Bonvest Holdings LTD Analysis

Today I'll be analyzing Bonvest Holding LTD.

The Group's four core businesses are:

• property development and investment
• food and beverage ownership and management
• hotel ownership and management
• waste management and contract cleaning of buildings

To date, it is the authorized franchisee of Burger King and Orange Julius (Dairy Queen). The Group operated approximately 100 F&B outlets island-wide as of 31 December 2003 under the franchises from Burger King, Starbucks Coffee, Orange Julius and Dairy Queen, as well as under its own brand, Captain Cook.

Its hotel includes Sheraton Towers and The Residence (Tunis and Mauritius).

Its property management includes Liat Towers, Yishun Ten and other local and overseas residential.

The Group also own 77.36 of Sesdaq-listed subsidiary, Colex Holdings LTD, which is one of the leading waste management and contract cleaning companies.

With such a broad operations, comes many pros and cons. The benefits of a diversified base is that it wouldn't be drastically affected when one sector of its operation is not doing well. Also, a broader base could also mean higher earnings, but that is highly subjective. This is because the operations are wide and management may not be as sensitive to changes, adapting may be a step slower and thus reducing revenues. The possibility that such a broad operation might be too unfocused for the management to handle. Having said that, let us take a look at how the management has performed in the past few years.

	FY1 1996	FY1 1997	FY1 1998	FY1 1999	FY1 2000
Net Inc/Net Profit (Loss)	22.572	3.524	-77.802	34.092	16.934
Fully diluted EPS			-0.273	0.107	0.055
Book value/share	1.580	1.566	0.975	1.111	1.222
P/E Ratio	11.402	35.294		5.874	8.095
Dividends/share	0.024	0.012	0.000	0.006	0.010
Current ratio	1.582	2.714	1.475	2.354	2.140
Profit margin	14.315	2.082	-52.750	10.616	8.662

	FY1 2002	FY1 2003	FY1 2004	FY1 2005	FY1 2006
Net Inc/Net Profit (Loss)	6.416	10.639	21.090	22.334	33.010
Fully diluted EPS	0.021	0.032	0.056	0.059	0.087
Book value/share	1.103	0.978	1.008	1.234	1.361
P/E Ratio	16.667	13.472	8.399	11.343	13.299
Dividends/share	0.014	0.018			0.033
Current ratio	1.990	1.893	2.307	2.436	2.075
Profit margin	3.143	4.638	9.517	9.541	11.344

As you can see, the net profit is generally on an uptrend, resulting in increasing EPS. There has been a drop in profit in the years after 1997, and I believe this was caused by the Asian Financial Crisis. Subsequently the company's net income rose. Profit Margin improved too. The company has also been generous with its dividend, in part due to the new tax law.

Taking a look at its current ratio, you find out that the company took special care when leveraging and raising capital for its operations.

Take note though, that its average P/E ratio for the past 5 years is around 12 times its earning. At this point of time, the stock's closing price was SGD$1.40, P/E ratio = 8.6. The stock is trading in its lower range.

It is also noted that recently some of the directors has been purchasing the stock from the open market.

Looking ahead, similar to all businesses, there is a certain amount of risk and we are to assess the risk to understand and expect what could happen.

1. For property and rental, over supply of office and retail space, lack of demand due to weak economy could all be possible reasons for under performance of the company.
   
2. For the F&B sector, new entrants and newly renovated food courts and hawker centres are a threat to its market share, as these outlets compete over customers like you and me. Poorly selected outlet could also affect F&B revenue.
   
3. For hotel, since most of it is based overseas, political and terrorism are constant threats to the business. And unlike F&B, where we can determine how well the business is by the length of the queue, we are also not able to judge how well the hotel fare. On the other hand, we benefit when the country's tourism industry boom.
4. For the industrial operations, it seems the most dangerous to me. For one, I do not understand the business and also I do not understand why they had bought such a business who's core operation is so far off from property and hotel. (Note: F&B can be considered real estate, since a good location is a pre-requisite for a good outlet.) Secondly, this industry is well-known for companies under-cutting one another. Thus for this section, I am unable to determine it's risk.

Moving ahead, we will take a look at how the business can grow. In my opinion, the F&B and hotel segment are in the mature stages, we will not be able to see exciting growth in revenues. No comments with regards to the industrial cleaning segment, although I believe that it is a highly saturated industry. So far the exciting growth in its revenue comes, in no small part, from its property segment. Singapore property has been bullish for the past 2-3 years and this has resulted in the meteoric increase in revenue for property related stocks, and Bonvest is one of them. For the current half fiscal year, riding on the property waves, the company has earned 70% of what it has earned in the 2006 full Fiscal Year (7 cents for half year ended 07 compared to 8.7 cents for Fiscal year 06).

Hence, projecting ahead base on past performance, the company seems poised to grow even more. Base on that, the stock is undervalued at SGD$1.40. But nobody ever drove ahead looking only at the rear mirror, something I have to remind myself all the time. The thing about property development is that the revenue are one-off, non-recurring items. Once sold, we are not able to milk any benefits from it anymore. Furthermore, the part of the money earned from the sale of investment has been channeled to issuance of dividend. This could only means re-invested earnings are lesser than before. I believe the prospect of increased earnings for the property segment might be short-lived.


What I like about this stock:

1. Core F&B business predictable.
   
2. Rental revenue are usually, under current market conditions, not very volatile.

What I don't like about this stock:

1. Industrial Cleaning Business is not easy to understand and thus un-determinable.
2. Property Segment may not last.
3. Earnings not fully invested.
   

Bottomline: The Net Book Value per share now is SGD$1.24. Earnings for half year is 7 cents. Asset plays for this stock might prove valuable . On top of that, although I may not be confident of the stocks prospect, the directors who bought them from the open market has confident in the stocks. Hence, base on the directors confidence and those reasons stated above, I intend to purchase this stock. The holdings has yet been determined but looking at the companies' performance and its portfolio, I believe I will be putting substantial amount of my savings into this stock.

(Chart extracted from Bloomberg on 17/10/07, around 1300hrs)

Bonvest Financial Statement and Dividend Annoucement (SGX)

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