Some time ago, I wrote about a failed investment I made – Flyke International:
Lessons from a failed investment – Flyke International Holdings
Do read the previous post for some context. This particular example is a great example for typical value investors to learn from.
Flyke (HK listed) was trading at crazy low valuations, backed by cash and there just doesn’t seem to be any way else for the share price to go except up, or trend sideways.
I wasn’t counting on fraud management to abscond with the company’s money though. The company’s stock was suspended from trading for some years now, whilst they tried to work through their financials. Being prudent, I wrote off the value of my investment in Flyke completely in 2013, although I still hold 300,000 shares currently.
Recently, the company finally published all their past financials, and met one of the key criteria to resume trading. The figures look as terrible as I would’ve expect.
Check that out.
The company went from 1.1BILLION RMB in revenue in 2013… to ZERO in 2014.
Equity value was 834 MILLION RMB in 2012, and became NEGATIVE just 1 year later in 2013!
Wow. It actually takes a REAL genius, to destroy a total of 850mil RMB worth of value in a single year. It’s actually not that easy to achieve that. You’d have to really rack your brains to do the worst possible thing for the company, each time you’ve to make a decision.
Either that, or you just take the money and run.
And that’s exactly what happened.
Lin Wenjian and Lin Wenzu (they are brothers, both in real life and in crime. Special mention goes out to Lin Mingxu, who is also in the management team and is their brother as well) both just DISAPPEARED. Worse still, since they only resigned as company directors, but not the directors of the subsidiaries in China, the new management was unable to access the company’s subsidiaries plants and other assets in China.
Well, the company statements were cautious enough not to accuse them of fraud, but here I am, saying THIS IS OUTRIGHT FRAUD.
Since they’re henceforth uncontactable, I don’t think they’re going to come out and sue me for defamation.
That’s the issue with S-chips. Flyke is not a S-chip, since it’s listed in HK, but it’s the same nevertheless. Lin Wenjian was the company’s chairman and CEO. The company is run by family, and heavily family owned. Yet, they chose to steal the shareholders’ money and abscond. That’s the level of management integrity we have in these chinese companies.
No sense of loyalty to shareholders who have trusted them. I wrote off the value long ago, but how about those who have larger stakes, or those who have invested heavily in them?
To top it off, the reports make no mention of any legal ramifications. No police report. They took off with the company’s money, and that’s it. New team comes in, let’s start again blah blah.
These guys should be hanged. I mean that literally. How many lives did they destroy? It’s only a pinch in the pocket for me ($30k worth of pinches!) but I’m sure there are poor chinese folks who have perhaps, even their entire life savings vested with them.
And it’s not like they NEED the money. These brothers are not poor. They’re top management of a listed company. It’s just pure greed.
And I hate to say it, but it does look like they’ve gotten away with it.
That’s China for you. China is a big place, and with 850mil RMB, you can do a lot of stuff, bribe a lot of people and get away with murder. Literally.
I hope karma comes back to bite them real bad.
So, why did I mention there’s a bonus?
The company has since done a restructuring, and there’ll be a RTO. New assets will be hived into Flyke. From a shoe manufacturer, it’ll be transformed into a property developer. As stated, there’ll be a 3 for 5 shares swap.
Now, it’s still early days, and I have no idea what are the new assets, what the prospects are like and what the share price would likely be. But I’ve written everything off completely some years back, so it’s going to be a real bonus to just get something back.
And who knows, if I’m lucky, I might even be able to walk away from this without any losses. (except from opportunity costs from having such a long suspension!)
It’s still a very nice bonus nevertheless.
In my previous post, I mentioned about my new enhanced options strategy. It’s the end of the week, so it’s been exactly 2 weeks and I can now share hard data. Here’s how the activities look:
The cashflows generated since 12/04/2017 (2 weeks ago) amount to USD $7,747.92!
The capital remains the same, and is currently, still a relatively small proportion of my total AUM.
Ignore the assigned options because those are meant to remain constant over time, or will be divested at a profit.
By just extrapolating, this means I’d be expecting approximately USD $15K of CFs using this strategy, which is almost twice of what I did previously.
Of course, as mentioned previously, I’m cautious because 2 weeks worth of data can’t tell you anything. Still, my plan is to allocate more capital into this over time, as I improve on the thought processes. In fact, by the end of the year, I should be able to at least triple my AUM allocation under this options strategy, if the data checks out.
So things are good and I’m happy with the results.
On a different note, I’ve recently increased my exposure to LTC Corporation slightly, by 20,000+ shares, at between $0.6 – $0.62. I’m expecting more of the same for the coming quarterly results: + FCF accruing to the cash holdings and increased profits y-o-y.
That’s all I have this quick post, wishing all readers a good long weekend ahead!
Have fun hunting!