Saturday, July 7, 2001

Hawaiian Airlines is flying high with a gain of 79.3
percent so far this year in its stock price.

Hawaii stocks
fare well in
tough market

Eleven of the 14 equities in the
Star-Bulletin index showed gains
for the first half of the year

By Dave Segal

It was the state's two-largest banks that captured most of the headlines during the first half of 2001.

But Hawaiian Airlines Inc.'s low-priced stock proved to be the highest flier by midyear as it soared 79.3 percent to rise above 13 other companies in the Bloomberg Honolulu Star-Bulletin Index .

In fact, Hawaii stocks enjoyed a remarkable performance in the first six months of this year as 11 of the 14 stocks in the index posted gains. The feat is even more impressive in light of the fact that the U.S. economy has been slowing and each of the three major U.S. stock indexes were lower at midyear than where they started 2001.

The Dow Jones industrial average ended off 2.6 percent at the end of June, the Standard & Poor's 500 index fell 7.3 percent and the Nasdaq composite index lost 12.5 percent.

Compare this with the members of the Star-Bulletin index: Eight of the 14 companies had gains of greater than 20 percent and five of those exceeded 50 percent.

There are reasons, though, why Hawaii's companies dodged the bullets that left so many companies strewn across the battlefield.

For one, Hawaii has no publicly traded pure technology companies that could have been pummeled in that beaten-down sector.

Secondly, the state endured its own economic malaise in the second half of the 1990s and has been in recovery mode at a time in which the mainland is starting to feel the pinch.

Paul Loo, senior vice president of Morgan Stanley's Bishop Street brokerage, attributes the Hawaii stocks' strong performance to a carryover from 2000's record tourism year and the state's ongoing economic recovery.

"We've been in the tank and Hawaii has had a very difficult time," Loo said. "With the carryover from Silicon Valley (due) to (the) technology (meltdown), I think you've got more travel coming (to Hawaii) out of California -- even though Japan has had a problem. I think real estate prices started to bottom and tourism last year was at an all-time high. I think that has contributed greatly.

"Hawaiian Airlines is in the travel business and they've modernized their fleet and Schuler Homes is sweeping in on the pickup in homebuilding not just here but across the nation, especially on the West Coast where they've expanded. I think we've come out of the trough and rising water has raised all the boats in the water. I think those companies (as well as Hawaii's banks) went through great cost efficiencies and went through a great deal of agony, and if there was any pickup in tourism, it had to be reflected right across the board."

Hawaiian Airlines

>> Hawaiian Airlines, which launched its nonstop Honolulu-San Diego service on June 15 and is in the process of overhauling both its interisland and trans-Pacific fleets, started the year at $1.81 and was at $3.25 on June 29 when trading in the the first half of the year wrapped up. It was a big leap for a company that emerged from bankruptcy in 1994 and had been trading around the $2 mark for two-plus years.

The banks

Hawaii's two biggest banks, meanwhile, both are undergoing major changes and their stock prices positively reflected the events.

>> First Hawaiian Bank parent BancWest Corp., which itself was the product of a 1998 merger, will go private later this year. That's because French bank BNP Paribas reached agreement to acquire the 55 percent of BancWest it doesn't already own in a $2.5 billion deal that will pay investors $35 a share. BancWest's stock, which shot up on the May announcement, ended midyear just below the proposed purchase price at $34.40, a six-month gain of 31.7 percent and a one-year return of 115.6 percent.

>> Bank of Hawaii parent Pacific Century Financial Corp., meanwhile, has seen its stock steadily rise since Chairman and Chief Executive Office Michael O'Neill took over last November. In April, he announced that the company would divest itself of its California holdings and most of its positions in the South Pacific and Asia in an attempt to focus on its core assets. O'Neill's streamlining crusade sent the stock up 45.8 percent in the first half of the year and 84.1 percent over a 52-week period.

>> Hawaii's other publicly traded banks also finished with positive returns in the first half of the year. City Bank parent CB Bancshares Inc., which is thinly traded, jumped 51.6 percent. Central Pacific Bank parent CPB Inc., also lightly traded, rose 6.1 percent. And Hawaiian Electric Industries Inc., which includes American Savings Bank among its principal subsidiaries, edged up 2.7 percent.

Schuler Homes

>> Schuler Homes Inc., which has benefited from the national pickup in homebuilding, saw its stock jump 50.4 percent at midyear and 121.1 percent over the one-year period. Schuler Homes doubled in size during the first half of the year after completing its acquisition of California homebuilder Western Pacific.

Changing market

"My two favorite local stocks for quite awhile have been First Hawaiian Bank (BancWest Corp.) and Schuler Homes," Loo said. "You can't buy First Hawaiian anymore. I would rank Schuler as an excellent hold for the longer term because it's in the right industry.

"I'm also attracted to Bank of Hawaii because they're eliminating divisions that have had a low return on their investment. They're cutting down expenses and getting a lot meaner and the profit picture will be turning around."

Loo, who is reluctant to predict a second-half turnaround this year for the overall market, expects basic industry stocks to be the next market leader.

"Because Hawaii companies reported better earnings last year, it was not unusual for the market to reflect those good earnings," Loo said. "And sure enough it did. Now, going forward, having come up 50, 60 percent, I'm not sure they're going to turn in that kind of performance in the second half of the year. I think they're going to be affected by the major slowdown taking place everywhere else. I think they're going to feel the effect of the drop in Silicon Valley and I think the second half of the year is not going to bring about the results that were achieved in the first half."

Loo said investors will be paying close attention this month as companies nationwide report their second-quarter earnings.

"I think earnings will be under great pressure and earnings are the final determinant of stock prices," Loo said. "As long as earnings continue to come out weak for the balance of the year, I don't anticipate the market doing that much.

"Having said that, there's a material shift going on out of New Economy technology stocks into basic economy stocks -- companies that make aluminum, steel, electrical connections. You're actually having a boom today in basic demand stocks, which have not done very well in the market. There's a big pickup in financial services, home improvement, aircraft, electric connections and other areas because of the big population explosion that was announced in (the) 2000 (census). The country grew by 32 million people in the last 10 years, and when you suddenly show up with 32 million more Americans, homes need engineers, drywall and electrical connections. Homebuilding is going to be dynamite. I think there's going to be a resurgence of basic industries. What's the old saying, 'You can make a fortune making coathangers.' "


>> Meanwhile, Big Island-based Cyanotech Corp., which makes nutritional products out of microalgae, was the second-best performer at midyear among Hawaii companies listed in the Star-Bulletin index. The company's stock started the year at 78 cents and finished midyear up 70.2 percent at $1.33. It began to take off after a Cyanotech executive expressed optimism about some product trials and said the company expects to be profitable this year.


>> Aquasearch Inc., which also cultivates micoalgae for nutritional products, finished up 21.7 percent at 28 cents. It began a stepped-up marketing campaign last month.

Cheap Tickets

>> Discount travel retailer Cheap Tickets Inc., which in June announced it was opening a call center in Tampa, Fla., saw its stock plummet 22 percent on June 26 after warning about second-quarter earnings. The company, which offers customers call centers, ticket kiosks and Internet access and is the closest Hawaii stock to being a tech company, cited malfunctions with its online booking system for the shortfall. Nevertheless, its stock was the index's third-best performer at midyear with a 54.9 percent gain.

Maui Land & Pine

>> Maui Land & Pineapple Inc., which hit a 52-week intraday low of $17 on April 4, has been on a tear since that date and rose 50.2 percent from that period to $25.54, finishing midyear up 8.1 percent.

Alexander and Baldwin

>> Alexander and Baldwin Inc., another company that issued an earnings warning last month due to lower property sales and decreased ocean transportation business, was one of three index members to post a loss as it fell 1.9 percent.


>> Barnwell Industries Inc., which benefited from high energy prices last year and record 2000 revenues, has seen prices come down along with its stock, which fell 3.6 percent.

ML Macadamia

>> ML Macadamia Orchards LP, which won a favorable court ruling last month that should boost its profits, ended down 16.2 percent.

Others of interest

Among smaller Hawaii-based companies that are thinly traded and not included in the index, Controlled Environment Aquaculture Technology Inc., a shrimp producer, ended midyear up 156 percent, Hawaiian Vintage Chocolate Co. gained 133.1 percent, hotel operator Castle Group Inc. advanced 60 percent and Hawaiian Natural Water Co. advanced 34.5 percent. All four stocks trade near $1 or lower.

As for companies with Hawaii connections, travel service provider ResortQuest International Inc. jumped 87.8 percent, casino hotel operator Boyd Gaming Corp. climbed 67.3 percent, Dole Food Co. advanced 16.3 percent, Tesoro Petroleum Corp. rose 8.4 percent and cruise line operator American Classic Voyages Co. plunged 75 percent.

Bloomberg Honolulu Star-Bulletin Index mid-year report

The stocks in this index of publicly traded Hawaii companies consistently outperformed the major market indexes for the first half of te year.
Company Ticker Industry Midyear 6-month 1-year 2-year* 3-year* Comment
      price % gain % gain % gain % gain
Hawaiian Air HA Airline $3.25 +79.3 +23.8 +15.6 +30.0 San Diego is latest stop
Cyanotech CYAN Biotech $1.33 +70.2 -24.0 +18.2 -57.4 Expects profitability in 2001
Cheap Tickets CTIX Travel services $15.10 +54.9 +25.8 -58.6 NA** Expanding; warns on earnings
CB Bancshares CBBI Banking $35.74 +51.6 +61.8 +23.8 +2.5 Stock surged in past year
Schuler Homes SHLR Home building $13.54 +50.4 +121.1 +108.3 +54.7 Doubled in size
Pacific Century BOH Banking $25.79 +45.8 +84.1 +19.6 +7.5 Getting leaner
BancWest BWE Banking $34.40 +31.7 +115.6 +85.3 +89.1 Bought, going private
Aquasearch AQSE Biotech $0.28 +21.7 -54.8 -39.1 +39.3 Steps up marketing
Maui Land & Pineapple MLP Land,, agriculture $25.54 +8.1 +12.9 +66.1 +85.8 Stock on recent roll
CPB Inc. CPBI Banking $29.58 +6.1 +21.1 +11.6 +57.8 3-year gain impressive
Hawaiian Electric HE Utility, banking $38.20 +2.7 +25.0 +7.6 -3.8 6.49% dividend attractive
Alexander & Baldwin ALEX Shipping, land $25.75 -1.9 +21.0 +15.7 -11.6 On buying binge; profit warning
Barnwell Industries BRN Fuel $20.00 -3.6 +31.2 +72.0 +37.9 Oil prices coming down
ML Macadamia NUT Agriculture $3.30 -16.2 -24.9 -12.0 -13.4 Favorable ruling could be a boost

Other Hawaii-based stocks
Controlled Environment CEAT Aquaculture $1.04 +156.0 -20.8 -49.6 -71.3 Big gainer in 2001
Aquaculture Technology
Hawaiian Vintage Chocolate HWVI Chocolate $0.51 +133.1 -54.7 -62.1 -84.6 Seeking distribution deals
Hawaiian Natural Water HNWC Water $0.21 +34.5 -52.0 -82.3 -85.4 Thinly traded
Castle Group CAGU Hotel $0.10 +60.0 -92.0 -95.7 -92.7 Delisted from Bulletin Board

Local connections
ResortQuest RZT Travel services $11.50 +87.8 +124.4 +39.4 -29.5 Tourism stays strong
Boyd Gaming BYD Gaming $5.75 +67.3 +2.2 -17.9 0 Las Vegas is second home
Dole Food DOL Agriculture $19.05 +16.3 +39.9 -35.2 -61.7 Business turning around
Tesoro TSO Fuel $12.60 +8.39 +24.4 -20.9 -21.6 To hit low end of estimates
American Classic Voyages AMCV Cruise $3.50 -75.0 -83.0 -85.4 -76.3 Competition heating up

Major indexes
Dow Jones INDU Blue chips 10,502.40 -2.6 +0.01 -4.3 +17.3 1,200 points from record
S&P 500 SPX Broad 1,224.42 -7.3 -15.8 -10.8 +0.08 Diversity rules
Nasdaq CCMP Technology 2,160.54 -12.5 -45.5 -19.6 +14.0 Techs overdue for bounce
* Total return, not annualized, figures are from June 30 close of corresponding year
** Initial public offering in March 1999

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