The financials of the Hong Kong-listed Guoco Group, based on the latest financial statement for the period ended June 30, 2010, showed that its cash holding is the lowest since 2002. Out of its holdings of HK$24.82 billion (RM9.96 billion), HK$18.41 billion or 74% is invested.
This comes at a time when stock markets around the world are going through a period of uncertainty amidst fears of the global economy sliding into a recession again, just after recovering from the one in 2007-2008 brought about by the subprime mortgage crisis in the US.
In the notes accompanying the financial statement, Guoco, which is Quek’s investment holding company, is not too worried of a possible “double dip”.
“We intend to deploy more funds to expand our investment portfolio, and to build up core businesses through organic growth and mergers and acquisitions,” it noted in its financial results announcement on Aug 27.
“Whether the world will undergo a renewed contraction is unclear. With continued accommodative government policies and near-zero interest rates, we believe the global economy is unlikely to plunge into a double-dip recession,” it added.
In tandem with the bullish outlook, Guoco’s trading financial assets jumped 550% to HK$18.14 billion as at June 30, 2010 from HK$2.79 billion a year earlier.
Quek appears to be bullish on the stock market with his investment holding company Guoco saying it intends to ‘deploy more funds to expand its investment portfolio’.
The Hong Kong-based investment holding company also saw its available-for-sale financial assets rise to HK$5.97 billion in June 2010 from HK$2.99 billion, or a 100% increase.
Meanwhile, Guoco’s cash and short-term funds have decreased in tandem with the rise in its investments. As at June 30, 2010, the group’s cash and short-term funds have declined by 72% or HK$16.4 billion year-on-year to HK$6.4 billion.
Did Quek believe this was a good time to start deploying Guoco’s cash for investments in the market?
It is no secret that the Guoco group has been sitting on a healthy pile of cash. After all, it has been cash-rich since selling Dao Heng Bank to DBS Bank in 2001for US$5.4 billion (RM16.79 billion). At that time the sale of Dao Heng was valued at 3.5 times book value.
Judging from Guoco’s recent results, it looks as though its investment strategy has borne fruit. For the financial year ended June 30, 2010 (FY10), the group’s core business — which is principal investment — registered a profit before tax of HK$1.75 billion compared to a loss before tax of HK$589.2 million in FY09.
Guoco’s investment strategy has had a good run. Profits from its principal investment division averaged about US$230 million (RM715.3 million) each year from FY02 to FY05 and jumped to US$636.49 million in FY06 due to the stock market bull run.
Interestingly, the investment holding company made an exit as early as the middle of July 2007, which was right before the global financial crisis hit the markets.
When the going was getting tough in 2007, the Guoco Group quickly scaled down its exposure to the stock markets. The amount of its “trading financial assets” was reduced from HK$9.19 billion as of June 2007 to HK$5.86 billion as at December 2007, which translates into pulling out 36% of its funds, in just six months.
Despite the sterling performance of its investment portfolio for the years 2002 to 2008, Guoco Group’s cash pile has remained stable at the HK$22 billion range. This is because the group has been generous with its dividends. For the financial years 2002 to 2009, it paid out a total of US$751 million in dividends.
Aside from its principal investment business, Guoco Group also has a 65.2% stake in a property development arm GuocoLand Ltd and a 65.5% stake in GuocoLeisure Ltd as at June 30, 2010. Both the companies are listed in Singapore. The Guoco Group also has a 25.4% stake in Hong Leong Financial Group, which controls 64.4% of the sixth-largest bank in the country, Hong Leong Bank Bhd.
Quek, 66, has been in the driving seat of the Guoco Group all this while. He is its executive chairman, a position held since 1990, and is also the chairman of the board remuneration committee of Guoco.
This article appeared in The Edge Financial Daily, September 7 2010.
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