SINGAPORE (April 17): RHB Research is initiating coverage on Taiwan-based venture capital firm Hotung Investment Holdings with a “buy” call and a target price of $2.00.
“[Hotung] has historically traded at low valuations, as the market probably has not known or understood its business model,” says RHB analyst Goh Han Peng in a Monday report.
One of the pioneers in taiwan’s venture capital industry, Hotung typically invests in companies that are in an expansion stage of growth, across a broad range of industries including biotechnology, e-commerce, and smart home key components.
Goh notes that Hotung has a liquid balance sheet and is sitting on a net cash position of TW$2.1 billion ($96.6 million), which represents close to 60% of its market capitalisation.
“Backing out its net cash, the implied price an investor is paying for its underlying investments is 30 cents on the dollar,” says Goh.
With the stock currently trading at 0.5x FY17F P/BV, Goh opines that Hotung offers “good value” at present levels.
“A 100% payout policy has resulted in cumulative dividends of $70 million paid over the past five years,” says Goh. “The stock has traded at a yield range of 8-11%, and we forecast a forward yield of 10% over FY17-18.”
In addition, its management has purchased back some 23% of outstanding shares over the last decade through its active share buyback programme.
“Continued share buybacks or a partial capital reduction to return surplus cash could serve as catalysts to re-rate the stock further,” Goh says.
As at 11.21am, shares of Hotung Investment are trading flat at $1.75.