Khor's buying could be related. Kenanga analyst could have made a company visit before they initiated coverage.

In the foreseeable future, I’m confident that HLI’s Yamaha franchise will continue to generate solid free cashs to support dividends. The current DY at above 6% is respectable.
Beyond that, anything is possible. When it happens, I just hope everyone gets a fair deal.

I've finished watching TTB's YouTube. His explanation is sensible.

Anyone interested on the Ringgit value may also check out The Edge Tong's Portfolio published on every Sat. The Edge's boss has written a number of articles on this topic, covering both cyclical and structural factors mentioned by TTB.

Apr 10: "What determines the exchange rate and is ringgit fundamentally undervalued?"
Apr 17: "The dichotomy of words and actions on the ringgit"
Latest: "A depreciated ringgit is an indirect tax on savings"

Tong touched on the interplay of these factors
1. interest rate differentials
2. inflation - also how our CPI was understated
3. trade balance - Malaysia has enjoyed 20+ years of current account surplus. But the surplus has dwindled, and how the magnitude is dependent on the commodity prices;
4. investment flow - how our share of FDI within ASEAN has dwindled since Asian Financial Crisis, coevred in depth in his other articles
5. investor confidence - Malaysia imposed capital control twice - in 1998, and a lesser form in 2016; scandal like 1MDB; political stability....
6. government debt, and so on.

So what happened to the cement factory which HLI invested in 2010?
Refer page 14-15 of HLI's 2014 Annual Report, HLI sold its interest to Narra in exchange for Narra's share issuance in 2013-14. Narra was renamed as Hume Industries Berhad, and the shares received by HLI was distributed to HLI shareholders.
The info can also be found in page 12 of Hume Industries Berhad 2015 Annual Report.

So the irony is, although the old Hume Industries owned the cement manufacturing license, their shareholders did not see the factory as the company was privatized in 2010.
Instead the license became Quek's private asset, whcih HLI invested in 2010 via ICPS, and in 2013 sold to Narra (the new Hume Industries today). It was HLI shareholders that got the distribution (although they indirectly funded the factory construction via HLI rights issue in 2010).

Afer the disposal of cement manufacturing interest, and now the disposal of Hume Cemboard Industries, HLI is almost a pure consumer product company (except Goucera, which I don't consider as consumer market).
Unless HLI return its cash to shareholders, it's unclear where the HLI ship will be heading next as it could easily tap into its cash pile for other acquisitions, on top of the RM400m investment in tile manufacturing announced early this year

A summary and follow up on the previously mentioned The Edge article of 2010.
That article mentioned that in early 2010, Quek managed to privatize (the old) Hume Industries. The offer price was RM4.30, raised to RM4.50 later, which was below net asset value of RM5.17. The NTA included 37% of net cash at RM1.90.
In other words, if net cash excluded, Quek privatized the company with NTA of RM5.17 - RM1.90 = RM3.27 at mere RM4.50 - RM1.90 = RM2.60, or about 80% of book value.
By paying RM280m in cash, Quek took full control and privatized the old Hume Industries which had RM362m cash.

But in the same year, he sold several businesses under now private Hume Industries (Malaysia) Sdn Bhd to HLI. HLI acquired Quek's now private assets by raising funds through rights issue.
Among the businesses sold to HLI included Hume Cemboard Industries Sdn Bhd, where the disposal was announced recently.

HLI also subscribed to the ICPS of Hume Cement Sdn Bhd (which was parked under Hume Industries before the privatization). Importantly, by the 6th anniversary of the ICPS issue date, HLI would have owned 75% of Hume Cement which now planned to utilize its license to build the cement factory.
These corporate development was reported in page 12 of HLI's 2011 Annual Report.

3iii, thank you for the sharing. I watched some part of it.
I agree it's good for any investor to pick up knowledge about balance of payment and other factors affecting currency movement.

However, I must point out that, maybe TTB can explain it well, but so are any good economist.
Besides, TTB's job is a value oriented equity fund manager, not an economist, nor a macro hedge fund manager.

If he could apply his macro knowledge to benefits his fund, even tangentially, it will be good for his fundholders.
But clearly he could only talk but fails to connect.
Anyone who could foresee that the Malaysian Ringgit is on a long term downward trend will be very dumb to hold half of his fund in Ringgit for over a decade.

After deducting for tax and management fee, the idle cash in Ringgit basically gives zero return to fundholders in nominal term, and negative return in real term due to inflation and Ringgit deprecation.
A smart manager would have converted the depreciating Ringgit to earning powers, in the form of ownership in good companies, long long time ago!

"ICAP is an excellent buy now, even for the shorter-term"
Really?

If it's such an excellent buy, why does ICAP with its RM100+m idle cash does not buy ICAP itself?
Why does TTB want new investors to benefit, but taking no action to benefit the ICAP old investors?

I'm a relatively new to HLI. I'm not familiar with its early history.
I found this article published in 2010 talking about HLI, Hume Cement, Hume Industries, the earlier round of delisting and Quek's private asset injection and so on.

https://theedgemalaysia.com/article/new-hli-looks-lot-former-hume

Is anyone familiar with that history? Could you share?

I also overlooked the privatization of Tasek by Hong Leong Asia.
This is another example of controlling shareholders picking the best time to privatize at cheap. The price chart showed that Tasek share price was above RM16 during the infrastruture boom in 2015. After several years of share price decline, Hong Leong offered to takeover at RM5.5! After failing, they raised a mere 30 sen to RM5.8 and they succeeded.
Long term minority sharehodlers, faced with the threat of delisting, just threw in the towel.
Nothing against Hong Leong. But generally I won't expect charity from these controlling shareholders. I'll be thankful if they don't take advantage of me.

I overlooked two things in my earlier comments.
One is the amount of net cash. I overlooked the ~30% of MI held by Yamaha Motor Co. Based on Jun-2022 balance sheet, about half a billion of cash sat at subsidiaries, so ~RM150m or about 50 sen per share is to be deducted from my earlier calculation.
But my argument remains unchanged. HLI holds too much cash. If they can't invest wisely, better return to shareholders. Sooner the better.

@Sardin, Hume Cemboard Industries doesn't produce cement. Cement is their input to manufacture cellulose fibre cement boards. They must be paying higher cement price now.
Cement production is under Hume Industries, which enjoys a good run lately.
But I don't follow Hume Industries. I've spent time on Malayan Cement instead.

@TabulaRasa, appreciate your info.
Yes, I had to agree that likely no special dividend, or at least it will take a long time "pending identification of suitable investment opportunities and expansion plans" pointed out by Fabien.
Not that the 20 sen is a lot. I just want to see whether there is a shift in the Board's thinking.

The two businesses have a combined customer base of 3.8m. But customer overlap is only 100+k. They're right that there exists opportunity for cross-selling. Just not sure how easily that this can be done given the need to align incentives.
https://klse.i3investor.com/web/blog/detail/ceomorningbrief/2023-06-23-story-h-247530969-Allianz_Mum_on_FY2023_Dividend_But_Targets_Over_30_Payout_Ratio

Ping An also emphasizes and even regularly reports its agents' cross selling contribution.

For minority shareholders, outcomes A and B are not desirable. A will impose opportunity cost due to the low yielding cash.
B is not only risky, but as a small shareholder I believe I could better invest the cash by myself at other undervalued companies without the need to pay a premium.
As I've argued before, C is the best for minority shareholders. But we don't know when he will personally need the cash. Each year of waiting is one more year of opportunity cost incurred.
Therefore I see the recent disposal as a test. A test on whether they are willing to take care of minority interest though at least a token of special dividend.

However, I feel the more likely outcomes, which are also the path of lesser resistance, are
A. Status quo, maybe with gradual increment in payout ratio depending on current business needs and performance.
B. An acquisition of an adjacent business.
C. Special dividend when he needs cash for other parts of his empire or other personal reasons.
In other words, HLI could serve as a kitty bank. A spare cash which itself is kept with HLB (including its money market funds), to be withdrawn when need arise. One don't expect the kitty bank to work hard to earn return.

What he deems as fair price might be unacceptable to the minorities.
Besides I can think of several reasons why privatization is not likely.
1. Check out the Hong Leong Capital privatization saga. At the age of 81, he probably has no appetie for another round.
2. HLI is not a core component in his empire. Not worth the time and effort
3. The minority interest is under RM1 billion. It is just 2% compare with his net worth estimated at over USD10 billion.
Of course, you may argue that he only needs to order his lieutenants to do the job. Besides, I have no knowledge of his family circumstances, which may or may not favour such an arrangement.

In other words, we as shareholders should observe whether greater values are delivered, either through greater growth via higher ROE and ROIC, or greater return of cash to shareholders through higher dividends or share buybacks.

Through their actions, both Dato Jim Khor and Tan Sri Quek are telling us that they believe the company is undervalued.
Among them, Dato Jim's action is more credible (given that he is not as rich as Tan Sri).
It will be even better if other management staffs and directors start buying. Will they?
However, there is still a difference between outsiders and insiders when it comes to the concept of "undervalued". Being insiders, they have the knowledge and control, and are capable to make what seems undervalued to become valaubale.
Being outsiders, we can only rely on our observations, judgement, and ultimately our trust on these insiders to deliver values.

Sardin, yes he could. But he would not.
Allowing HLI to give away cash so that he could earn a temporary (what if Fed cuts interest rate?) 5% USD interest rate in his personal account, is no match for the freedom of action by controlling all the cash (including cash belongs to minority) in the company's account.
Cash, once distributed away, is difficult to get back.
But his share purchase today is encouraging. At least he sent a good signal. Though don't expect him to buy much since he's already above 75%.

An interview with Dato Jin Khor last year.
https://www.theceomagazine.com/executive-interviews/automotive-aviation/dr-jim-khor-mun-wei/
He mentioned electric motorcycle. I believe this is going to be a game changer. Yahama could not afford to lose.
However Japanese are falling behind in EV. Japanese car producers including Toyota are trailing not only the Americans but also Chinese. This is despite Toyota was the leader in hybrid with Prius and also hydrogen powered cars.
In Vietnam both Honda and Yahama are losing market share to the electric motorcycles.
Although the electric segment in Malaysia is still small (~1%), it's fast growing.

Good to see Dato Dr Jim Khor buying. This is a vote of confidence.
https://klse.i3investor.com/web/insider/detail/D_173185_2005374652

Because of diverging interest between minority and controlling shareholders
What is there for the controlling shareholder?
Yes, it too will get the one off dividend of RM5.2 per share, or 231m *RM5.2 = RM1.2 billion.

Whle minority shareholders will be happy with their special dividend, RM1.2 billion is a headache for controlling shareholders as it has to find another place to park its billion.
Since it sits on and controls the Board, it may as well keep the cash in the company (including the minority's shareholders' portion).
The company cash is in turn parked in Hong Leong Bank, where the controlling shareholders also owns.
It can always return the cash, partially or wholly, at a time of its choosing.
The minority shareholders get their cash only when controlling shareholder need it!

The arrangement would benefit minority shareholders, who get the RM5.2 dividend and can choose to cash out the share at a revalued fair price (assumed RM6.85 in above example).
But will this happen?
Unfortunately, no.
Why?

The total return is RM5.2 (one off dividend) + RM6.85 (revalued share price) = about RM12
A 37% upside from today closing price at RM8.79.
Such an arrangement will immediately unlock value for shareholders.

Bear in mind, with all this changes, the TTM PE would have actually reduced from today 9.2 times (=RM8.59/ RM0.9347) to a lower 7.3 times (=RM6.85/ RM0.9347).
A 7 times PE company with good cash flow, zero net debt, and the knowledge that the Board is willing to return all excess cash to shareholders, is a reasonable valuation.
RM6.85 is conservative.

The shareholder's equity is reduced to RM2,067m - RM1,636m = RM431m, or RM1.37 per share
With reduced equity, ROE will be boosted to RM294m/ RM431m = 68%!
The company could be easily valued at 5 times P/B multiple
(In fact, based on Gordon Growth Model, assume cost of equity 10%, stable ROE of 50% and a conservative 2% growth, it will be valued at 6 times PB)
With a conservative 5 times PB multiple, the share price can still fetch 5 * RM1.37 = RM6.85

Given HLI's stable operating and free cash flow, it could still thrive with a small dose of debt.
Hoever, for simplicity, assume it returns all of its net cash and takes zero net debt.
It will then distribute its net cash of RM1,636m to shareholders as one-off dividend.
That works out to be RM1,636m/ RM314.6m = RM5.2 per share.
(For simplicity, also ignore the RM400m tile factory investment)