Bonus From Flyke (!!!) + Results From Enhanced Options Strategy

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.

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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!

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TTI Portfolio Updates – April 2017

If there’s 1 thing I’d like to have right this instant, this is it:

HUGE grass patch just beside the driveway for the kids to run around and for me to do a little kick around too. (There’s a goal post at the side, not seen in the photo)

Ah. Simply next to impossible in Singapore.

Now, I could really really get used to staying here. This massive complex is 1 house btw.

Apple Orchard. Rows and rows of apples.

Growing up, whilst all the other little kids say they want to be policemen, teachers, doctors, lawyers blah blah blah, what I really wanted to be, is to be a farmer.

Kinda ironic.

It sounded like the most fun job then. It still sounds fun now.

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Anyway, back to investing.

Yesterday, I divested my puny position in S i2i at $2.67.

My initial investing thesis is here:

TTI’s New, Puny Position – S i2i

Which is barely 3 weeks+ ago.

The gist of it is quite simple actually. The company has to have an average share price of $2.92 over 6 months before March 2018 so that it can exit the SGX watchlist. The management is currently embroiled in a little unhappy tussle with ex business partners, and the son of one of such related parties was involved in a group that sent a letter to Si2i management recently, demanding certain changes.

So my simple postulation is that Dr Modi, a billionaire, ain’t going to let Si2i fail to exit the watchlist. It’d be almost fatally embarrassing, isn’t it?

I mean, if I’m a billionaire, Si2i has low liquidity, and I could easily buy up shares to support the share price and ensure it exits the watchlist, why wouldn’t I do so?

Particularly since an opposing party has tried to embarrass me.

You can’t put a price tag on pride.

So it’s a very simple investing thesis, with a logical and current catalyst. And since I vested, it’s worked like a charm.

Plus I noticed this in the recent issue of TheEdge:

Pretty much concurs with my thoughts, isn’t it?

Anyway, my purchase price is $2.45 barely about 3 weeks ago, so my ROI from this little side show is a very good 9% within 3 weeks. That’s…. gotta be quite crazy on an annualized basis.

Still, it’s already starting to look like a dumb move to divest cos even as I type this right now, the share price has shot up today to $3! Uh-huh. The day AFTER I exited. No shit.

But I’m on holiday, mood is good, fantastic place, with family. So, nothing gets me down today. (OK, plus it’s a 2,000 shares position. So who cares…)

So why did I divest and leave some gains on the table? I mean, I’ve already indicated my reasons for vesting in the 1st place, and $2.67 is still some distance away from my targeted $2.92 as written in my investing thesis.

The simple reason is that I’m intending to deploy more capital in my options strategies as indicated in my previous post.

Which leads me nicely to the next part.

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In my last post, I mentioned that I’d be making some changes. I’ve given a lot of thought to refine what I’m doing, and have since implemented it.

Health Checkup For TTI’s Portfolio, IPO Madness, S i2i Updates

It’s only been just under 2 weeks, so obviously any result is not reflective of longer term. I’ll have to continue to dry run it a bit, and preferably under different market environments. But the initial results have been nothing short of amazing.

In a much earlier post, I described my results:

TTI’s Options Strategy – Results Thus Far In 2017

Well, in the past 2 weeks, I have effectively doubled my cashflows from options. I’m not celebrating prematurely, because it may be just a case of a confounding factor. But I am very pleased to say the least.

At this rate, by just maintaining the same amount of capital for my options strategy, I’d effectively double my CFs every month, and that’d work out to be somewhere between $10k – $16k USD every month.

If so, I don’t see why I shouldn’t increase my exposure and shift some assets away from SG. STI has run up a lot anyway. A bit too much IMO.

It’s quite amazing how some simple, small changes can result in major changes, results wise.

I haven’t really made too big a change in my actions, but my thoughts have changed dramatically. And it’s really not ground breaking.

For example, I used to find companies with high IV, because high IV leads to high premiums right? Yet, I stuck to selling far OTM options because the likelihood of exercising is small. These options though, have low premiums. So this train of thought is really contradictory and counter productive.

I also failed previously, to relate a particular option strategy to the underlying company of the derivative. Yes, it sounds like common sense now, but I’m not sure why I didn’t think of it earlier.

There isn’t 1 silver bullet option strategy for all companies, obviously.

And all I needed is someone to point that out.

As to how to relate the strategy to the underlying company… well, I’m not obliged to talk about that here.

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In this same vein, I now own 600 shares of Wells Fargo (WFC). This is a company that I’m familiar with, having analyzed and bought into it in the depths of the GFC back in 2009.

At that time, during the depths of the crisis, I bought at $9, sold half when it reached $12, and the other half when it reached $18. I then gave myself a pat on the back and thought that was the smartest thing anyone did.

Well. It’s $54 right now. LOL.

Anyway, with my new thoughts, it’s logical to go back to WFC. I understand the company better than most people, and the amount of DD needed is lesser since I’ve already done the groundwork some time ago. (At that time, John Stumpf just became CEO and now he’s kicked out)

WFC is undergoing a mini crisis of sorts currently. Their new management is still dealing with the fallout of the multiple accounts opening scandal, and the share price reflects that.

My current position of just 600 shares was accumulated at a nett price of $52.9, but this is the result of my options activity, not a direct purchase.

This means that this position is likely to keep changing in a matter of weeks. It could increase, it could decrease and in fact, it likely WOULD change.

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Also, I’d miss out on Dutech’s AGM this coming Wednesday. I know there are some serious investors reading SG TTI, so please kindly drop me a mail to update me after you have attended.

I’d really love to know what Johnny Liu has to say, and what are the questions being asked.

Also, a BIG shout out to Xin Long who has kindly agreed to help me ask some questions at the AGM.