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Share Buybacks – 4 Singapore Companies Ticked a Warren Buffett Checkbox: Hongkong Land; iFAST; The Hour Glass; Valuetronics

Warren Buffett believes share buybacks are a good idea when they are trading below their intrinsic value.

Famed investor Warren Buffett is a big proponent of companies buying back shares when done for the right reasons – if the company’s shares are undervalued, and the reinvestment opportunities into the business are not as great.

He once said:

“Repurchases – is sensible [allocation of capital] for a company when its shares sell at a meaningful discount to conservatively calculated intrinsic value. Indeed, disciplined repurchases are the surest way to use funds intelligently. It’s hard to go wrong when you’re buying dollar bills for 80c or less. But never forget: In repurchase decisions: price is all important. Value is destroyed when purchases are made above intrinsic value.”

Of course, some companies also undertake share buybacks for cosmetic reasons — to enhance their per share metrics such as earnings per share (EPS). A higher EPS is favoured by investors as it shows that the company is growing. But that’s not the right reason to buy back shares.

On that note, in this latest edition of 4 Stocks This Week, let’s explore four companies that have repurchased their shares during the week (as of the time of writing on 29 July Friday morning).

Hongkong Land Holdings Limited (SGX: H78)

Founded in 1889, Hongkong Land (SGX: H78) is a property investment, management, and development company with assets in various Asian countries.

It owns and manages over 850,000 square metres of prime office and luxury retail properties in major cities such as Hong Kong, Singapore, Beijing, and Jakarta. In Singapore, Hongkong Land has stakes in investment properties such as Marina Bay Financial Centre, One Raffles Quay, and One Raffles Link.

On 25, 26, 27 and 28 July 2022, Hongkong Land repurchased a total of 1,116,600 shares at a price range of between US$4.85 and US$4.95 per share. The total cost is estimated to be around S$5.5 million.

In September 2021, Hongkong Land announced a US$500 million share buyback programme, of which US$491 million had been invested up till 22 July 2022, reducing the company’s issued share capital by 4%. All shares bought back will be cancelled.

On 28 July 2022, Hongkong Land announced that an additional US$500 million has been allocated to buy back shares until 31 December 2023.

The company added that:

“The buyback is in line with Hongkong Land’s long-standing capital allocation practice, which is to prioritise:

  1. investment in new assets to drive long-term growth and shareholder value;
  2. continued payment of steady and, over time, increasing dividends; and
  3. investment in existing assets on an opportunistic basis, including through share buybacks.”

For its six months ended 30 June 2022, Hongkong Land’s revenue inched up by 0.9% year-on-year to US$894 million while its underlying net profit grew 8% to US$424.6 million.

The company’s interim dividend per share also remained stable at 6.0 US cents. Its dividend payout ratio in terms of underlying earnings per share (EPS) is 32%, which provides a margin of safety. In other words, even if Hongkong Land’s underlying EPS were to fall significantly, it should be able to maintain its dividends.

At Hongkong Land’s share price of US$5.20, it has a price-to-book ratio of 0.35x and a dividend yield of 4.2%.

iFAST Corporation Ltd (SGX: AIY)

iFAST (SGX: AIY) is a financial technology (fintech) company that runs an Internet-based investment products distribution platform providing a wide range of investment products and services to its clients.

More specifically, the company offers over 16,000 investment products including unit trusts, bonds, stocks and exchange-traded funds (ETFs), and services such as online robo-advisory portfolios and fintech solutions to its customers.

On 25 July 2022, iFAST repurchased 106,900 shares at a price range of between S$3.74 and S$3.75 each, paying around S$401,000.

Separately, iFAST’s co-founder, chairman and chief executive officer, Lim Chung Chun, bought 34,100 iFAST shares from the market on 26 July 2022.

In all, he paid S$129,474, so his average purchase price per iFAST share equates to S$3.80. Post the share purchase, Lim holds a 20.31% ownership stake in iFAST.

For its latest 2022 second-quarter, iFAST saw its net revenue grow 13.3% year-on-year to S$29.9 million. However, it went into a net loss of S$2.7 million on the back of a one-time impairment loss for its India business. Excluding the one-off impairment allowance, iFAST would have posted a profit of S$2.5 million, down 64% year-on-year from S$7.0 million last year.

At the time of writing, each iFAST share is changing hands at S$4.10, giving a price-to-earnings (P/E) ratio of 67x and a dividend yield of 1.2%.

The Hour Glass Ltd (SGX: AGS)

The Hour Glass (SGX: AGS) is a luxury watch boutique that opened its first store in 1979 in Singapore. On top of having a presence in our country, it now has a combined network of 50 boutiques in the Asia Pacific region.

On 25 and 26 July 2022, The Hour Glass bought back a total of 153,400 shares at a price range of between S$2.13 and S$2.15 per share, spending around S$329,000 in all. With that, the company has repurchased 3.5% of its issued shares to date.

In its FY2022 (financial year ended 31 March 2022) annual report, The Hour Glass explained its capital allocation practice:

“[W]e have a mandate to return capital to shareholders via share buybacks and ordinary dividends. Throughout this financial year, the Group repurchased $34.1 million of our ordinary shares and remain on an opportunistic footing with our share re-purchases.”

For its latest financial period, The Hour Glass’ revenue soared 39% year-on-year, crossing the S$1 billion mark to S$1.03 billion. Meanwhile, its profit after taxation increased 88% to $154.7 million.

The company said that customer demand for mechanical watches has been increasing and deepening over the past few years. Even during the Covid-19 pandemic, interest in watches didn’t wane. The Hour Glass believes that the fascination with high-quality mechanical watches will continue.

At The Hour Glass’ share price of S$2.16, it has a P/E ratio of around 10x and a dividend yield of 2.8%.

Valuetronics Holdings Limited (SGX: BN2)

Valuetronics (SGX: BN2) is an integrated electronics manufacturing services provider with its headquarters in Hong Kong. The firm was founded in 1992 and offers a wide range of design, engineering, manufacturing, and supply chain support services for electronic and electro-mechanical products.

On 25, 26, 27 and 28 July 2022, Valuetronics bought back a total of 421,800 shares at a price range of between S$0.54 and S$0.545 per share, translating to a total cost of around S$230,000. Post the share buyback exercise, Valuetronics has repurchased 2.0% of its issued shares to date.

On 28 February this year, the company announced a HK$250 million share buyback program to preserve shareholder value.

Valuetronics explained in the public announcement then:

“The Share Buyback Program reflects the confidence of the Board in the strength of the Group’s balance sheet, the long-term strategy and prospects of the Company. Moreover, the Board believes that actively managing the capital structure and implementing the Share Buyback Program will optimize the Company’s capital structure and overall shareholders’ return.”

For its financial year ended 31 March 2022 (FY2022), Valuetronics’ revenue tumbled 11.1% year-on-year to HK$2.03 billion while net profit plunged 39.3% HK$113.5 million. The poor showing was due to severe shortages of certain key electronic components that affected the company’s ability to meet orders.

The supply chain issue resulted in extreme price surges, prolonged order lead times, frequent delivery delinquency and consequential productivity losses as well.

It looks like the situation won’t be abating any time soon.

Valuetronics said that lockdowns in major Chinese cities are “affecting global supply chains by increasing the backlog of critical components supply and affecting cross border logistics” and that the “ripple effect of supply chain bottlenecks could last beyond 2022”. However, Valuetronics remains confident of being profitable in FY2023 given its track record and strong balance sheet.

Valuetronics is currently trading at a share price of S$0.54, translating to a P/E ratio of 12x and a dividend yield of 4.5%.

This article was written by Sudhan P, an investment analyst who is an avid investor of businesses listed on the stock market for over a decade now and is a huge advocate of investor education.

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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.