Allan International Up Almost 160% In Nine Months
On June 6th 2009, I suggested that all intelligent investors should buy into Allan International Holdings Ltd (HKEX 0684). The share price was HKD1.02, with a price to earnings ratio of 5.27 and a dividend of 8 cents or 7.84% return, making it the best value for money in the Hong Kong Stock Market at the time of writing. I went on to state that the previous financial year’s dividend was 11 cents, representing a 10.78% return based on the current share price. The company also had a history of adjusting dividends to match company performance and cash flow requirements. The end of year financial results were expected to be strong so I was looking for an increase in dividend payments.
Warren Buffet and Benjamin Graham love this type of company with net asset value of HKD540,827,000 and market capitalization of HKD342,141,170. It represents buying a dollar at the value of 63.26 cents. The net profit was HKD 64,872,000 with earnings per share of HKD 0.1934 with dividends of 11 cents in 2007 and 8 cents in 2008.
On November 7th, with Allan International Trading at HKD1.72, I spoke of my expectation for an increase in the half-year dividend payments for the period to 31st September 2009. After an incredible performance by management, end of year results for the year ending 31 March 2009 showed great numbers - the profit was up 65% (HK$64,872,000 to HK$106,938,000), cash on-hand doubled (HK$163,221,000 to HK$335,164,000) and debt almost halved ($33,194,000 to HK$19,755,000). The annual dividend increased from 10 cents to 14 cents per share, up 40%. Historically, management has been very generous in its sharing of company profits with shareholders. In 2007/8 the interim dividend was 4 cents with final dividend 6 cents while 2008/9 interim was 2 cents and final 12 cents.
I mentioned that management has a tendency to adjust dividend payment according to cash flow requirements and profitability. With cash on hand doubling to HK$335,164,000 and profit up 65% to HK$106,938,000, the company has a cash hoard that makes it the envy of all listed companies on the Hong Kong Stock Exchange.I correctly understood that the expected dividend would be influenced by a combination of the historical ratio of interim to final dividend, cash on hand, net profit and future investment requirements. I expected the interim dividend would be up from 2 cents to 6 or 8 cents; it turned out being 5 cents. My summary of the stock still stands. Allan International Holdings Ltd is a very safe port for our money in these stormy economic times.
On December 4th my analysis of Allan International Holdings, a manufacture and seller of household electrical appliances, concluded that the current increase in share price to HKD1.99 plus the HKD0.12 dividend puts the return on investment at HKD1.09 or approximately 106%. One million Hong Kong dollars invested in Allan would have grown to over two million in just six months. At that point I suggested that investors should sell half of the shares they have in Allan International Holdings. I was confident the fundamentals of Allan were excellent, though, with the present uncertainty in the markets, 106% profit over a six month period needs to be realized. I advised that the other half of the funds an investor had remaining in Allan should be kept as a long term investment with the dividends keeping one warm at night during these turbulent times.
Well here we are and its now March 9th 2010 and Allan International is trading at HKD2.48, which is an increase of HKD1.46 with a dividend of 17 cents making a return of HKD1.63, or, in other words, a 159.80% return on investment in a nine month period which is perfectly acceptable.
Marcus Maher, Chief Business Analyst – China
Note: Marcus Maher currently owns shares in Allan International Holdings, Ltd.
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