Month: March 2017

Grass Is Always Greener On The Other Side… + CDW Holdings FY16Q4, TTI’s Thoughts

I did say there’ll be the occasional travel pics.

475) Austria.jpg

This has to be one of the most beautiful places I’ve been to. Plus my son had crazy fun here. It’s a lot colder than it looks though, and somehow as age progresses, my homeostatic system isn’t as good and I don’t do so well with cold anymore.

This was towards the end of last year in Austria, not now. Path leading to the ice caves (that’s the opening in the mountain). Boy, glad I did this. Not sure if I’ve the stamina in a few years time.

483) Ice cave path.JPG

This other pic though, is something that I find really interesting:

474) Austria goats.jpg

I was feeding these goats with grass that I tore off from the ground. As far as I can tell, the grass is EXACTLY the same type as the humongous patch just behind the goats, and yet they were all clamoring to eat grass off my hands! Like I’m feeding them “gourmet” grass!

Even after I stopped feeding them, they didn’t go back to grazing and instead, followed me while I walked around the fence.

LOL, interesting isn’t it?

This is, quite literally, a perfect example of “the grass is always greener on the other side”!

Come on, tell me I’m not a weirdo and I’m not the only one who finds this entertaining. Funny too.

In a post sometime last year, I said that I’ve resolved to cut down on leisure travelling for 2017, because I felt that I’ve kinda had too much fun, and… just generally, have been too… lazy?

It’s march now, and I think it’s safe to say… that I’ve failed.

I read a recent article that the way to truly “buy happiness”, is to buy experiences.

I couldn’t agree more. Yet, buying experiences cost $$$. And this is what I’ve been neglecting of late.

Anyway, 1 more trip to Perth is penciled in, in April and I’m done for the year. Gotta bunker down and go back to work. From some of the emails I’ve received, I think even readers of SG TTI noticed the tardiness in my posts. No analysis done = no posts!


On a different note, I received some emails, (and a comment somewhere) asking about Dutech. I’m not writing an update on Dutech’s FY16Q4 because if you look at the post categories on the right ——>

I already have several posts on Dutech, and I think it’s better to have some variety perhaps?

So in a very brief summary, for Dutech’s FY16Q4, the extraordinary earnings that they recognized from the Metric acquisition is a lot lesser than I expected. Yet, the stated the NAV and the goodwill is actually recognized accordingly in the asset side of the BS.

The balance sheet is balanced by adding in certain liabilities (that was previously not announced during the acquisition), and these liabilities relate to pension schemes and related stuff. Not surprising… Europe workers have all these pension stuff.

It doesn’t change my investing thesis though.

Yes, I’m aware CIMB has downgraded Dutech to a hold, but well, if you’d read the earlier posts here, you’d know that I generally don’t pay TOO much attention to analyst reports. They do move the markets though. That’s the reality, which is actually a good thing if you have strong FA.

For eg, a large concern flagged up (and that’s the main reason for the downgrade), is that the margins are impacted because of rising roll coil steel, as reflected in the Q4 margins y-o-y.

But literally right after the report, the steel price has since fallen somewhat. So my point is, if one keeps trying to track these and pull or add capital whenever there are all these little waves, you’d always be behind the curve.


Anyway, let me not hijack this post. This post is supposed to be about CDW Holding’s FY16 results. I’ve previously invested in CDW, but has since divested:

Post-mortem Of CDW Holding Ltd Divestment

23) CDWlogo 21052016

While I was vested though, I’ve always found CDW’s management, particularly the CFO, to be honest and straightforward in his replies. Unfortunately, the company is in a very tough spot currently, and has been in fact, for the past couple of years.

Coincidentally, while I was updating myself with CDW’s performance, NextInsight published an article on the company. NextInsight has always been a platform that I respect a lot, so obviously I try to keep myself abreast of the commentary there.

https://nextinsight.net/story-archive-mainmenu-60/939-2017/11356-chan-kit-whye-on-cdw

The top part of the article is mostly factual, nothing much to discuss there. The bottom part has some bullet points on the merits of the company, and while they’re all true, it doesn’t reflect the challenges facing the company. Let me try to substantiate and paint an intimate picture with this update.

Yes, the company is trading close to net cash. The BS is still rock solid too. Nobody denies that. Total bank borrowings, although increased from last year, is still very low, and their cash holdings can wipe out the borrowings completely.

That’s a good start.

476) CDW holdings BS debt.jpg

Here, we can tell that the company has always been prudent. Debt has always been very manageable.

“Market cap supported by 91% of net cash”. Sure, that may be true, and good too. But I’d also point out that cash and cash equivalents, net of debt, has been dropping over recent years, and is at the lowest level in the past 5 years:

FY12: $43.6mil

FY13: $46.5mil

FY14: $55.1mil

FY15: $46.7mil

FY16: $40.2mil

OK, granted that the BS is STILL very strong and the drop is not that great. But just thought I’d have to point this out. The BS is strong, supported by a lot of cold hard $$$, but it is also deteriorating and just a bit “less great” than before.

The company has also been buying back their shares (As stated in the NextInsight article), presumably that indicates that the management thinks their shares are currently undervalued.

Normally that’s a good thing for shareholders. In this instance though, CDW’s management also has 8,500,000 share options outstanding, with an exercise price of $0.216. This means the options are currently in-the-money.

It’s been painted as a good thing by the NI article, because presumably management will have an incentive to keep the share price above the option exercise price.

This is where I disagree. A dilutive share option scheme is never a good thing for shareholders. Plus, this brings up some doubt as to whether share buybacks are done right now because the shares are really undervalued, or are they done to support the issuing of shares from the exercising of options.

Anyhow, it’s only 8.5mil outstanding share options so it’s not a game changing event either.

The earnings have really come down hard in FY16. Things are not good at an operational level:

477) CDW earnings.jpg

A bit of history here.

In 2014/2015, CDW actually projected that they’ll have a shortage of light guide panels to meet demand. In response, CDW acquired a 25% stake in Pengfu, a company that supplies CDW with these light guide panels, which CDW then assembles into backlight units that are used in smartphones, gamesets and vehicle displays.

At that point, my investing thesis was that with Pengfu, we should see CDW meeting demand. Plus with the acquisition, Pengfu would be contractually obliged to place CDW’s orders at 1st priority. (It’s part of the contract). On top of that, prior to the acquisition, CDW has been getting light guide panels from a competitor. Pengfu would not only give CDW priority, but would charge them a lower rate as well.

Well, the acquisition has turned out to be a disaster, as the smartphone demand dried up. In my earlier posts, I described how with the divestment of Sharp to Foxconn, the orders may dry up. In M&A, the acquirer obviously has to do something different to try to turn around the fortunes of the acquired business. Otherwise, why buy?

Then there’s also the part about their BLUs going obsolete etc, I think I’ve described all that previously so I won’t repeat these.

Anyhow, fast forward a year or 2, and my fears have been realized. Looking at the earnings statement above, the “share of loss of an associate” part relates to the Pengfu acquisition. In the 2 years since the acquisition, it hasn’t been profitable at all. More worryingly, the losses have widened comparing 2015 vs 2016.

Yet EVEN more worrying is the “impairment losses of investment in an associate”, found in the 2 rows below that. Those relate to the more recent investments that the company undertook, such as the Korean company, some product rights for shampoo and other, honestly, weird investments.

If you think it’s vague that I only mentioned “Korean company”, that’s because it IS vague. There’s  no mention of the operations of this company, just that CDW will do the “manufacturing and distribution” for its products.

Normally you’d assume, ok it says “manufacturing” so it must be related to CDW’s core business of BLUs, but CDW of late has gone rogue, investing in diverse stuff from ramen restaurant to hair loss shampoo. So I’m not so sure what to infer here.

Anyway, the losses are not large, but the significance of this impairment is HUGE IMO.

Pengfu loss is OK. Nobody gets business decisions right all the time. They tried to predict a trend, got caught out when demand dried up, it happens all the time in business.

But the impairment losses on the recent investments are unrelated to the core businesses, and are… well, RECENT. Not good at all IMO.

Previously, when I was vested, I was assured by CFO that the ramen restaurant is one with a long history, has built up a regular pool of patrons, and would be a sound investment. I don’t see any impairment here, related to this ramen restaurant. So that’s good at least. (or maybe it’s not mentioned cos the sum is relatively small?)

Still on the earnings front, CDW tried to invest and capture more clients by coming up with a new generation of light guide films. Back in 2015, CDW said that they’ve teamed up with “a Taiwanese company” to come up with this new generation light guide films, and have already sent samples to potential clients for testing.

In subsequent quarters, CDW said in its ERs that the response is good, they’re optimistic of getting orders blah blah. OK, let me go dig up the specific statements.

There you go. This was in FY15Q2:

479) CDW FY15Q2 statement on new generation panels.jpg

“the Group is confident that this product will be launched in the fourth quarter”

Well, it seems they were overly confident then. Cos in 2015 Q4:

480) CDW FY15Q4 statement on new gen.jpg

Nope, not launched yet. Instead, now the statement becomes a lot more ominous.

“depending on how well the key customer and other market players perceive the Group’s new generation light guide mentioned….”

But wait! There’s a glimmer of hope. Cos in FY16Q1, it’s looking up again:

481) CDW FY16Q1 statement on new gen.jpg

Ah now we’re talking! “… were positively received by the key customer and its potential customers. Subject to market conditions and a pick up in demand, the Group expects to commence production by the second half of FY2016”

OK, so instead of the 4th quarter of 2015, now it’s pushed back by half a year to 2H16. OK, that’s still good. New product after R&D, +vely received, launch it, the turn around is in sight!

But 3 mths later, in FY16Q2 results:

482) CDW FY16Q2 statement on new gen.jpg

Sorry! Wait for “Recovery of global economy and the demand to pick up”

I can go on and on, but I think by now, you guys get the picture. As of FY16Q4, no orders, no launch, nothing. I don’t care how “positively reviewed” it is by the client. No orders = No $$$ = not good.

Anyway, just to complete the picture, in the most recent FY16Q4:

“The Group’s new generation light guide film which is suitable for smartphones, tablets and notebooks shows promise, however it may be currently limited by the strong competition faced by the Group’s key and potential customers, which hinders their willingness to invest in new models. Nonetheless, the Group will be on the lookout for suitable opportunities to promote the Group’s new generation light guide film product.”

Suddenly, the picture doesn’t look quite as rosy as “market cap supported 91% by net cash” huh.

At this point, I’ll just say that it almost sounds like I’m critical of CDW’s management.

I’m not.

CDW’s business is such that it has a major client (Sharp, although they will never confirm this). Sharp is kinda screwed now, and is still struggling to compete in the smartphone market.

CDW has long ties with this major client (I’ve described previously how the ties date back to the founder of CDW’s father era). But business is business. If CDW’s main client is suffering, CDW cannot escape. And therein lies my greatest concern: their core business possibly, may never come back. It’s been 2 years and counting, and the smartphone industry is notoriously competitive.

After the acquisition, I’m not even sure if CDW’s historical ties to it’s major client still counts for anything.

This is not something that their management can control. It’s just the nature of the business. My investing thesis then, was initially based on Pengfu, which failed. Then this new generation light guide, but that has proved to be a failure thus far as well.

To put things in perspective, they could also not announce any developments with regard to the new generation light guide. Then nobody would know if they screw up. But they did, and that’s called transparency. I really wished it ended better for the management though.

Anyhow, let me move on to the cashflows, which is really important for CDW.

478) CDW FCF.jpg

FCF has now been -ve for the past 2 years. But it’s a puny, small negative. At this rate, with CDW’s BS, it can afford to run through many years of -ve CFs, and maintain the current dividend for a looooooong time before the BS becomes stressed.

Like I said, BS is rock solid.

The business has always had minimal capex. Afterall, after you buy those machinery, they can last a pretty long time without replacement.


CONCLUSION

I guess readers, or those who have vested, will now be asking the key question:

At this point in time, is CDW Holdings a good investment then?

I can’t answer that for others. I know it’s not for me now, but previously, there’s a point in time whereby I would.

The truth is, CDW is currently almost like it’s in “cold storage” or a zombie state. If I can be permitted to describe it as such.

Basically, the company has a strong BS, and will likely be able to survive for a long long while if everything stays the same. And it’s already a depressed environment for 2 years for them.

They cut their dividends in FY16, but at current rates, they can sustain -ve CFs and maintain dividends for quite a few years to come.

That’s the good part. The bad part is that their future prospect is very uncertain.

As I’ve illustrated above, investors would do well to forget about this new generation light guide panels in your investing thesis. 2 years of “about to launch” is enough. Management is trying their best to find new revenue streams, but thus far has only “impairment losses” to show for their efforts in the recent acquisitions.

Over the years, I’ve also learnt to be very skeptical of companies that stray away from their core businesses and go into unrelated ones. It’s usually not a good sign.

On top of that, for businesses who invest in unrelated industries, it basically means that as a shareholder, you’re trusting the investing prowess of the management. And as I’ve mentioned in an earlier post, (I think it was King Wan?), I’ve stopped trusting others to do DD and invest for me. I think I’d do it better myself, thank you.

So the lowdown is this:

Imagine I come to you with an offer. I’ve a medical clinic business that was previously doing rather well. Recently, it has fallen onto tough times, but I believe the operating environment will pick up soon and my business will go back to its glory days.

In the meantime, I’m offering to sell a part of the business to you, for every $10 you pay, you get an equivalent of $9 in cash that’s parked in the business.

That’s a very good deal. The downside is, you don’t control the business operations, and yea, this $9 may be whittled down if I decide I’ll use the business to buy a… restaurant or stationary shop tomorrow.

Dividends will take up maybe $0.50 out of this $9 every year, so you know that the business would be able to pay you dividends (current yield for CDW is about 3.5% – 4%) for a long time to come.

Would you invest?

Like I said, the old, previous TTI would at least consider it. Probably such a deal would have at least a non-core place in my portfolio then. (It really did actually!) The rationale then, is to monitor the business and wait for the operating environment to improve. I know the business is strong enough and prudent enough to sustain through a long cold winter. Like Jon Snow, I don’t know how long this winter would last though.

The current TTI though, wouldn’t even give this a thought.

So is this a good investment now? I can only display the intimate facts, everyone has to decide on their own. Even within myself, my thinking has evolved over time and so has my investing characteristics of late.

Honestly, and I hope I’m not being over confident here, I think my new thoughts and investing process would show even more stellar results over time. I applied these new thoughts to the 2 most recent investments,Geo Energy and Dutech Holdings, and thus far, results have been most pleasing.

2 is hardly a big enough sample pool, with such a short duration too, so I’ll have to wait longer to assess.

On a related note, one may note that “hey TTI, you spent all this time  following up and analyzing a company that you are not vested in and already know that you won’t be vested in??”

Well, I think Buffett was most instructive when he said that the decisions that would’ve the greatest impact on his returns, are the ones that he didn’t take. But we wouldn’t know how well or poor a decision is, until we track the results AFTER the decision has been made, right? And if we don’t know, how then would we learn, and if a similar scenario crops up, how then would we make an informed choice?

Anyway, this concludes my update on CDW Holdings for now.

As always, happy hunting!

The One That(Barely) Got Away From TTI – Kingboard Copper Foil

468) Kingboard copper foil logo.gif

I feel almost too lazy to write about this.

A couple of months, a reader brought up several investing ideas to my attention. The kingboard copper foil situation in particular, was interesting to me because it’s an arbitrage situation, and the investing thesis would thus be different from your typical undervaluation thesis.

469) email from reader.jpg

All details blocked out for privacy reasons, the said reader would like to remain anonymous.

Check out the date: Sept 2016.

Well that’s an important point, as you’d see later.

So I have had… 5 months? or so to work on this. I did take a quick look at it, it seemed intriguing, but I was really busy with work and other things to look at. End of the year is usually a very busy period in the healthcare office where I work, but yea, no excuses.

Anyway, I chugged this into a “TO LOOK AT MORE CLOSELY” folder that I keep.

If someone bothers to email me with an idea and include specific data like that, the least I’d do is pay attention.


I’ll do a quick summary for readers who are not privy to what’s happening at Kingboard Copper Foil (KCF).

KCF is majority owned by Kingboard Chemical Holdings (KCH), which is listed in Hong Kong. The holdings are spread out via a complex web of holding companies, with cross holdings too to boot. I had a hard time figuring out each of their holdings, but it’s not really necessary to go into that.

We just need to know that KCH owns about 64.6% of KCF.

KCH is also ultimately, the only major customer of KCF, and in turn, gets their copper foil from KCF at what the minority shareholders are alleging, at rates that are way below market rates.

Subsequently, the minority shareholders blocked the IPT mandate, which means that KCF’s management could no longer just continue their normal operations of selling copper foil to their buddies at KCH at disgustingly low rates.

Well, KCF’s management are an enterprising bunch though, and to get around the blocking of the IPT, they licensed out the use of the facilities of KCF to “a third party” (Harvest Resource Management).

Guess who Harvest ended up selling the copper foil to? Yup. No prizes for guessing. Harvest then resold the copper foil to KCH, effectively bypassing the blocking of the IPT by the minority shareholders.

I mean, these guys are not even being subtle about it. The third party is literally called “Harvest Resource Management”???? LOL. That’s really sticking a middle finger up to the minority shareholders.

“Yup. No doubt about it, we’re here to harvest the copper for KCH!”

To deviate a bit, in the court ruling, even the judge found the Respondents’ defence that they do NOT know Harvest’s commercial interests to be incredulous:

“The Respondents effectively conceded that the effect of the Agreement was to circumvent the IPT Mandate from the Kingboard Group perspective in that Laminates was able to access a supply of copper foil from Harvest comparable to that which the Company formerly supplied.

However the Respondents insisted, principally through Mr. Lo but through Mr Ong as well, that the Company had no knowledge of Harvest’s commercial intentions.”

LOL!

Anyway, a hedge fund, POPE asset management, came in, took a large stake (9.98%) and subsequently sued for minority oppression.

OK, that was a really quick summary. Along the way, of course there’s the history of how KCF came to IPO, why there’s an IPT mandate in place to begin with, to avoid all this controversy blah blah. I shan’t go into details here. It does make for very interesting reading though.

This is one instance, when I really wished my DD is less thorough. Cos then it’d be faster. And I wouldn’t miss the boat. Afterall, it’s not really that necessary to know the full history. But let me move on with the story telling.

So as it stands, POPE sued under Section 111 of the Companies Act 1981:

Section 111

  1. Section 111of the Companies Act 1981 (“Alternative remedy to winding up in cases of oppressive or prejudicial conduct) provides as follows:

111(1) Any member of a company who complains that the affairs of the company are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members, including himself, or where a report has been made to the Minister under section 110, the Registrar on behalf of the Minister, may make an application to the Court by petition for an order under this section. 5

(2) If on any such petition the Court is of opinion—

(a) that the company’s affairs are being conducted or have been conducted as aforesaid; and

(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up,

the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company’s affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company’s capital, or otherwise.

ARGH, Why can’t lawyers just talk in plain SIMPLE english. WTH is all that about?

that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound u”

How many times do you have to read this before you understand what it’s talking about?

For me, about 4 times.

Anyway, for the sake of the sanity of my readers, I’ll translate all the disgusting lawyer talk, into plain english so that we commoners can understand what these high gods are talking about. (Ever wonder why there are so many lawyer jokes around?)

So under section 111, the courts may:

  1. WIND UP THE COMPANY
  2. REGULATE THE CONDUCT OF THE COMPANY IN FUTURE
  3. FORCE MAJORITY SHAREHOLDERS TO BUY OUT THE MINORITY SHAREHOLDERS
  4. FORCE THE COMPANY TO REPURCHASE SHARES OF THE MINORITY SHAREHOLDERS)

To be successful in a suit under section 111, the petitioner (POPE, in this case) must:

SHOW INTENT TO OPPRESS MINORITIES, JUDGE WILL NOT QUESTION THE SOUNDNESS OF MANAGEMENT’S DECISION IF IT RELATES TO BUSINESS STRATEGY, AND THE ACT SHOULD NOT BE USED AS AN EXIT STRATEGY IF THERE ARE MERELY DISAGREEMENTS AMONGST THE VARIOUS PARTIES.

Sorry for the Caps. Those are my personal notes when doing my DD, and I wrote them in Caps to differentiate from some other source materials. Lazy to type all that out again, so just cutting and pasting now.

In summary, the courts struck out 1 complaint by POPE, but ruled in their favor with regard to the oppressive behavior of the majority shareholder.

In my DD, I read a blog post from someone who talked about “the company” losing the suit and blah blah. That’s inaccurate. We gotta be clear here, cos it matters.

The suit is between a minority shareholder (the Petitioner) and the majority shareholder (the Respondents). The company itself, KCF, is not party to the suit. But of course, the company is at the centre of attention.

Alright, so the courts ruled in favor of POPE and the losing majority shareholder in turn, appealed the decision. The appeal is slated to be on the 6th and 7th March (next week). I’m not sure when the verdict would be out, probably within a month or so?, if the earlier suit is any guidance.

Here, I’ll deviate a bit to give kudos to POPE. They really garnered my respect while I was doing DD on this. We have heard of many activists funds coming to our shore of late. Dektos, Quartz Capital etc. Yet, those activists have thus far, to my best knowledge, only done stuff like propose higher dividend payouts, capital distribution, selling of assets blah blah.

I could talk about all that myself too. No rocket science there.

POPE, on the other hand, really stuck their heads out on this. They are like the rallying board for the minority shareholders, leading the way in a suit. The whole saga has played out over many years, and honestly, I think from an investing standpoint, even if they are successful, the annualized ROI on this would be at best, meagre. Afterall, time (and inflation) is a bitch when it comes to capital management. Not to mention the legal costs.

But they have a big fan in TTI from this. If it’s any comfort.

Even the above mentioned said reader who brought this to my attention, has been vested in this since 2013. It’s been a long drawn out saga, and the company stopped paying dividends long ago. So it’s been tough on the minority shareholders for many years.

Until now.


By all accounts, the appeal is likely to fail. The judge in the earlier suit, is the Chief Justice btw. That already should give one some idea of how likely an appeal, overturning his decision, is going to turn out.

So what does all that leave us, when the appeal fails?

The courts would mandate that the majority shareholder buyout the shares of the Petitioner.

Unfortunately, the verdict applies only to POPE’s shares, and only to the shares that POPE bought BEFORE they brought up the suit, not after.

So an enforced buyout is not by all means certain… yet.

Still, let’s think of the situation logically.

If the majority shareholder buys out part of POPE’s shareholdings, they’d still need to get an IPT and if the minority shareholders still refuse to give a mandate, the impasse continues. I’m guessing even though the courts rule that it’s only applicable to shares bought before the suit, the KCH would just buy out POPE completely. Just to get them out of the way, if anything.

So in my mind, there are several situations, and I’ve tried to put some effort into figuring out what happens in each situation:

  1. KCH buys out POPE’s shares in its entirety, goes back to minority shareholders and succeeds in getting an IPT mandate, and the company goes back to selling copperfoil cheaply to KCH
  2. KCH buys out POPE, but the impasse continues and the minority shareholders refuse to grant the IPT mandate
  3. KCH privatizes the company aka buy out everyone

I can’t think of any other scenarios besides these 3. We now have a court enforced ruling to get all parties to the table, so something has to move. The court is the catalyst here.

Now, in scenario 1, I think what’s important is to look at the financials of the company.

The company is horribly undervalued because of this saga. Like outright disgustingly undervalued.

470) Kingboard cash on hand.jpg

Just look at the cash on hand.

The company has total liabilities of HKD 124million, but holds errrr HKD 1.56billion in cash!

It’s a net cash company… MANY TIMES OVER!

It’s safe to say that even in the case of scenario 1, the share price, which was around $0.28 when I first started my DD, would have to re rate sharply upwards to reflect the dispersion of the cloud of uncertainty.

That’s a good start.

Scenario 2 is the one that I’m most worried about. If POPE is out of the way… who’s going to stand up to the big bully? I don’t have much confidence in retail investors. Most retail investors would bail at an instance, and KCH has shown that they don’t give a damn about the share price of the company. KCF is just their slave, sending cheap goods to the parent company.

How would a bunch of retail investors be able to compete with KCH?

I communicated my doubts with the above mentioned reader. His reply (which is an enlightening one):

471) Kingboard reply.jpg

If the minorities are united, the company would at least have to provide some concessions to get the IPT passed.

Scenario 3, seems the most likely at this point. The company has just announced a general offer, offering $0.40 to all minority shareholders for a buyout deal.

$0.40 is extremely miserable though IMO, the book value of the company is $0.66 for gods’ sake!

How many times have you seen a privatization succeed when the offer price is a fraction of the book value? Plus it’s only a slight premium to the last traded price of $0.32 before the trading halt.

I doubt the $0.40 offer would succeed.


I assessed these scenarios before the trading halt and the privatization offer and decided that hey, 2 good scenarios out of 3 is pretty good odds to have. Plus the 3rd scenario may turn out to be good too, if the reader whom I’ve been communicating with, is right.

So with that, I decided to allocate $150k to take up a position.

That was on the 27th Feb 2017…….. RIGHT BEFORE THE FREAKING TRADING HALT.

OUCH.

I waited patiently, hoping that the trading halt was in relation to the appeal process. But now we know, the trading halt was for the general offer for privatization.

It’d really be a home run for me if I had managed to take up the full position that I intended. I’d be riding on the coat tails of others. Others would’ve sat through multi years of torture from this whole saga, while I’d have come in right at the last part, and enjoyed the fruits. 

But it’s not to be.


What’s next?

Well, it’s safe to say that the share price would likely shoot up when markets open next week. It may even go past the $0.4 offer, if shareholders decide that there’ll be a renewed, better offer somewhere down the road.

After some consideration though, I’ve decided not to take up a position. Yes, I’m 1 day late to the game. Even at $0.4, at a purchase price of $0.32, that’d be a 25% gain… or more… in 1 day.

AHHHHHHH. Sometimes, life throws you so much lemons, it’s suffocating.

After several weeks of work on this, the only return I’ve derived… is that… well, I’m rather well versed with section 111 of the companies act.

For the other existing minority shareholders, I’ll concur with the opinions of the mentioned reader. So I’ll just share his latest opinion here, and you guys can make your own judgement.

472) Ivan's reply.jpg


On a different note, since my previous post, it seems I’ve gathered a bunch of fellow Drs as readers. While I’m genuinely flattered by all the compliments, I’d really wish to stay anonymous for now.

SG TTI should still be about sharing deep value, intensively researched ideas with strong substantiation, grounded in fundamental analysis.

And occasional travel destinations.