Wednesday, April 25, 2012
LHT: value plays currently sidelined amidst the focus on penny plays. However such stocks may prove to be more defensive when the tide turns. No better time to pick up value plays than when they are overlooked. LHT is one such company. It is a manufacturer and renter of wooden pallets, and an underappreciated player in the supply chain management sector. As such, it is exposed to Singapore’s growing logistics demands, underpinned by growth in e-commerce. The co has a long operating track record. The improving financials in recent yrs is not yet reflected in the share price. In particular, LHT reverted to positive equity in 2005, and grew it to $38.3m over 6yrs. Yet it is trading at ~60% discount to the lesser known logistics players like Poh Tiong Choon, and at an even bigger ~70% discount to Goodpack, which rents Intermediate Bulk Containers. The steady share purchases by insiders / mgt (on-going for about a yr) shows skin in the game, and reflects mgt’s confidence in outlook. Look out for a catalyst in new 15 yr contract with TP Utilities (subsidiary of Tuas Power). To boost annual revenue by $0.9m – 5.4m (2.3% - 13.9% of FY11 total sales). Expected to commence as early as 3Q12 and no later than end 1H13. Main risk however is liquidity, which may get better once the fragmented shareholders find incentive to sell to new investors closer to ’07 peak of 21cts. But it’s ok as you get paid to wait for stock to re-rate. Stock is trading cum-dividend of 0.5cts, +250% since ’07 when it resumed paying div.