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Haw Par Corporation Ltd’s Latest Earnings Update: Healthcare Business Resumes Growth

On 9 November 2018, Haw Par Corporation Ltd (SGX: H02) released its 2018 third-quarter earnings update. Most people in Singapore would have come across Haw Par because of its Tiger Balm ointment, which has a long history and is also globally well-known. Aside from this healthcare business, Haw Par also owns strategic stakes in both UOL Group Limited (SGX: U14) and United Overseas Bank Ltd (SGX: U11), as well as commercial and industrial properties for rental income in both Singapore and Malaysia. The company also has a small leisure division which runs Underwater World Pattaya in Thailand.

Here is a summary of Haw Par’s latest results:

1. Revenue increased by 14.2% for the reporting quarter, up from S$53.3 million to S$61.0 million. This was attributed mainly to a rise in the sale of healthcare products in Asia.

2. Cost of sales increased by a faster rate of 20.2% to S$24.0 million due to higher cost of raw materials. As a result, the gross profit margin dipped slightly from 63% to 61%, and gross profit rose by a smaller quantum of 10.7% (compared to revenue growth) to S$37.0 million.

3. Other income jumped nearly 48% from S$26.8 million a year ago to S$39.7 million, and the growth was mostly because of higher dividend income received from Haw Par’s stake in UOB.

4. Distribution and marketing expenses dipped by 1.4% (to S$12.9 million) in spite of the increase in revenue, while general and administrative expenses fell by 24.5% (to S$3.2 million) mainly due to an exchange gain. As a result, Haw Par’s operating profit improved by 41.3% to S$60.6 million from S$42.9 million a year ago.

5. Net profit after tax grew by an impressive 43.4% from S$39.9 million a year ago to S$57.2 million.

6. Haw Par’s balance sheet has strengthened with S$494.1 million worth of cash and S$23.1 million in borrowings, for a net cash balance of S$471.0 million. In contrast, at the end of 2017, the company had S$401.0 million in cash and S$45.1 million in borrowings for a net cash balance of S$355.9 million.

7. Operating cash flow was also stronger year-on-year at S$57.5 million against S$46.8 million a year ago. Capital expenditure was negligible at S$476,000, therefore the company generated around S$57.0 million in free cash flow for the reporting quarter, up 24.9% from a year ago.

8. Despite its strong growth numbers, Haw Par was cautious in its outlook statement. The company stated that escalating trade tensions would continue to create volatility in markets, and that higher commodity prices would also increase its cost of sales and impact its gross margins.

It appears that Haw Par’s Healthcare division (in essence, the Tiger Balm brand) is starting to see growth again, and this could be the driver of the company’s earnings moving forward. Higher dividends from UOB and UOL has also bolstered Haw Par’s cash flow and could enable it to pay a better dividend for 2018. Haw Par’s balance sheet has strengthened as well, thus underscoring the stable and consistent nature of the company’s business.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston does not own shares in Haw Par Corporation.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in Haw Par Corporation. The Motley Fool Singapore has a recommendation on United Overseas Bank.