Unhappy Goldis Minority Shareholder

lim hwa has left a new comment on your post "Investment Adviser: Just Who Are You Advising For?...":

I refer to the recent announcement by Goldis Berhad on 8 May 2013 for the capital distribution of IGB shares. From the first reading of the announcement, it seems the proposal is really to reward the shareholders of Goldis. However, with further understanding of the proposal, the proposal seems to me just another way of taking the value from the minority shareholders.

In my humble opinion, to put the unlisted share as an alternate option to cash to MI is as good as forcing the MI to have no option but just have to take up the cash option. My rationale is that one of the key objectives of us investing in stock markets / listed shares as compared other investments is due to liquidity. As the proposal is to distribute the unlisted shares, then such proposal is defeating the our objective.

To simplify it, assuming a listed co only owns a very profitable subsidiary (say with NTA of RM100 mil). The major shareholders then propose the similar structure to all the shareholders whereby the profitable subsidiary to be transferred to a non-listed company at say RM50 mil. Thereafter, all the shareholders will be given the options to choose (i) the unlisted shares or (ii) cash value per listed share which will be substantially undervalue as the valuation for the transfer is only half of the NTA.

Eventually, the major shareholders will own 100%/ majority of the unlisted company cuz i presume majority of the MI will not opt for unlisted shares due to liquidity.

With this, the major shareholders are essentially privatise the jewel of the listed company at a cheap valuation in the expense of the MIs' value.

I see the above illustration happens to GOLDIS now.

May I have your view on this case i.e. GOLDIS just to make sure MIs' are well protected before the same structure to be replicated for the next many more coming proposals if this first kind of proposal is successfully completed.

Red Flag Raised At HB Global Cash Balances!

Since I had been posting a lot about China based companies listed in our stock exchange, I was watching HB Global.

HB Global's stock was plunging when it said publicly it was delaying its audited accounts ( http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=237501&Itemid=79 )!!!!

Last night HB Global made the following announcement: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1280081

• The Board of Directors of HB Global Limited (formerly known as Sozo Global Limited) (“HB” or “the Company”) wishes to announce that the Company’s External Auditors, Messrs. Paul Wan & Co had expressed an audit disclaimer opinion in the Company's latest audited financial statements for the financial year ended 31 December 2012, as follows:-
  “Basis for Disclaimer of Opinion
  Included in the Group’s balance sheet as at 31 December 2012 is bank balance amounting to RMB 249,633,611. In the course of our audit, we were not able to satisfactorily and independently substantiate the bank balance of the subsidiary company.  In addition we were not able to receive reliable independent confirmations on majority of the trade receivables and trade payables that were circularised; these balances represented 56% of trade receivables and 48% of trade payables as at 31st December 2012.  These brought into question the proper accounting for bank balances, trade receivables and trade payables and the corresponding transactions in the Group for the year ended 31 December 2012 and the completeness of transactions recorded in the Group’s accounting records.
  Disclaimer of Opinion
  Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for our audit opinion.  Accordingly, we do not express an opinion on the financial statements.”
  This announcement is dated 7 May 2013. 

WOW!

NOT able to satisfactorily and independently substantiate the BANK BALANCE of the subsidiary company?

Aha!

Red flag raised!

Remember the past postings on the China based stocks? So What's The Problem With China Based Companies?

The media kept on highlighting that these China based stocks were so cash rich.

I challenged that statement and I showed with a real example on how a director of a China based stock sold shares BELOW the cash per share value and for that stock, we saw the company's cash balances was said to be at 894.674 million. So much cash but the company earns only 3.416 million in interests. Does it make sense?

Let's look at the last reported quarterly earnings from HB Global. http://www.bursamalaysia.com/market/listed-companies/company-announcements/1214805

The balance sheet shows the following...

Oh yeah... cash balances were said to be at 124.725 million. HB Global 'as per'  its balance sheet is cash rich!

Now if you look at the cash flow statement below, the interest received is only 1.018 million!!!!!

 Huh?

Exactly!!!

HB Global said it holds cash balances of over 124 million but it only receives 1 million in interests!!!!

Does it make sense to have so much money and not generate any bank interest for all these cash?

Now HB Global auditors is questioning the cash balances!!!!

How?

Next time you hear someone talks about cash rich China based stocks, tell them to have a look at HB Global!!!!!

And yeah... currently there are 9 China based stocks listed here and our dear old Bursa Malaysia wants to have more such listings!!!!!

Sigh!

So What's The Probelm With China Based Companies?

I was reading the following article: http://biz.thestar.com.my/news/story.asp?file=/2013/5/4/business/13030734&sec=business

In light of the recent posting, Do You Want More China Based Companies To Be Listed Here?, the first few passages caught my attention...

• THERE are currently nine China-based companies listed in Malaysia and you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.
  
  Of course, some did trade above their IPO price soon after they were listed but none proved sustainable.
  
  It's somewhat perplexing that they are not. These companies are cash-rich, have profits that grow year-on-year and almost, if not, all are trading at huge discounts to their net cash per share.
  
  Sure, not all of their businesses are terribly sexy. Most are shoe manufacturers but given the growing population and income levels the world over, there remains growth potential.
  
  So, what is the problem?

Yeah what's their problem?

First thing first.

"you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.".. When I posted Do You Want More China Based Companies To Be Listed Here?, on the average, these China based companies were starring at 63% losses since their IPO listing. And the losses increased since ALL of these China based stocks declined further since then.

Two of the big losers were HB Global and CSL, with HB Global plummeting some 24% yesterday when it announced it's delaying its audited accounts! ( http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=237501&Itemid=79 )!!!!

CSL closed at 26 sen yesterday. (IPO Price 95 sen!!!!! )

The Star Business article talked about these stocks trading at huge discounts to their net cash per share.

Let's look at CSL quarterly earnings report: Quarterly rpt on consolidated results for the financial period ended 31/12/2012 

Have a look at the pdf file attached to that Bursa webpage.

From the balance sheet, we can see that CSL is cash rich!

 CSL says it has some 894.674 million in its piggy bank!

That's a lot of cash!

Super cash rich since CSL does not have any borrowings.

But the market is selling CSL at 26 sen only!!!!

26 sen... which means CSL market capital is worth 323.117 million!

Holy cow!

I'm sure you will ask is the market out of whack selling CSL at 26 sen!!!!!

With a market capital of 323.117 million, it means the market is valuing CSL way below its 894.674 million.

With 1,242.760 million shares, CSL's cash per stated in its Feb quarterly earnings is 72 sen!

Yes, you heard me, cash per share is worth some 72 sen.
Market valuing the shares at only 26 sen.

How can the share be worth so little compared to the company's cash????

Won't the owners be better off taking the company private?

Correct?

If the cash per share is REALLY worth 72 sen and the share is trading at 26 sen, surely the owners would buy these shares like crazy, yes?

But this did not happen!!!

Instead on 23 March, less than one month after this earnings report was released, one of the directors, Chan Fung @ Kwan Wing Yin, decided to dispose shares at 60 sen!!!!!

Huh!!!!

Yes sir!

Company's cash per share were worth 72 sen.
Company's director disposes shares at 60 sen!!!

How????

Makes sense?

Time to look at the cash flow.

Looking at the cash flow statement is useful because the interest income is stated there.

Think about it. For a company like CSL, it says it has 894 million in its piggy bank. A lot of money, yes? Surely the company would deposit a bulk of the money to earn some interest right?

CSL's interest received showed only 3.416 million.

Huh?

So low?

CSL has 894.674 million cash and CSL only receives 3.416 million in interests!!!!

WHAT'S HAPPENING?

What is CSL doing with its 894.674 million????

(ps: How about CSL allow me to manage their 894.674 million cash and I pay them 6 million in interest!! )

Why is CSL getting so little in interest???

 Well, what's the possible answers?

Is CSL putting any of the money into fixed deposits account?
If no, why?
If no, what is CSL doing with all these money?
If yes, why so little in interest?

How? What's the problem with these China based companies?

Would you trust the NET CASH PER SHARE of this China based company? ( Feel free to do a similar research on other China based companies.)
 

How now?

They say share cheap because share is trading below net cash per share. But company director is selling their share below the net cash per share. Company earns extremely low interest.

DARE you invest in such company???

 ps: When CSL was newly listed it was a darling stock. With an IPO of 95 sen, CSL managed to fly to a high of 1.93 sen within one month from its listing! See chart below.

 Here's the chart almost a year later.

 

Time's Almost Up For MaeMode

One of the stocks I blogged many times before is

Do You Want More China Based Companies To Be Listed Here?

Saw the link to the article on Star Business: Kanger set to be 10th China-based company to list on the local bourse

I did not even want to read about it.

First thing on my mind was 10th!

Do we really need all these Chinese companies to be listed in our stock exchange?

Come on Bursa!

Stop thinking like a commission based  salesman! These companies are stinking our stock exchange! Come on. You can't smell it? You guys complain about the lack of retail investors all the time and here you are, inviting all these China based companies to be listed here.

You just don't get it, yes?

More quantity is not going to increase retail investing participation.

QUALITY is the only word that is important.

What is stock investing?

Stock investing is investing in good quality businesses at a good price.

Investors don't want to invest in all these poor quality companies only to find the value of their investment shrink like hell after a few months!

Here's proof.

http://www.bursamalaysia.com/market/listed-companies/initial-public-offerings/ipo-summary/

The three most recent listed Chinese stocks.

China Automobile Parts Holdings Limited
IPO Price: 68 sen
Listed 30/1/2013
Current Price: 36 sen

China Stationery Limited
IPO Price: 95 sen
Listed: 24/2/2012
Current Price: 34 sen

Maxwell International Holdings Bhd
IPO Price: 54 sen
Listed: 6/1/2011
Current Price: 31 sen

Compare the current share price as of this morning versus the IPO price of these 3 China based stocks. All IPO investors of these Chinese stocks would be cursing at the stock performance as of today.

The following table shows the current price versus the IPO price and the % change of all Chinese listed companies.

On average, investors of these Chinese stocks are starring at an average loss of 63% since listing!!!!

How?

Bursa Malaysia, are you aware of this stat?

If so, why?

Why are you pushing for another Chinese stock to be listed on our stock exchange?

Do you care for the quality of the stock exchange?

Or do you just list such companies hoping just for more revenue for the exchange????

Here are the charts showing the performance of all these Chinese stocks since listing.

Chinese Automobile Parts (CAP)

China Ouhua Winery Holdings Ltd (CNOUHUA)

 China Stationery Limited (CSL)

HB Global Limited (HBGLOB) (Old name: Sozo Global)

K-Star Sports Limited (KSTAR)

Maxwell International Holdings Bhd (Maxwell)

Multi Sports Holdings Limited (MSPORTS)

XiDeLang Holdings Limited (XDL)

Xinquan International Sports Holdings Limited (XINQUAN)

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Maintain Neutral But Stock Is Trading Higher Than Target Price

Since I have commented on the UNFAIR but REASONABLE advise dished out by Independent Advisors, I feel I should also point out another type of wonderful advice from our stock market research houses.

This was published on theEdgeMalaysia.com: http://www.theedgemalaysia.com/business-news/236588-venturing-into-biodiesel.html

• Venturing into biodiesel  
  Business & Markets 2013
  Written by theedgemalaysia.com   
  Monday, 22 April 2013 10:49
  
  Felda Global Ventures
  Holdings Bhd
  (April 19, RM4.60)
  Maintain neutral at RM4.60 with a target price of RM4.32: We are overall “neutral” on FGV’s acquisition of a 100,000-tonne biodiesel plant in Malaysia. This will allow the group to expand its product offerings to include biodiesel. However, this is offset by our concern over the historical losses reported by the business.
  
  We expect FGV to turn around this business given the potential synergy to be derived from this asset with its existing businesses. In view of this, we expect this acquisition to have a minimal impact on the group’s future earnings. We maintain our “neutral” call with an unchanged sum of parts-based target price of RM4.32.
  
  FGV has signed an agreement with Mission Biotechnologies Sdn Bhd to acquire a 100,000-tonne per annum biodiesel refinery at Kuantan Port, Pahang for US$11.5 million (RM34.9 million).
  
  The biodiesel plant is located on six acres (2.4ha) of prime land and has a 16,000-tonne storage tank connected to a deep water jetty via import and export pipelines. The plant is expected to be fully operational by July 1.
  
  This new development is in line with the group’s strategy to venture further into downstream operations. The plant is located close to FGV’s estates in Pahang as well as the group’s refinery and oleochemical plant. This will allow the group to integrate this plant into its existing operations more efficiently and save on transport costs.
  
  The acquisition will also allow FGV to channel its high free fatty acids (or lower quality) CPO for biodiesel production and achieve better pricing for its palm products. The acquisition price for the asset looks fair to us as it is below RM100 million, which was the price quoted for building a biodiesel plant in 2006.
  
  However, FGV’s acquisition is most costly compared with Genting PLANTATION []s Bhd’s acquisition of a 200,000-tonne biodiesel plant in Lahad Datu for US$13.3 million in 2011.
  
  The potential synergy to be derived is offset by the historical pre-tax losses chalked up by the biodiesel business of A$4.5 million (RM14.04 million) to A$5 million in 2011 financial year (FY11) and FY12.
  
  We expect FGV to turn around the business through improved utilisation rates and better procurement of raw materials. Overall, the earnings impact from this is projected to be minimal. Maintain “neutral”. — CIMB Research, April 19
  
  
  
  This article first appeared in The Edge Financial Daily, on April 22, 2013.

Well what's wrong with this 'neutral' recommendation?

The stock is trading at 4.60 but the research house's target price is 4.32.Which means the stock is worth more than the target price set!

Yet the research house recommendation is a NEUTRAL.

Duh!

If the stock is trading more than the target price, shouldn't the recommendation be a simple SELL?

The Independent Advisor For MBF Speaks Again....

Posted recently: If The OFFER is NOT FAIR, how can it be REASONABLE...

On theSunDaily Business: http://www.thesundaily.my/news/645150

• MBf take-over offer not fair but reasonable
  Posted on 25 March 2013 - 10:12pm
  Last updated on 25 March 2013 - 10:51pm
  
  PETALING JAYA (March 25 ,2013): The offer for the shares and warrants of MBf Holdings Bhd by a consortium of three companies led by major shareholder Tan Sri Ninian Mogan Lourdenadin, are deemed not fair but reasonable, according to independent adviser Affin Investment Bank Bhd.
  
  "However, we are of the view that the offer for the shares and the warrants are reasonable based on our evaluation and also taking into consideration that there have been no alternative offers received to date," it said, advising that shareholders and warrant holders accept the offer.
  
  In an independent advice circular yesterday, Affin Investment said the offer for the shares is not fair, given that the share offer price is below the derived valuation range of MBFH shares of between RM2.45 and RM3.20.
  
  The offer represents a 30.6% and 46.8% discount to the adjusted net asset range of the group. The offer for the warrant is also not fair, given that the warrant offer price is derived by reference to the share offer price.
  
  Tor Pte Ltd, Nadin Holdings Sdn Bhd, Impact Action Sdn Bhd and Market Share Investment Ltd through Hong Leong Investment Bank Bhd has proposed to acquire all the remaining shares in MBf Holdings and all the remaining warrants which are not already held by the joint offerors for RM1.70 per share and RM0.70 per warrant
  
  Affin Investment Bank said the sale of MBF Cards was a loss of significant contribution to the group's profitability.
  
  The fact that the group's business is largely concentrated in the South Pacific Island, which are perceived as remote markets, following the disposal of the MBF Cards, was also seen as a negative point.
  
  The heavy losses incurred by the group's shipping segment since FY ended Dec 31, 2010 which had drained the group's cash reserves, was another.
  
  MBf's revised offer will be open for acceptance until 5pm on April 3.

They told the minority shareholders to ACCEPT the deal which is unfair.....

MBF revised the offer UPWARDS to RM1.775 per MBfH share and 77.5 sen per warrant.

Guess what the INDEPENDENT ADVISOR has to say this morning...

Also from theSunDaily: http://www.thesundaily.my/news/663921

• MBfH advisor recommends acceptance of 2nd revised offer
  Posted on 17 April 2013 - 05:40am
  
  PETALING JAYA (April 17, 2013): Affin Investment Bank Bhd, which is the independent advisor to the minority shareholders of MBf Holdings Bhd (MBfH), has given the thumbs-up to MBfH's controlling shareholder and group CEO Tan Sri Dr Ninian Mogan Lourdenadin's latest attempt to take the group private.
  
  In a filing with Bursa Malaysia yesterday, MBfH said while Affin Investment had deemed the second revised offer of RM1.775 per MBfH share and 77.5 sen per warrant "not fair but reasonable", it is advising its shareholders to accept it.
  
  "The board (save for the interested directors) concurs with the recommendation of Affin Investment. Accordingly, the board's comments, opinions and recommendation as contained in the Independent Advice Circular remain unchanged," said MBfH.
  
  The joint offerors for the rest of the MBfH shares are Tor Pte Ltd, Nadin Holdings Sdn Bhd, Impact Action Sdn Bhd and Market Share Investments Ltd. Ninian has accumulated 98.51% or 568.8 million shares in MBfH.
  
  In a separate filing, MBfH said the joint offerors will still require further acceptances of 2.4 million shares or 0.42% to invoke the compulsory acquisition of the remaining MBfH shares.
  
  "If it fails, shares not held by the joint offerors as at the close of the offer on April 26, 2013 may not be compulsorily acquired."

   !!!!!