Hotung baby!

Hotung Investment Holdings Ltd (HIH SP) (SIN: H34) is a Taiwanese venture capitalist listed on the Singapore Exchange which the blog first featured on November 2005. The price has since gained 50%. Is there any opportunities left? We re-visit and update our notes on its prospects in this post.

As of December 31, 2005, Hotung had invested in 228 companies. Hotung's fortunes are very much intertwined with the buoyancy of the Taiwanese stock market. As most of its investments are in technology related companies, it is no surprise that Hotung reported losses in the years following the deflating of the technology bubble.

Things are, however, looking up for Hotung. The net profit for the second quarter of this fiscal year was a record NT$275 million vs. a loss of NT$333 million in the same quarter last year. The results are a third consecutive quarter of profits. This consecutive string of black figures suggests that the company turning around.

Hotung's balance sheet remain rock solid. About 50% is cash and cash equivalent. While we do not expect Hotung to declare any sizeable dividends, its management has sensibly used its cash horde to engage in a stock buyback program.

The market is offering a slice of Hotung at about US$0.13. This represents about a 35% off its book value of US$0.20. Other than trading under book value, it has already chalked up net earnings of NT$440 million at the half year mark. Doing a conservative projection for its full year earnings, Hotung is expected to turn in an EPS of NT$0.55 (US$0.125). This translates to a reasonable P/E of 7.5.

It is noteworthy that Third Avenue Fund Management, led by the venerable Mr. Martin Whitman has increased their stake in Hotung. It now holds a 10.12% stake. The most recent purchase was in 31 October 2006; probably at around US$0.12-0.13. But this is a case of averaging up as Third Avenue has accumulated when the price was languishing at around US$0.08.

Oh yes, in case you are wondering about the significance of the title of this post, it is a play on U2's best selling and most critically acclaimed album, Achtung baby. Achtung Baby topped the Billboard 200 chart soon after its release in November 1991. Will our Hotung baby go on to the apex of the top gainers' chart anytime soon? Your guess is as good as mine.