Haw Par Corporation Limited (SGX: H02) is a conglomerate that has four key business divisions – healthcare, leisure, property and investments. The group owns the globally-recognised Tiger Balm brand, which manufactures and distributes balms, pain patches and ointments. It also owns the Underwater World Pattaya, a tourist attraction in Thailand, and several properties in Singapore and Malaysia.
Haw Par’s Tiger Balm brand has been growing steadily over the years, and investors have also been enjoying consistent dividends from the group. Moving forward, is the group able to sustain its dividend payments? Let’s have a look at several aspects of Haw Par in order to determine this. I have used a five-year comparison to identify trends in the group’s numbers.
1. Revenue and profits
Haw Par’s revenue has climbed from S$154.2 million to S$237.8 million in four years, an impressive increase of 54.2%. Net profit has also followed suit, rising by almost 51% to S$179.1 million in FY 2018. This increase in revenue and profit over the years was mainly driven by the growth of the Healthcare division, as Tiger Balm launched a wider range of new products and also penetrated into more regions globally.
With this increase in revenue and profits, investors should have more confidence that the dividend can be sustained. In its H1 2019 earnings, revenue and net profit continued their ascent, rising by 15.6% and 11.0% year-on-year respectively.
2. Free cash flow trend
From the table above, it’s obvious that Haw Par generates way more operating cash flow than it needs for capital expenditure. This results in the group churning out copious amounts of free cash flow that continues to add to its cash stash. Haw Par’s cash balance stood at S$224.7 million as at the start of 2015, and by the end of Q2 2019, the cash had ballooned to S$407.8 million, almost double the amount four years ago. This is even more impressive when you consider that the group has been paying a consistent dividend for the last couple of years.
3. Dividend payment history
Haw Par’s dividend history provides a good glimpse into how management thinks. A few observations stand out from the above table – investors should note that the group has been paying a base annual dividend of 20 Singapore cents per share from 2014 till 2018. From 2016 onwards, the interim and final dividends carry the same weight – 50% of the year’s total dividends, making it more balanced for investors. For H1 2019, Haw Par maintained the 15 Singapore cents interim dividend that was paid out in H1 2018.
Management has also shown its willingness to pay out a special dividend if it feels the group has excess cash, like in FY 2015, and also if there is a special occasion to celebrate, such as the 85 Singapore cent special dividend declared to mark Haw Par’s 50th Anniversary last year. Investors should also note that the base annual dividend has increased to 30 cents that year, and with the increase in profits, this seems sustainable moving forward.
A veritable cash-generating machine
Haw Par seems like a cash cow – generating and throwing out tons of cash from its growing healthcare business, which it then pays a portion out as dividends to investors. In addition, management has also shown a willingness to further reward shareholders through the occasional declaration of a special dividend. Therefore, I conclude that Haw Par’s dividends are definitely sustainable, barring a major deterioration in its healthcare division.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Haw Par Corporation Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.