THE bustling resale flat market lifted the net profit of tile specialist Hafary Holdings to S$10.4 million for H1 ended June, more than double the S$5.1 million net profit a year ago.

 

The mainboard-listed company declared an interim dividend of 0.75 Singapore cent per share, unchanged from the year-ago period. The payout date will be announced later.

 

Hafary&rsquo s H1 revenue came in 21.9 per cent higher at S$71.3 million. In its general segment &ndash where customers include homeowners, architecture, interior design and renovation firms &ndash revenue rose 22.3 per cent to S$46.6 million.

 

The company saw &ldquo robust demand from homebuyers who prefer the certainty of getting their flats in the resale market and avoid the construction delays for Build-To-Order flats, caused by manpower shortages and supply chain disruption&rdquo , Hafary said in its earnings statement.

 

In the project segment &ndash where customers include architecture firms, property developers and construction companies &ndash revenue rose 21.1 per cent to S$24.7 million. This was due to the pickup in construction activity, supported by a greater inflow of migrant workers.

 

Looking ahead, Hafary noted that the Building and Construction Authority (BCA) projects the total construction demand in 2022 to be between S$27 billion and S$32 billion, with the public sector expected to contribute about 60 per cent.

 

In the private sector, commercial building demand is expected to increase, &ldquo as hotels and attractions undergo refurbishment to prepare for inbound tourism revival, and older commercial premises are earmarked for redevelopment to enhance their asset values&rdquo , Hafary said.

 

That said, it noted that the construction sector is facing challenges such as supply chain disruptions, labour shortages, higher material and manpower costs and pressure to make up for lost time in the completion of projects.

EVEN through the Covid-19 pandemic and lockdowns, residential property prices in Singapore have consistently trended higher.

 

The booming property market benefits suppliers in the ecosystem, and players such as mainboard-listed Hafary Holdings : 5VS 0% have recorded a growth in earnings over the past year.

 

Its valuations appear undemanding, and the company, which supplies building materials such as marble and stone, has opportunities for continued growth. But there are potential risks for the stock in this rising-interest-rate environment.

 

Revenue drivers

 

Hafary has 2 segments in its financial reporting: the general segment records revenue from customers served in its showrooms, while the project segment is for materials sold to property developers.

 

Total revenue jumped 54.3 per cent to S$130.1 million for the FY ended Dec 30, 2021 &ndash coming off a lower base in the pandemic-hit FY20.

 

General segment revenue rose 53.6 per cent to S$82.7 million, partly supported by buyers of resale HDBs looking to avoid construction delays for new flats.

 

SRX data showed total HDB resale volume for 2021 rose 24.6 per cent to 29,182 units. The resale transaction volume for private residential units in 2021 also jumped, by 86 per cent on year, to 19,962, URA data indicates.

 

Revenue from projects, meanwhile, rose 60 per cent to S$43.3 million, reversing 3 years of decline. The better performance was attributed to pent-up demand from the construction and renovation segment.

 

Full-year net profit more than doubled to S$11.6 million &ndash or S$0.027 per share &ndash giving a net profit margin of 8.9 per cent. The company raised its dividend to S$0.015 per share, up from S$0.01 in each of the previous 3 financial years.

 

The market has rewarded this performance by sending Hafary' s shares up from around S$0.14 in early 2021 to S$0.187 as at Wednesday (Jul 6).

 

Despite that appreciation, however, Hafary' s price-to-earnings ratio is a modest 6.9. It has a price-to-book ratio of 1.1 and a trailing dividend yield of 8 per cent.

 

Property demand

 

Sustaining its financial performance is a possibility for the company, given Singapore&rsquo s property market dynamics.

 

Transaction in resale units has remained resilient this year, and the pipeline several years into the future also looks healthy for both private and public housing markets.

 

The number of units available under the confirmed list of the H2 2022 Government Land Sales (GLS) Programme was up 75 per cent from H2 2021.

 

HDB has said it will ramp up the supply of build-to-order flats, launching up to 23,000 flats per year in 2022 and 2023 &mdash a 35 per cent jump from units launched in 2021.

 

Meanwhile, older flats being upgraded by HDB under the home improvement programme would also require tiling supplies.

 

The company has also invested in a revamp of its showroom &ndash the Hafary Gallery &ndash to showcase the use of large-format porcelain tiles.

 

Rising Rates

 

The risk, however, is that rising interest rates might hurt the property market in a way that cooling measures have failed to do so far.

 

An increase in interest rates from 1 per cent to 3 per cent would raise the monthly repayments on a 30-year mortgage for a new home by 31 per cent.

 

This reduced affordability would weigh on non-essential demand, and could cause a correction in the property market.

 

Property owners may also tighten their purses for renovations, given the higher costs of financing the mortgage.

 

Hafary also faces higher financing costs.

 

In the low-interest-rate environment over the past 2 decades, low-cost debt would have boosted a company&rsquo s return on equity (ROE).

 

Hafary&rsquo s ROE was nearly 16 per cent in the last FY.

 

But as interest rates rise, higher finance costs might become a drag on its bottom line.

 

Bloomberg data showed that Hafary&rsquo s total debt rose from just S$12.9 million in 2010 to S$181.5 million in 2021.

 

Non-current financial liabilities rose from S$82.3 million in end 2020 to S$112.9 million in end 2021, while current financial liabilities rose from S$34.6 million to S$55.1 million in the last FY.

 

The company took on additional bank loans in FY21, which included S$40.6 million in loans to buy 2 leasehold properties for its own use in Changi and on Middle Road.

 

Almost 90 per cent of Hafary&rsquo s financial liabilities were pegged to floating interest rates, its financial statements for FY21 showed. In terms of interest-rate sensitivity, a hypothetical increase in floating rates by 100 basis points would have decreased pre-tax profit for the year by S$1.6 million.

 

Hafary had cash and cash equivalents amounting to S$6.1 million as of FY21.

 

Its net-debt-to-equity ratio stood at 2.3 times at the end of FY21, up from 1.7 a year prior. Hafary&rsquo s gearing was at 2 times or higher from 2017 to 2019.

 

The company&rsquo s interest cover was relatively healthy at 8 times in FY21, though investors need to consider whether this could be affected in a rising-rate environment.

 

Insiders buying

 

With a relatively small market capitalisation of S$80.5 million, and a significant chunk of its stock held by substantial shareholders, Hafary is thinly traded. Under 350,000 shares traded on average each month in the past 3 months.

 

Chief executive Low Kok Ann, one of the founders of Hafary Pte Ltd, is a substantial shareholder of the company. His son, Eric, is also a substantial shareholder, and a director of the company.

 

Eric Low, the company&rsquo s chief executive until January 2014, has been building his stake in recent months. In March, he raised his interest in the company from 16.2 per cent to 24.4 per cent after purchasing some 35.6 million shares for S$6.6 million (S$0.185 apiece) from former substantial shareholder Tee Wee Sien in a married deal.

 

Eric Low has continued to build his stake in subsequent market transactions, to 25.4 per cent as at end-May.

 

With insiders buying shares, undemanding valuations and strong growth drivers, Hafary may pique investors' interest. But prospective investors should also consider whether higher interest rates may adversely weigh on financials in the coming quarters before making their investment decisions.

EVEN through the Covid-19 pandemic and lockdowns, residential property prices in Singapore have consistently trended higher.

 

The booming property market benefits suppliers in the ecosystem, and players such as mainboard-listed Hafary Holdings : 5VS 0% have recorded a growth in earnings over the past year.

 

Its valuations appear undemanding, and the company, which supplies building materials such as marble and stone, has opportunities for continued growth. But there are potential risks for the stock in this rising-interest-rate environment.

 

Revenue drivers

 

Hafary has 2 segments in its financial reporting: the general segment records revenue from customers served in its showrooms, while the project segment is for materials sold to property developers.

 

Total revenue jumped 54.3 per cent to S$130.1 million for the FY ended Dec 30, 2021 &ndash coming off a lower base in the pandemic-hit FY20.

 

General segment revenue rose 53.6 per cent to S$82.7 million, partly supported by buyers of resale HDBs looking to avoid construction delays for new flats.

 

SRX data showed total HDB resale volume for 2021 rose 24.6 per cent to 29,182 units. The resale transaction volume for private residential units in 2021 also jumped, by 86 per cent on year, to 19,962, URA data indicates.

 

Revenue from projects, meanwhile, rose 60 per cent to S$43.3 million, reversing 3 years of decline. The better performance was attributed to pent-up demand from the construction and renovation segment.

 

Full-year net profit more than doubled to S$11.6 million &ndash or S$0.027 per share &ndash giving a net profit margin of 8.9 per cent. The company raised its dividend to S$0.015 per share, up from S$0.01 in each of the previous 3 financial years.

 

The market has rewarded this performance by sending Hafary' s shares up from around S$0.14 in early 2021 to S$0.187 as at Wednesday (Jul 6).

 

Despite that appreciation, however, Hafary' s price-to-earnings ratio is a modest 6.9. It has a price-to-book ratio of 1.1 and a trailing dividend yield of 8 per cent.

 

Property demand

 

Sustaining its financial performance is a possibility for the company, given Singapore&rsquo s property market dynamics.

 

Transaction in resale units has remained resilient this year, and the pipeline several years into the future also looks healthy for both private and public housing markets.

 

The number of units available under the confirmed list of the H2 2022 Government Land Sales (GLS) Programme was up 75 per cent from H2 2021.

 

HDB has said it will ramp up the supply of build-to-order flats, launching up to 23,000 flats per year in 2022 and 2023 &mdash a 35 per cent jump from units launched in 2021.

 

Meanwhile, older flats being upgraded by HDB under the home improvement programme would also require tiling supplies.

 

The company has also invested in a revamp of its showroom &ndash the Hafary Gallery &ndash to showcase the use of large-format porcelain tiles.

 

Rising Rates

 

The risk, however, is that rising interest rates might hurt the property market in a way that cooling measures have failed to do so far.

 

An increase in interest rates from 1 per cent to 3 per cent would raise the monthly repayments on a 30-year mortgage for a new home by 31 per cent.

 

This reduced affordability would weigh on non-essential demand, and could cause a correction in the property market.

 

Property owners may also tighten their purses for renovations, given the higher costs of financing the mortgage.

 

Hafary also faces higher financing costs.

 

In the low-interest-rate environment over the past 2 decades, low-cost debt would have boosted a company&rsquo s return on equity (ROE).

 

Hafary&rsquo s ROE was nearly 16 per cent in the last FY.

 

But as interest rates rise, higher finance costs might become a drag on its bottom line.

 

Bloomberg data showed that Hafary&rsquo s total debt rose from just S$12.9 million in 2010 to S$181.5 million in 2021.

 

Non-current financial liabilities rose from S$82.3 million in end 2020 to S$112.9 million in end 2021, while current financial liabilities rose from S$34.6 million to S$55.1 million in the last FY.

 

The company took on additional bank loans in FY21, which included S$40.6 million in loans to buy 2 leasehold properties for its own use in Changi and on Middle Road.

 

Almost 90 per cent of Hafary&rsquo s financial liabilities were pegged to floating interest rates, its financial statements for FY21 showed. In terms of interest-rate sensitivity, a hypothetical increase in floating rates by 100 basis points would have decreased pre-tax profit for the year by S$1.6 million.

 

Hafary had cash and cash equivalents amounting to S$6.1 million as of FY21.

 

Its net-debt-to-equity ratio stood at 2.3 times at the end of FY21, up from 1.7 a year prior. Hafary&rsquo s gearing was at 2 times or higher from 2017 to 2019.

 

The company&rsquo s interest cover was relatively healthy at 8 times in FY21, though investors need to consider whether this could be affected in a rising-rate environment.

 

Insiders buying

 

With a relatively small market capitalisation of S$80.5 million, and a significant chunk of its stock held by substantial shareholders, Hafary is thinly traded. Under 350,000 shares traded on average each month in the past 3 months.

 

Chief executive Low Kok Ann, one of the founders of Hafary Pte Ltd, is a substantial shareholder of the company. His son, Eric, is also a substantial shareholder, and a director of the company.

 

Eric Low, the company&rsquo s chief executive until January 2014, has been building his stake in recent months. In March, he raised his interest in the company from 16.2 per cent to 24.4 per cent after purchasing some 35.6 million shares for S$6.6 million (S$0.185 apiece) from former substantial shareholder Tee Wee Sien in a married deal.

 

Eric Low has continued to build his stake in subsequent market transactions, to 25.4 per cent as at end-May.

 

With insiders buying shares, undemanding valuations and strong growth drivers, Hafary may pique investors' interest. But prospective investors should also consider whether higher interest rates may adversely weigh on financials in the coming quarters before making their investment decisions.

 

On May 30, Hafary Holdings : 5VS 0% non-independent non-executive director Eric Low See Ching acquired 75,000 shares of the company at 19.2 cents per share.

 

With a consideration of S$14,424, this increased his direct interest in the firm from 25.43 per cent to 25.44 per cent.

 

His preceding acquisition was on Apr 13, with 49,500 shares acquired at 19.5 cents per share.

 

Low was appointed non-independent non-executive director of Hafary Holdings in January 2014.

 

Prior to this appointment, he served on the board as executive director and in the company as CEO.

 

On Mar 31, Hafary Holdings Hafary : 5VS +1.04% non-independent non-executive director Eric Low See Ching acquired 98,400 shares of the company at 19.0 cents per share. With a consideration of S$18,696, this further increased his direct interest in the company from 25.36 per cent to 25.38 per cent.

 

Mr Low was appointed as the non-independent non-executive director of Hafary Holdings in January 2014. Prior to this appointment, he served in the board as executive director and in the company as CEO. He joined the main subsidiary of the company, Hafary Pte Ltd, in 2000, and rose through the ranks from sales executive to CEO in 2005.

 

Low is also presently the executive director and deputy CEO of Oxley Holdings and an alternate director of Aspen (Group) Holdings.

 

Hafary Holdings is a leading building material supplier that has been defining living spaces with premium products. With over 5,000 products sourced from around the world, the group maintains it carries the largest collection of surfacing materials in Singapore.

 

One of the questions received in connection with the company' s Annual Report 2021 pertained to whether the group had been affected by supply chain disruptions, particularly from shipping.

 

The group replied that as it sources its raw materials from various countries, some of its operations have been affected by such global supply change disruptions, and the group continues to monitor the situation and will make the appropriate announcements in the event that such disruptions are material.

 

On Mar 15, Hafary Holdings Hafary : 5VS +1.59% non-independent non-executive director Eric Low See Ching acquired 35,574,580 shares of the company in a married deal with substantial shareholder Tee Wee Sien.

 

Tee sold his 8.26 per cent direct interest in Hafary Holdings to Low at 18.5 cents per share.

 

The filing showed that Tee still maintained a 0.44 deemed interest in the company, while Low increased his direct interest in the company from 16.18 per cent to 24.44 per cent.

 

The consideration for the married deal was S$6,581,297. Upon completion of the acquisition, Low and his concert parties, hold, in aggregate, 38.14 per cent of the total issued capital in the company.

 

Such an increase would normally trigger the requirement for a potential mandatory general offer (MGO) to be made by Low and his concert parties under Rule 14 of the Singapore Code on Takeovers and Mergers.

 

However, on Mar 4, Low had applied to the Securities Industry Council for dispensation from the requirement to make the Potential MGO with written confirmation that the majority shareholder of the company, Hap Seng Investment Holdings, had provided an irrevocable undertaking not to accept the Potential MGO, if made.

 

At the time, Hap Seng Investment Holdings held the 50.82 per cent of the total issued and paid up capital in the company.

 

The Securities Industry Council subsequently waived the requirement on Mar 9, subject to compliance with the conditions on dispensation in the Singapore Code on Takeovers and Mergers.

 

Between Mar 16 and 17, Low further acquired another 3,885,300 shares of Hafary Holdings in more married deals, also at 18.5 cents per share.

 

This further increased his direct interest in the company from 24.44 per cent to 25.35 per cent.

 

On Feb 22, Hafary Holdings reported that for its FY21 (ended Dec 31), attributable net profit grew 120.2 per cent to S$11.58 million in FY21.

 

The group registered FY21 revenue of S$130.1 million compared to S$84.3 million during FY20 and S$108.4 million in FY19.

 

Hafary Holdings is organised into 2 core business segments.

 

The increase in revenue for the general segment was supported by an active resale market and robust demand from home buyers.

 

These home buyers were observed to prefer the certainty of getting their flats in the resale market and avoid the construction delays for Build-To-Order HDB flats, caused by manpower shortages and supply chain disruption.

 

Customers of the general segment include homeowners, architecture, interior design and renovation firms.

 

At the same time, the increase in revenue for the project segment was attributed to pent-up demand in the construction and renovation sector in 2021.

 

Customers of the project segment include architecture firms, property developers and construction companies.

 

Prior to his appointment as non-independent non-executive director in January 2014, Low served on the board as executive director and in the company as CEO.

 

Low is also executive director and deputy CEO of Oxley Holdings. Oxley : 5UX +0.58% On Mar 16, Low also acquired 50,000 shares of Oxley Holdings at 17.3 cents per share.

 

He maintains a 28.12 per cent direct interest in Oxley Holdings.

 

On Oct 4, Hafary Holdings Hafary: 5VS 0% executive director and CEO, Low Kok Ann acquired 100,000 shares of the company for a consideration of S$16,970.

 

This increased Low' s total interest in the leading building material supplier from 8.52 per cent to 8.54 per cent.

 

The transaction followed his acquisition of 97,700 shares at 16.6 cents per share between Sep 17 and 20 and 200,000 shares at 16.5 cents per share between Sep 3 and 6.

 

With its subsidiaries, Hafary Holdings is a leading supplier of premium tiles, stone, mosaic, wood flooring, quartz top and sanitary ware and fittings in Singapore.

 

Low was one of the founders of the main subsidiary of the company, Hafary Pte Ltd, and has been an executive director since its incorporation in 1980.

 

Far East Group

 

On Oct 5, Far East Group $ Far East: 5TJ 0% CEO and executive director Steven Loh Mun Yew acquired 92,000 shares of the Catalist-listed company for a consideration of S$10,120.

 

This took his total interest in Far East Group from 61.51 per cent to 61.59 per cent.

 

Loh' s preceding acquisition was on Nov 13, 2020, with 750,000 shares acquired at 15.0 cents per share, and on July 9, 2018, with 600,000 shares acquired at 15.5 cents per share.

 

Appointed to the board of Far East Group in 1990, Loh has over 30 years of experience in the heating, ventilation, air-conditioning and refrigeration industry.

 

He is responsible for the formulation and execution of the group' s business strategies, strategic directions and expansion plans, as well as managing the group' s overall business development and financial performance.

 

For its H1 FY21 (ended June 30) the group' s gross profit increased 23.3 per cent year on year to S$6.7 million, due to the increase in sales.

 

Between Sept 17 and 20, Hafary Holdings Hafary: 5VS 0% executive director and CEO Low Kok Ann acquired 97,700 shares of the company for a consideration of S$16,218.

 

At 16.6 cents per share, this increased his total interest in the leading building material supplier from 8.49 per cent to 8.52 per cent, and followed his acquisition of 200,000 shares at 16.5 cents per share between Sept 3 and 6 and 130,000 shares at 16.7 cents per share on Sept 1

Hafary Holdings

 

Between Sept 3 and 6, Hafary Holdings Hafary: 5VS -1.21% executive director and CEO, Low Kok Ann acquired 200,000 shares of the company for a consideration of S$33,000.

 

At 16.5 cents per share, this increased his total interest in the leading building material supplier from 8.45 per cent to 8.49 per cent, and followed his acquisition of 130,000 shares at 16.7 cents per share on Sept 1.

 

Southern Packaging Group

 

On Sept 6, Southern Packaging Group Southern Pkg: BQP 0% substantial shareholder Jen Shek Chuen acquired 50,000 shares of the company for a consideration of S$25,000 at 50.0 cents per share.

 

This took the substantial shareholder' s direct interest in the packaging solutions group from 13.93 per cent to 14.00 per cent.

 

It followed on from his direct interest crossing above the 13.00 per cent threshold back on Nov 18, 2018.

 

On Aug 14, Southern Packaging Group reported that its H1FY21 (ended June 30) revenue increased by 27.3 per cent year on year to 329.8 million yuan (S$68.58 million) on the back of sales demand recovering back to normal as the spread of Covid-19 in China was effectively under control compared to FY20.

 

On Sept 1, Hafary Holdings Hafary: 5VS 0% executive director and CEO, Low Kok Ann acquired 130,000 shares of the company for a consideration of S$21,660.

 

At 16.7 cents per share, this increased his total interest in the leading building material supplier from 8.42 per cent to 8.45 per cent.

 

Mr Low' s primary role in the group is to formulate and oversee the corporate and strategic development and overall management and operations.

 

On April 6, Hafary Holdings executive director and CEO Low Kok Ann acquired 148,000 shares of the company for a consideration of S$22,940.

 

At 15.5 cents per share, this increased his total interest in the leading building material supplier from 8.34 per cent to 8.37 per cent.

 

His preceding acquisition was on Feb 26 with 98,000 shares acquired at 14.9 cents per share.

 

Mr Low' s primary role in the group is to formulate and oversee corporate and strategic development and overall management and operations.

THREE mainboard-listed companies on Monday warned that they would sink into the red in their upcoming financial results.

 

Building materials supplier Hafary Holdings and property and hospitality company AF Global said they expect to report H1 losses for the six months ended June 30, 2020, while Chinese canned vegetable and fruits producer Sino Grandness Food Industry Group expects to report Q1 losses for the three months ended March 31, 2020.

 

Hafary said its loss is mainly attributable to lower revenue recognised by the company due to a slowdown in business volumes arising from the Covid-19 pandemic. It reported a H1 profit of about S$3 million last year.

 

The group' s business operations in Singapore were disrupted during Singapore' s " circuit-breaker" measures from April 7 to June 18, Hafary said. It will announce its results on or before Aug 14.

 

AF Global said its expected loss was mainly due to the group&rsquo s hospitality business, which was adversely impacted by the global pandemic and ensuing economic crisis. Its profit for H1 2019 was about S$19.7 million. 

 

Sino Grandness said its loss was due primarily to the negative impact of the pandemic on its operating regions. Earlier in June, it said two key, wholly-owned subsidiaries in Hubei - which had ceased operations in February amid the pandemic - had received approvals from the relevant authority to resume operations, but that operations had not resumed fully due to the imposition of travel restrictions and precautionary measures, as Hubei is a high-risk area for Covid-19.

 

Its headquarters in Shenzhen was also forced to shut in February as part of measures by the Guangdong government to prevent the spread of Covid-19.

 

Restrictions on transportation and movements within China have also limited the group&rsquo s ability to provide products for its customers, it said. Sino Grandness reported a Q1 profit of about 12.8 million yuan (S$2.5 million) last year. 

 

Notwithstanding, Sino Grandness management said it believes the group&rsquo s working capital position remains healthy, with its unaudited cash and bank balance standing at about 600 million yuan as at March 31.