Lessons from Hong Fok AGM

HONG FOK CORPORATION LIMITED is a public company listed on the Singapore Exchange Securities Trading Limited. The principal activity of the Company is that of investment holding whose subsidiaries are primarily engaged in property investment, property development and construction, property management, investment trading and investment holding and management.

Attended AGM this morning with more than 1 and a half hours of questioning to the management. Most of the questions are centered around the remuneration of the management. The top 3 management were paid a total of around $14 million dollars while the shareholders were given $7 million in dividends. They also consider their valuation gains as profit to justify the pay and bonuses. Furthermore, minus off the valuation gains, the company has an operating loss of $11M.

The lessons learned are:

  1. Management must take care of minority shareholders. In this company, the management seems to get much better. And in comparison to another property company UOL, the total management pay is lower and the net income of UOL is about 3 times more than Hong Fok. I heard from other shareholders that the remuneration issue was raised a few times but it wasn’t corrected.
  2. Beware of creative accounting. Although technically Hong Fok’s financial statements are accurate, it was not presented in a transparent manner. For example in UOL, basic earnings before valuation gain or loss were presented to give a clearer picture. In Hong Fok’s case, the valuation gains are considered as profit even though it’s not divested yet.
  3. Having a mission and vision. In the annual report, Hong Fok does not have a clear vision-mission statement. It shows a lack of visionary leadership and more of a family business to sustain their income.

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