Young Simon and Old Wheelock

Still can see Wheelock from here.

What is the transaction?
Wheelock Properties bought a 10% stake in SC Global Developments. Simon Cheong (SC) sold his shares at @$6 for a total value of $112.1mio.

FYI - SC Global closed at $6.45 on Jun 22, 2007.

My objective here is to attempt to understand why the buyer bought and why the seller sold.

Why did Wheelock buy?
David Lawrence, its Chairman and CEO, explained in today's BT ie. 23 Jun.

They think they are buying into good, well-managed companies with a sense of style, and a good brand name.

• It allows Wheelock to buy into property firms that can hold on to land for longer term. Wheelock, though listed in Singapore, is considered a foreign company and thus faces restrictions.
  
• Wheelock has a track record of such investment in the past when it bought 20% of Hotel Properties (HPL) @$1.80 for a sum of $171.4mio. Today, HPL's last traded at $6.15 per share.

My view

Should we tap on the homework done by David Lawrence and its able team of directors and management, in deciding whether we should place our savings with SC Global?

Based on HPL and other successes that Wheelock have logged in todate, I think it is valid to follow albeit for medium to long term view. It will take for SC to fully unlock the full value of the landbank acquired to date. And I really don't think young Simon is in a hurry to do so.

Why did Simon Cheong sell?
No official words from him yet. Thus I hereby speculate.

• To Simon, maybe it is good to bring another brand name shareholder to its stable.
  
• Wheelock's database of buyers could be tapped upon in his attempt to sell SC's projects at $3,000 or more per sq. ft.
  
• Maybe young Simon thinks it is a good time to take some monies off the table given that SC Global's share price has gone up so much. Is he saying that in the near term, $6 plus per share is about right?

My view

Upside could be limited in the near term.

But there will be upside as old Wheelock wanted to buy more but young Simon said 10% divestment is enough.

Penny Stock Email Spam

Are you receiving emails that tell you to buy some stocks immediately as they expect the price to explode upward in the near future? Promising you quick and huge profit.

Most people either ignore or delete such emails. But inevitably there will be some people who will take the bait and buy that recommended counter.

These fraudsters send out billions of emails worldwide. But before they broadcast, they would have bought some shares @3cts for example. Assuming a small group of people respond by buying that counter and bid up the price to 4cts. These fraudsters would then unload their holdings to the buyers. They would make a tidy profit!

Their cost of this exercise - email broadcast costs.

Simple method indeed.

Irrational Craziness in Ban Joo's share price

"Irrational exuberance," he said.

Here is the continuing episode on Ban Joo based on published information. [P/S - I got no Ban Joo shares.]

Jun 30, 2006 - As at that date, it owed bankers almost $68 million.

Oct 2006 - Auditors expressed doubt about the company's ability to continue as a going concern.

Nov 5, 2006 - Company made announcement on the placement of shares at 2.5cts to secure $3.57mio cash injection. Share price then was 4cts.

Early Feb 2007 - Ban Joo announced an intention to buy into various private property-related companies via the issue of 109 million new shares. [Who were the intended sellers? Were these deals an issue to SGX giving the approval?]

Mar 27, 2007 - It announced that these purchases were off because certain commercial issues could not be resolved.

Jun 21, 2007 - Sivanithy's article in BT. Should the placement go through on Jun 25, 2007, will the difference of $30-odd million be considered an expense to shareholders and therefore the company? If it were to account for it, will the company sink?

Jun 22, 2007 - The counter closed at 24cts with about 30 mio shares transacted.

My view
Going concern is an issue with the company since last year.

Company promptly went and look for white knights for quick cash to keep company going. Company also tried to look for some new businesses to be injected into the company. These deals went belly up in Mar 2007.

The company is in a precarious position.

• Be damn if it gets the $3.57mio and;


• be damn if the shareholders reject the proposal on Monday.

If it gets the $3.57mio, how long will $3.57mio last with the possibility of $30mio "expense" to be charged to its P&L with no new business deals?

If it didnt get the $3.57mio, how to solve going concern issue with no money and no new business?

Thus I wish to know how one justify the last traded share price of 24cts.

Is it irrational exuberance that has got into all our heads?

Buyers beware!!!

Ban Joo - Placement of shares at a discount

my gifts

On June 21, 2007, R. Sivanithy of BT wrote this article entitled "Ban Joo placement: why the SGX delay?".

This is how the story started.

Nov 5, 2006 - Ban Joo & Co proposed the placement of 145 million new shares @2.5 cents to two private investors. The net amount to be raised is $3.57 million, which the firm will use for acquisitions and investment in new businesses.

Two regulatory procedures to clear for the fund raising exercise to go through.

1. As the placement price is more than 10% discount to the prevailing market price of 4 cents at that time, SGX's approval is thus needed.


2. A special meeting for shareholders to give approval to it.

So what went wrong?

1. In his article, Sivanithy wished to know the reason for the delay between application date of Nov 5, 2006 and approval date of May 18, 2007.


2. The share price has risen to 24cts as of Jun 22, 2007. The intended buyers at the proposed price of 2.5 cts, would stand to make 21.5cts per share. A whalloping $30mio profit!!!! So existing shareholders are obviously not happy with the deal.


3. There is no "lock-up" clause in the proposal ie. the new shareholders would be free to sell the whole 145mio shares if they so wish.

FYI - The Extra General Meeting (EGM) will convene on Monday Jun 25, 2007, for the shareholders to decide on the proposal.

SGX responded promptly on Jun 22, 2007 as follows:-

• SGX received the application for listing and quotation of the placement shares on Mar 19, 2007 and NOT Nov 5, 2007 as alleged by Sivanithy.


• The proposal could not be accepted earlier as the company did not have any independent directors on its board. SGX had to remind the company of its continuing listing obligations. After which, the company appointed two new independent directors. [What type of company is this when it can't handle listing requirements?]


• The company confirmed that the issue price remained at $0.025 for each new share despite being reminded by SGX of the BIG discount.


• The proposal was approved on May 18, 2007.

SGX is thus in the clear on this.

What is "placement of shares"? The company is selling new shares at a price agreed to some buyers payable in cash or with assets. It is different from a rights issue where the new shares are issued to ALL shareholders at a certain ratio eg. 1:5 ie. 1 new share for every 5 shares you are holding.

Everyone is making $ from the stock market?

True or False?
To many, it is very true.

You will hear everyone talking about "which counter is going to go up tomorrow" or "you make how much hah?" all the time everywhere ie. in coffee shops, hawker centres etc etc.

If everyone is making money, who is losing money?
It can't be nobody is losing money.

So who?????
Answer - The last person/people holding the baby (ie. the shares) is/are the losers.

How could it be true?
Mr A buys at $2 and sells to Ms B at $3.
Ms B sells to Mr C at $4.
Mr C sells to Ms D at $5.
Ms D sells to Mr Edgar at $6.
The market crashes. Share price drops to $2.
Mr Edgar held on the $6 share and after five years, he is praying for the share price to recover.

Creative is delisting from Nasdaq

Creative Technology announced that it intends to delist its shares from Nasdaq to help it reduce costs - the second time it has sought to do so.

It would save about USD$1-2mio for a company whose financial predicament is well documented.

Well you can only do so much to your middle line. For the bottomline, we still need the creativity (no pun intended) to invigorate the top line.

Where and when is it before Creative runs out of time?

Do you read the prospectus of IPOs?

Dear friend,

Frankly speaking, I couldn't.

I could not read every page but I do attempt to read sections of prospectus for info on the following areas:-

• What business/industry are they in? What is their business model? How do they make money? Thus is it defensible to some extent?
• What is the price am I buying in into the company? I will look for price-earning (PE) ratio as my first rule of the thumb.
• What are the declared risks of the business by management of the company? Many years ago, there was this IPO in the palm oil business which has declared that some of their plantations are sitting on land with ownership under dispute. Of course upon reading that, we should review for possible impact.

Gems TV - Learning Points

Hi friends,

Back in Nov last year, I wrote about the handsome profit made by Hour Glass for being a 5%-seed investor in Gems TV. It was listed at $1.08 and went to a high at $1.80. Today it is in the region of $0.70.

What is Gems TV's business?
It sells coloured gemstone jewellery, made in Thailand, on TV in UK.

What happened?
The company went from a loss of US$200,000 in 2004 to a profit of US$28.8mio in 2006.

On Feb 12, 2007, Jason Choo, the Chief Executive, gave a conference call interview and painted a very rosy picture for the business.
Share price went up 17cts to $1.45.

On Feb 22, 2007, Credit Suisse reinforced the positive aura of Gems TV by recommending a buy call with a target price of $1.94.
Share price went up by 5cts to $1.54.

On Mar 27, 2007, DBS-Vickers raised their buy call from $2 to $2.60 on the basis that the company will grow at a compounded rate of 60% for next few years. Share price went up 14cts to $1.80.

On May 14, 2007, Gems TV reported a 12% drop in 3rd Qtr sales and a whalloping 88%-drop in profit. The business's expectation for the next 2 Qtrs will be DIFFICULT.

Moral of the story
It is not easy to do business and make money. A business is not built over night.

Stock analysts from big and small broking and finance houses are prone to mistakes too. You must know who are these people doing their analysis. Do they do site visits planned by prospective companies? Or do they just do desktop evaluation of a business by someone who has not run a business before in their life?

Couple of years back, a journalist asked me why I didn't sell my China Aviation Oil shares when SIAS changed their recommendation to SELL. My response then was how do you know who is right and who is wrong at THAT point in time.

My last learning point as highlighted by R. Sivanithy is whether investors do their own homework. Or we rely on entities like Credit Suisse or DBS-Vickers to do that for us?

I will continue my comment on this in my next posting.

Caveat emptor, my friends.