I will probably write down the conclusion first. I think the best half will be / has to be 1H 2024. Which is why i think the best is yet to come.
However, the possibility of the drop-off in revenue and earnings after 1H 2024 is there. I think there is a 80% chance 2H 2024 will be worst off than 2H 2023.
I have actually not made any decision yet with regards to this position because of its severe below book value and the strong cashflows seen in 2023.
Why I think the best is yet to come
(a)Expansion of Dormitory Size. Previously it was 10400, now it is 12480 and although there are a few hundred of Huationg's own staff living there, the overall base is still larger and along with the increase in refundable deposits as seen in the annual report, this will lead to an increase in revenue in the dormitory operations
(b)Increased Construction Works. Previously mentioned in the annual report, the next 2 years will be good. With the revenue coming in from civil engineering contracts being at around 30% higher should no delays occur . This is because estimated 132 million will be recognized in 1 year compared to the 104 million in 2023 and tender price index has been on a rise, which means that margins should go up as cost is current but contracts are past prices.
(c)Improved Inland Logistics Support Segment Sentiments
Gathering the above 4 factors, I believe 1H 2024 should outperform.
AGM Notes
1) EGM Resolution Defeated
In what is easily one of the longest AGM i have went, the Q&A went on for at least 1.5-2 hrs.
There were many things that were being highlighted. Most people would have seen the results that the EGM failed.
Personally, I don't think this is a big deal. Because there was a married trade of 12.5m shares on 2 April from a 3rd party to the management. Had the management really want this to be through and 'played the game' , they could have done this married trade after the EGM.
I was just surprised with the amount of votes that were present as these were unrelated parties or retail investors. There was easily 4.4m shares there when i counted less than 8 retail shareholders present.
2) Unallocated Cost
There has been a way the Unallocated Cost has been distributed in FY 2023 compared to previous FY, as such, the margins have been affected by this allocation of cost (which is said to be the administrative cost of the company). As such, the dormitory margins look very different when 1 has seen the 1H 2022/1H 2023 and FY 2022 / 2023 results.
3) Dormitory Operations Enquiry
There were many queries about this from the floor. Unfortunately due to the non-disclosure agreement signed, there is nothing much they can reveal apart from the contract ending sometime in 2024.
4) The Shift of Asset Held For Sale back to Property Plant Equipment. Due to high interest rate environment, the property at Benoi is unable to be sold. The initial plan was to sell the property at Benoi to get a larger place as currently coping with space constraints but more space is anticipated to be needed.
5) Rather Low Dividend Payout Remark by Shareholders. Management noted on it. Nothing much mentioned. However, after that management did note that they are doing decently now only, past years during covid times it was really bad and they nearly even had to do rights issue to tide through therefore now taking a conservative stance.
Conclusion
In line with point 3 above, this leads me to believe that if they do not get renewed, we could see profitability being affected.
Having said that, 1H 2024 should still be all guns firing. Have to research / look out on the websites or news or announcements to see if the renewal occurs as it goes.
If the rewewal does not happen, we could be looking at 1.5 to 3 cents Earnings per Half Year depending on how well the other segments do (we could get a feel of it at 1H 2024).
U can trust me when i say i left the AGM being more informed but more puzzled yet more head spinning as i still think about whether to make a decision to add / hold / reduce.
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