Investing for the long term can be extremely rewarding as your investment compounds and grows with time.
It’s important, however, to choose the right business to park your money in.
Choosing a well-run and high-quality business with strong competitive advantages is key to enjoying a great return.
Haw Par Corporation Limited (SGX: H02) is one such business.
This conglomerate has been listed on the Singapore Exchange since 1969 and has four core divisions — healthcare, leisure, property, and investments.
Haw Par’s healthcare business is helmed by the iconic Tiger Balm brand, which is one of the world’s leading analgesic brands.
Tiger Balm’s ointments and lotions are widely used in 100 countries to soothe aches and pains.
It’s a good thought exercise to assess how much you’d end up with if you had invested S$20,000 in Haw Par a decade ago.
Such exercises help to illustrate the wisdom of long-term investing.
A powerful mix of capital gains and dividends
Haw Par was trading around S$5.46 exactly 10 years ago, so S$20,000 would have bought you 3,600 shares.
The stock has more than doubled today and is trading at S$11.74, so your S$20,000 would have grown to S$42,264.
But, let’s not forget the dividends that you would have received from owning the stock for a decade.
The dividend per share totals up to S$3.40 and includes a special dividend of S$0.85 that the group declared in fiscal 2018 (FY2018) for its 50th anniversary.
The total dividends received for these 3,600 shares will amount to S$12,240.
Thus, your investment in Haw Par would be worth S$54,504 in total, a profit of S$34,848 or 177%.
Dividends form close to a quarter of the total return.
Haw Par’s business is under pressure
The above is a simple demonstration to show how much your investment can grow if it is invested in a good company.
Investors may be wondering if there is further upside to owning Haw Par’s shares.
The healthcare group is facing challenges from the pandemic as many sporting events have been cancelled worldwide, dampening demand for its Tiger Balm products.
For its fiscal 2021, revenue grew 27.2% year on year to S$141.2 million but net profit dipped 8.1% year on year to S$110.1 million.
Sales for healthcare products did pick up in the second half of 2021 but it was not enough to offset the higher distribution and marketing expenses at the group level.
A brighter outlook
Things may be looking up for Haw Par.
Despite the lower net profit for the group, revenue for its healthcare division in 2021 rose 33.8% year on year to S$124.4 million.
Segment profit climbed 31.7% year on year to S$21.3 million.
Meanwhile, Singapore has also relaxed its travel restrictions and extended quarantine-free entry since 1 April.
As more countries reopen their borders, tourism should start to pick up the pace while more sporting events should also be held this year.
The group also successfully launched its Tiger Balm plaster in the Philippines and Vietnam.
At the same time, it is actively building the brand’s digital presence across various social media platforms.
These moves should provide a further boost to Haw Par’s healthcare division, allowing it to further grow its top and bottom lines.
A cash machine
Investors should also note that Haw Par continued to generate healthy free cash flow throughout the pandemic.
Not only did operating cash flow remain positive for both FY2020 and FY2021, but the group continued to enjoy dividend income from its strategic investments in both United Overseas Bank Ltd (SGX: U11), or UOB, and UOL Group Ltd (SGX: U14).
At the end of 2021, Haw Par owned 74.85 million shares of UOB and 72 million shares of UOL Group and received dividend income amounting to S$74.1 million and S$10.8 million, respectively, from these two investment holdings.
This healthy cash inflow is what enables the conglomerate to maintain its dividends despite a sharp plunge in net profit for FY2020.
Get Smart: A promising investment
The strength of the Tiger Balm brand may be the catalyst for further growth once the pandemic is past us.
As the group launches new products and engages more customers through digital means, the healthcare division should continue its growth trajectory.
If you believe that Haw Par’s business can continue to flourish in the next decade, then this is a business you can confidently park your money in for many more years.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.