The Motley Fool

Better Buy: Haw Par Corporation Ltd vs. Hisamitsu Pharmaceutical Co Inc

Haw Par Corporation Ltd (SGX: H02) and Hisamitsu Pharmaceutical Co Inc (TYO: 4530) are two companies listed in Singapore and Tokyo, Japan, respectively. Haw Par is the brainchild behind Tiger Balm, a pain reliever brand. On the other hand, Hisamitsu produces the Salonpas brand of pain-relieving products, among others.

Which of these two companies would make a better investment? Let’s find out.

The table below shows the market capitalisation and revenue of the two companies. Do note that all figures quoted in the tables that follow are for the fiscal year ended 31 December 2018 for Haw Par and for the financial year ended 28 February 2019 for Hisamitsu.

  Haw Par Hisamitsu
Market capitalisation S$3.08 billion JPY 438.71 billion
(S$5.63 billion)
Revenue S$237.8 million JPY 143.41 billion
(S$1.84 billion)

Source: Google Finance and company reports (note: market cap as of 11 September 2019)

Round 1: Profitability

In the first round, we will analyse the profitability of the companies in terms of gross profit margin, net profit margin and return on equity (ROE).

  Haw Par Hisamitsu
Gross profit margin 61.3% 61.8%
Net profit margin 75.3% 13.4%
ROE 6.1% 8.6%

Source: Company earnings

The gross profit margins of Haw Par and Hisamitsu are very close to each other, although Hisamitsu slightly edges out its competitor. This shows that Hisamitsu has slightly better pricing power than Haw Par.

In terms of net profit margin, though, Haw Par’s figure is much higher than that of Hisamitsu. This is because Haw Par has significant investments in United Overseas Bank (SGX: U11) and UOL Group (SGX: U14) and those investments provide dividend income to Haw Par. Since the dividend income is not counted as revenue, and they flow straight down to the bottom-line, Haw Par’s net profit margin is somewhat inflated.

As for the ROE, Hisamitsu has a higher figure than its peer, showing that Hisamitsu’s management is better at creating shareholder value.

Winner: Hisamitsu

Round 2: Growth

Now, we will compare the compound annual growth rates of revenue, net profit and dividend of the two companies for the past five financial years. Companies that can grow their sales and profits steadily over time should also see their share price rise.

  Haw Par Hisamitsu
Revenue growth 11.4% -2.2%
Net profit growth 12.5% 0.6%
Dividend growth 10.7% 0.8%

Source: Company earnings (note: dividend growth excludes any special dividend)

It can be clearly seen that Haw Par has shown better historical growth over the last five fiscal years compared with Hisamitsu. Income investors will be happy to note that Haw Par’s dividends have seen a stronger increase as well.

Winner: Haw Par

Round 3: Valuation

As Foolish investors, it is essential to focus on the value of the business and not on the daily changes in the stock price. We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies.

  Haw Par Hisamitsu
PE ratio 16.2 20.2
PS ratio 13.0 3.1
Dividend yield 2.2% 1.8%
Share price S$13.94 JPY 4,610
(S$59.38)

Source: Google Finance and company earnings (note: dividend yield excludes any special dividend; data as of 11 September 2019)

As you can see, Haw Par has a better PE ratio and dividend yield compared to Hisamitsu.

Winner: Haw Par

The Foolish bottom line

With better historical growth and lower valuation, Haw Par is the overall winner. However, before investing in Haw Par’s shares, investors should find out about other vital aspects of its business such as its future earnings potential, free cash flow situation, management competence, and so on.

This simple exercise covers the basics and helps take some heavy-lifting off your back though.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Haw Par Corporation Ltd and United Overseas Bank. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.