2 Comments to Popular Holdings – FY12 (Apr) Results

1. KK says:

   7th July 2012 at 9:36 pm

   Extracts from FY11 (Last Year) AR which is still relevant,

   POPULAR is still strong in its core businesses. Amidst an uncertain but a recovering global economy, our retail and distribution was the star performer, achieving 75% increase in profits from S$10.9 million to S$19.1 million. With 14 new outlets opened, the total number of outlets reached 139 compared to 133 in FY2010. Turnover grew by 5% from S$418.4 million to S$438.8 million in FY2011.

   POPULAR in Malaysia achieved double digit growth for its retail and distribution. With 65 stores, the search for new stores and the business expansion should continue unabated for quite a while. The bottom line should look attractive through gross margin improvement, prudent spending and strong growth in both generic and organic sales. The challenge is to recruit adequate and appropriate manpower by thinking out of the box and developing strategies in recruitment. We have to understand the mentality of the new Generation Y and to manage them within the context of POPULAR, planning career paths to develop staff at all levels.

   POPULAR in Singapore could not just depend on a well-recognized brand. Though its new outlets at NEX, a new mega-mall in Serangoon Central and another in Clementi Mall are bringing in exciting sales, it has to make a breakthrough in order to rise. Looking at the book retailing scene in Singapore, everyone faces the same situation.

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2. KK says:

   21st July 2012 at 9:38 pm

   The latest buy transaction by Mr Chou on 18-Jul-12 @ $0.218 for 1,929,000 shares set me thinking on what his possible reason or intention may be. Since he already has 56.67% control, it can't possibly be the fear of being taken over by an unfriendly 3rd party.

   My previous reasoning is that Mr Chou MAY be buying because Popular Hldgs is Undervalued at current prices. Reasoning,

   • Cash = 17.35ct / share

   So, we are effectively valuing the rest of the biz at only,

   • Books + Property = 21.5ct – 17.35ct = 4.15ct.

   Although there're some debts,

   • Total Debts = $16,523,000 (NCL) + $14,431,000 (CL) = $30,954,000

   There're also assets like,

   • Properties Held for Sale = $15.288,000
   • Development Properties = $67,135,000
   • Total = $82,423,000

   That's easily more than the Total Debts.

    

   A Possible New Reason

   • Total Shares = 841,105,755
   • Mr Chou = 476,690,075 shares
   • Balance = 364,415,680 shares

   Assuming Mr Chou offers to privatise Popular Hldgs @ $0.276 (a 10% premium over NAV = 25.09ct), he'll need to borrow from the bank (it doesn't make much biz sense to use Cash, even if he has that amount),

   • Borrowings = 364,415,680 * $0.276 = $100,575,083

   Once he has 100% control, he can use,

   • Popular Holdings Cash = $145,945,000

   to repay his entire borrowings (for simplicity, I didn't add in any borrowing cost) and still have,

   • Popular Hldgs Cash Balance = $145,945,000 – $100,575,083 = $45,369,916

   That ought to be enough for his Working Capital needs. If not enough, I don't see any problem to borrow more from the banks as Popular Hldgs is not highly geared.

   Makes sense? Without coming out with a single cent from his own pocket (borrow all from bank), Mr Chou can have 100% control of Popular Hldgs! NAV of course drops but may be secondary as there's enough Cash to continue running the biz and he gets to enjoy 100% profits henceforth! Also, no need to answer to any shareholder…

   Is it worthwhile to continue to stay listed?

   If I'm right, then it makes a lot of sense for Mr Chou to continue buying from the market at current prices. The more he buys now from the open market, the less in total absolute premium he'll have to pay later (if he does do a General Offer).

   If an Offer were to materialise soon, it'll most likely be conditional on the latest DPU = 0.8ct payout, as it'll save Mr Chou $6.73Mil from Popular's Cash or $2.916M if exclude his share of Div Payout. BUT, if he's able to 'save' more $$ by buying more from the open market (at a good discount' to any bid), then, there won't be any urgency to launch an offer.

   Another key motivation to privatise would be for Mr Chou to have more flexibility to hand over management to his son (Wayne Chou), who'd previously resigned as MD under unhappy circumstances. As a private company, there'd be no need to be answerable to shareholders..

   Note : I'm using a 10% premium to NAV which may seem high to Mr Chou. If he uses less and still succeed, there'll be more leftover cash balance in Popular Hldgs. A higher premium would of course means lesser cash (will need to increase borrowings for Working Capital needs) and may hit a point where it's not meaningful to privatise.

   Where's Mr Wayne Chou?

   • MDA
   • Qin Jia Yuan Media Services

    

   WARNING : Lest we get overly optimistic, please do remember that one of the KEY RISK of Popular Hldgs is the LOW NPM (Nett Profit Margin) of 3% to 6%. Any Declining Revenue, Increasing Expenses or Write-Offs can easily swing it to a Nett Loss.

    

    

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