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800 Super Share Price Crashes 40%

800 Super Share Price Crashes 40% – Start of the end?

With the announcement of the full year financial figures, the share price plunge by 36% in 1 week. At one moment, the share price dropped by a massive 40%.  

800 Super Share Price Crashes by 40% - Price Chart

 

 

800 Super Holdings Limited has been one of the successful stock market stories for the past few years. Since its IPO, 800 Super Holdings Limited has been a 4-5 bagger with its price peaking at $1.38.

800 Super Share Price Crashes by 40% - All-time Price Chart

For a multi-bagger company to crash 40% in a few days, the company must have been doing very bad.

Oh no!!! It’s the end!!!

Let’s take a look behind the reason of the crash and to see if the market has over-reacted to the news. By the way, we also wrote an article on Singtel Share Price and Viva Industrial Trust (VIT) if you are looking to invest to make passive income in Singapore

Who is 800 Super?

What is 800 Super Holdings Limited in the first place? Trading on the Catalist board under the ticker “5TG”, 800 Super Holdings Limited is an environmental services provider for the public and private sectors in Singapore. Definitely not a rubbish company. (Pun intended.) Currently at a market cap of $150 million, 800 Super Holdings Limited is one of the four NEA-appointed Public waste collectors.  

800 Super Holdings Limited is currently servicing 2 of the 7 sectors mapped out by NEA 

800 Super Share Price Crashes 40% - PWC Sector

In order to have a chance of being a Public waste collector, companies must fulfill the 3 criteria set out by NEA. Therefore, it is generally a regulated-business in Singapore.

General waste collectors are issued 3 different licenses in Singapore. 

 800 Super Share Price Crashes by 40% - General Waste Collectors License Classes

From this list, we can see that the waste collection scene is indeed very competitive in tiny little Singapore, with a total of 343 companies serving our little red dot.  

Of which, 290 out of the other 342 companies have the Class A license to clear inorganic waste and recyclable waste. It is important to know this point as most of the income of 800 Super Holdings Limited comes due to this Class A license. 

The management of 800 Super Holdings Limited attributes the decrease in earnings to the renewal of contracts at a more competitive price. For the first time, 800 Super Holdings Limited has categorised their earnings into segments, in their latest full-year announcement, we can see that 800 Super Holdings Limited is heavily dependent on their environmental service business aka their Class A license, which is very competitive.  

 

Saturated Market and how it affects 800 Super Share Price

Singapore being a saturated market, there is not much that 800 Super Holdings Limited can expand within Singapore. It is definitely unrealistic to expect 800 Supers Holdings Limited to grow like Monster Beverage or Amazon.  

800 Super Holdings Limited has been doing well for the past few years, being a 4-5 bagger stocks. 800 Super Holdings Limited is a decent company, however, it is not a terrific super company, not in the competitive Singapore.  

This is reflected in their balance sheet.

 800 Super Share Price Crashes 40% - Balance Sheet

I shall start off with the Liabilities first before going onto the Assets. 800 Super Holdings Limited do not have a lot of very complicated liabilities, just Trades and other payables, borrowings and income tax.  

In recent years, 800 Super Holdings Limited has borrowed monies to support the construction of their Waste to Energy (WTE) plant as well as the development of the sludge treatment facility. This can be seen under Current Liabilities and Non-current liabilities where there is a total of $89,068,000 of debts.  

Other than that, Trade and other payables as well as income tax liabilities, are liabilities tagged to business operations. There has been a sudden spike in Trades and other Payables by $11,721,000 or a 58.1% increase in 1 year. It is not explained in the announcement why there is a huge spike, therefore, we would have to wait for the annual report to be released. Currently, I am not too concerned about it as it could be a positive thing, although it can also be a negative thing. Although my gut feeling points to the latter. Nonetheless, there is nothing to speculate on until there is more information.   

Now, looking at the Assets, the main changes here are the huge decrease in Cash and Cash Equivalents and the huge increase in Property, Plant and Equipment.  

Cash and Cash Equivalents decreased by $19.5 million. These monies were channeled towards the Property, Plant and Equipment, mainly towards the construction of the WTE plant and Sludge Treatment plant in Tuas.  

This has genuinely reduced the amount of cash 800 Super Holdings Limited had, especially when this company was never really a major cash cow. However, management has reassured investors that the company would have sufficient working capital for the next 12 months from cash flow from operations and credit facilities available to the company.  

 

Loans terms 

As we can see that the management has relied on loans to facilitate the construction of the WTE plant and sludge treatment plant. Doing so has seen 800 Super Holdings Limited taking on a lot of debt. Let’s take a deeper look at the loans that the company has taken on.  

 800 Super Share Price Crashes 40% - Debt Tenure800 Super Share Price Crashes 40% - FY2017 Debt Maturity Date

 

 

 

 

 

 

 

 

 

From these figures, we can see most of the debt are payable after 1 year. Exactly when, we will have to wait for the annual report. From FY2017 annual report, we can see the debt tenure is usually quite long, therefore, my guess is that, the debt majority dates for the current debts are also far into the future. However, we can also see that, most of the debt are on floating rates instead of fixed rates. This, therefore, leads me to my second guess that most of the new debt would probably be on floating rates as well.  

Next begs the question, is the loan too much? In total, 800 Super Holdings Limited has $89 million in debt and total liabilities of $125 million. However, shareholder’s equity stands at $85,124,000. This gives a debt/equity ratio of 1.48. Dangerous territory in my opinion.  

 

Why do it??? 

My next question is, why is the management doing this? Well, as mentioned previously, there are 3 classes of license in Singapore for General Waste Collectors and 800 Super Holdings Limited currently holds Class A and B license. Of the 2 licenses, 800 Super Holdings Limited is competing with 290 other companies in the Class A license pie.  

However, there are only 6 companies that holds all 3 license, which I guess 800 Super Holdings Limited would join this small club, given that they have constructed their sludge treatment facility in Tuas to treat sludge for PUB.  

Even if we add in the other 46 companies that are now holding Class C license, the competition is much lesser.  

From this point of view, I can understand why the management decided to diversify their operations. Adding to this point is that, this is the first time 800 Super Holdings Limited has categorised their revenue. This year, a new category appeared, and that is the laundry business. The laundry business is currently responsible for 3.3% of total revenue. It is not a big number, nonetheless, it is a start.  

800 Super Share Price Crashes 40% - Revenue by Segment

The next start that investors can look forward to is the monetisation of the plastic recycling plants and the sludge treatment plant. Currently, the Sludge Treatment facility is udnergoing testing and commissioning and is expected to be fully operational by December 2018. 

Owner-Operator 

When a company wants to raise capital for projects, there are different ways to go around doing it, such as bank loans, bonds and raising capital from the stock market.  

800 Super Holdings Limited has decided to raise capital from their credit facilities, resulting in a huge increase in borrowings, thereby, arguably weakening their balance sheet. What I liked about this company is that, management has not raised capital from the stock market. 

Doing so will increase the number of shares and reduced the ownership of shareholders. Not only that, the management has not sold their shares as well. As at 15 September 2017, Chairman Lee Koh Yong, CEO and Executive Director Lee Cheng Chye and majority shareholder Lee Hock Seong holds an indirect ownership of 66.97% of 800 Super Holdings Limited.

However, on 10th October 2018, 800 Super Holdings Limited submitted Form 1 and Form 3 for Chairman Lee Koh Yong, CEO and Executive Director Lee Cheng Chye, majority shareholder Lee Hock Seong and Yong Seong Investment Pte Ltd. Yong Seong Investment Pte Ltd is the largest shareholder of 800 Super Holdings Limited. It is an investment holding company majority owned by Chairman Lee Koh Yong, CEO and Executive Director Lee Cheng Chye and majority shareholder Lee Hock Seong to the tune of 28%, 24% and 28% respectively. 

The announcement was that Yong Seong Investment Pte Ltd spent $462,253.34 to purchase 575,400 shares. A simple calculation will yield that the stocks are purchased at roughly $0.80/share. This increased the share ownership from 66.96% to 67.29%. Altogether, Chairman Lee Koh Yong, CEO and Executive Director Lee Cheng Chye and majority shareholder Lee Hock Seong has increased their ownership of 800 Super Holdings Limited from 74.96% to 75.29%. 

The increase is not a lot, nonetheless, it is a confidence boosting action that shows that the management has much confidence in their future plans.

Despite being a public listed company, 800 Super Holdings Limited is still pretty much a family business as many of the major shareholders of the company are from the same family and are involved in the operations of the company as well. 

Therefore, it is safe to say that their interest is more at stake as compared to many other retail investors.  

Conclusion for 800 Super Share Price

800 Super Holdings Limited has done well for the past few years being a multi-bagger stock. However, recently it has seen a huge 40% drop in share price in 2 days although the share price subsequently rebounded. The drop is due to a net loss of $1.67 million in the last quarter of the year although the company is still profitable for the year and expects to be so for the next year.

What adds onto the concern is that the company took on a lot of debt in one year to facilitate the construction of the WTE plant, Sludge Treatment Facility in Tuas as well as the acquisition of a laundry business. Although this rather ambitious plan has pushed 800 Super Holdings Limited into undesirable debt situation as well as reduced its cash by a lot, it is a signal of intent by management to diversify their operations away from their main core business, which is very competitive.

It is not all doom and gloom as there are things that investors can look forward to as well, such as the monetisation of the sludge treatment facility and the plastic recycling plant. The biggest plus point is that this company is an owner-operator public listed company. Doing the wrong things and getting the company in the red will only harm the management’s personal interest as well.  

After looking at the whole report, hey, it doesn’t look too bad. Not as bad as Tesla. Oops, I said that out loud didn’t I? Of course, this is not a buy or sell recommendation. Please do your own homework before investing in any company.

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