GEM Exclusive- Trading idea- Hong Fok
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Mkt cap: $750m; Price: $0.87; P/B: 0.32x, Dividend yield: 1.1%, Net D/E: 29.5%
About: Primarily engaged in property investment, property development and construction, property management, investment trading and investment holding and management.
Trading idea- we love trading a stock with fundamentals. While there is deep value for the stock, value trap is always a concern. Hence, we are recommending this as a trading idea (till there is a clear path demonstrated to monetise its deep value)
Quick glance: Hongfok is a well-known value stock, given it is trading at only 0.3x P/B, and backed by investment properties such as the likes of International Plaza, Concourse and Yotel at Orchard.With its attractive valuation, a free float of only 29%, it is also a potential privatisation target. However, there are concerns that it may be a value trap, if there are no other way for shareholders to realise the deep value within Hongfok (other than the 1.1% dividend yield), which may also explain its depressed P/B. A 0.4-0.5x P/B will imply a TP of S$1.10-1.38
By the charts: After its surge earlier in the year, prices have corrected more than 20% before forming higher highs and higher lows. Stock seems to be currently supported at $0.85 as well as active share buybacks and repurchases from management/major shareholder. Assuming stock can break above its recent high of $0.895, hopefully it will be trending towards $0.94. On a weekly chart, if the stock is able to retest its previous high of $1.01, and break above, it may potentially chart towards $1.165 which will still put it within our “fundamental TP” range.
Stop loss $0.83
TP 1: $0.94
TP 2: $1.165
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