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.

Back-door Listings

P/S - Are you here?

Rowsley Limited
On May 2, 2007, Rowsley announced the acquisition of $2.7bio Chinese solar firm which will lead to a reverse takeover.

A few weeks later, the company presented a massive loss of $21.5mio the financial results for year ended Mar 31, 2007.

Eng Wah Organisation
Last week, Eng Wah announced it would be bought out by a Japanese biotechnology firm for $675mio which will lead to a reverse takeover.

In today's paper, Eng Wah and its Crazy Horse escapade reported a net loss of $10.6mio.

What is a reverse takeover?
On paper, I am buying you but actually you are cleaning me out. [Remember - substance over form.]

Did the losses in the respective company mentioned above signal to its management that their existing business is deep trouble? I guess Eng Wah had tried to do something about with Crazy Horse. I suspect that there is a huge sigh of relief (after months of emotional torture) when they finally decided to let the Crazy Horse go. An amazing $9.4mio of the $10.6mio loss reported is due to Crazy Horse.

Consequently, both companies are selling out of the final remaining asset ie. "Singapore-listed company status" to the Chinese and Japanese buyers.

P/S - I got no shares in both companies.

Two headlines on Chinese markets - Severe concerns

"Investors should pare China holdings, analysts warn" and "China funds' values slide as foreigners flee" were the two headlines in Business Times about two weekends ago on Chinese stock markets.

Last week, Alan Greenspan, the RETIRED (but still talking alot openly)FED Chairman, warned the audience in a conference in Europe of the same issue. The markets have been in a negative mode hence.

How overvalued are domestically listed Chinese shares in the eyes of foreigners? As much as 16 per cent, based on two China equity funds for foreigners that trade at discounts to their underlying stocks.

Exchange-traded funds seldom trade at steep discounts except during times of turmoil as per experts.

As foreign investors increasingly question whether China's roaring stock market is heading for a crash, overseas-traded China funds which have more than doubled in value in the last year are now steeply discounted.

At the start of the year, the same funds traded at premiums of as much as 20 per cent above the value of their underlying stocks.

So what is the impact, if any, on regional bourses?
If there were any severe correction on the Chinese markets, we should expect knee-jerk reaction. But another report has highlighted that the Chinese meltdown, if any, should be viewed as limited to the Chinese markets or deemed as an internal affair.

So my friends, whichever way the storm could come, please tread in a measured way.

STI ETF 100 - huh?????

On Apr 24, 2007, I bought my first lot of 100 shares of STI ETF 100 @$33.25.

Based on my memory, the market had experienced a correction of more than 100 points the day before. I took the opportunity to try out a new investment type ie an ETF.

As of May 18, 2007, the last traded price was $35.29. A $2 appreciation in less than a month. Good decision on the timing but not on the amount invested.

So what is an ETF?
ETF is an exchange-traded fund. For STI ETF, it invests in the component stocks of Straits Times Index according to the respective weightage.

What are the advantages?

• It allows me to participate in the equity market at theoretically lower risk.
• It spares me the need to comb through piles of brokers' recommendation.
• It allows me to participate in the growth of a group of 50 companies representative of the Singapore economy.
• My fortune is thus not tied to the fate and turbulence of a single company. Many of these companies are the bluest of the bluest chips counters.
• I will receive dividends on dividends received from these companies.
• Any fees payable to the fund manager? Nil. I only pay for the commission and fees as per buying and selling shares on the exchange. Thus in terms of costs against fund-manager-managed funds, ETF is definitely cheaper.

Are there any disadvantages?

• I might experience liquidity issue ie. there could be occassions where there are no buyers or sellers at prevailing price. But in recent weeks, I must say liquidity has improved. Not sure whether it was due to a letter written about the higher volume done on ST index in overseas exchanges.
• While I may have diversified away company-specific risks, I am still exposed to country-specific risk for STI ETF.

Unit trusts and Funds - What????

A reader said in a recent posting that shares are very volatile and thus asked me to write something about unit trusts.

Unit trusts or funds are financial vehicles where individuals can pool their monies to invest in certain sectors, themes, country etc at a specific risk profile.

Individuals essentially engaged fund managers to make investment decisions on their behalf.

For that, you have to pay them $$$. The annual fees are usually a percentage of funds under management, regardless whether the fund make money or not.

In addition to that annual fees, you may be required to pay a one-time marketing fee upfront when you first participate in the fund.

Volatility will still be around as it would depend on the type of unit trusts you have selected. Eg. you should have a higher appetite for risk for you to invest in technology funds as compared to investing in essential consumer product sector.

I lost money with AEM Holdings today

Dear fellow investors,

Today I am hit by another loss with my holding in AEM (my last big boo boo was China Aviation Oil).

Company requested for a trading halt this morning. Given last week's DBS Vickers' report earmarking AEM (among many others) as a potential target for acquisition, naturally I thought some deals would be announced along the same tune.

Guess what! The Company seeks a trading halt to announce that the Company is assisting with investigation by CPIB !

Upon resumption of trading, the counter dropped by about 20%. Edgar jumped off the cliff....

Why? Why? Why? Why?.................. and a big sigh....

Mr Richard Li of PCRD is at it again

What is the deal now?
On Mar 3, 2007, Pacific Century Regional Developments was reported to have sold its 47.06% stake in PCI, its Hong Kong-listed insurance arm for HK$3.14 billion to Fortis Insurance International.

What is Edgar not sure of?
Back in Nov 2006, PCRD's shareholders were asked to approve the sale of 22.64% stake in PCCW for HK$9.2 billion. That deal was rejected by the minority shareholders.

He is said to be selling off his "unloved" assets in PCRD. So far, we note that he doesn't like telecom and insurance businesses.
What other "unloved" assets will he sell?
What is his "loved" assets anyway?
What is the true value of PCRD?
Can someone do the sums please?

Or is he the Richard Gere's movie character in Pretty Woman, where he buys company and strips it apart and sells them in pieces for a profit?

The biggest winner of the deal is Mr Li himself, of course. But he would have to share the fruits with the minority shareholders of PCRD, right?

Congratulations to Mr Li.

P/S - I still got no position in PCRD.

Mr Oei has struck another deal again!

P/S - Appreciate what we have.

The main players
- Mr Oei Hong Leong in International Capital Investment Ltd (ICIL), (formerly Jurong Engineering Ltd)
- TT International, which makes and sells the Akira range of electronic appliances

For a complete picture of the sequence of events of Mr Oei to date, see my previous posting.

What is the deal?
TT announced on Mar 1, 2007 that it was injecting its Akira assets, business and undertakings which it valued at $90 million into ICIL.

Upon completion of deal, TT would own 77% of ICIL while Mr Oei's stake would be reduced from 76% to 17%.

Issues to be considered:-
- The two shareholders would jointly owned 94% of ICIL. As free float of 10% of company's shares is required, divestment of shares is necessary to maintain listing status.

- How to justify valuation of Akira's business at $90mio? Ms Julia Tong, exec director of TT, cited Interbrand, a branding consultant, who had attributed a value of $49 million to the Akira brand back in 2005. TT is said to have grown and now sells in more than 60 countries. Of course, Mr Oei must have checked and considered the valuation as fair for him to give away 77% of a cash-rich company in ICIL.

What does the deal mean to each player?
TT - By focusing a brand and its business into a single vehicle, it is giving prominence to it. Hopefully translating to more business at next level. Back door listing format. TT will probably get some cash from divesting a few percent of ICIL shares.

ICIL - May have found a business to continue its listing status. As no cash payout is mentioned in this deal, the cash hoarding will provide plenty of ammunation to fund Akira's growth.

Mr Oei - He has bought himself into a growing business that is scalable very quickly and can be part of his China's experience.

What is happening with Mr Oei, Novena and TT International?

The main players
- Mr Oei Hong Leong thru' its Foundation
- Novena Holdings - in the furniture business
- TT International - famous for its Akira branded electronics

Sequence of Events
11 Dec 2006 - Novena bought 98 Pasir Panjang for $13.5mio.
11 Jan 2007 - Novena bought 100 Pasir Panjang for $14mio.

22 Jan 2007 - Mr Oei bought the 2 properties from Novena. Novena got $2.3mio pure cash and profit.

21 Jan 2007
- Mr Oei sold its 20mio shares in Tung Lok to Novena. Novena paid Mr Oei with 10.3mio new Novena shares.
- Mr Oei will further buy 27mio new Novena shares @30cts ie. $8.1mio cash.
- Based on my calculation, Mr Oei would be a substantial shareholder with about 25% stake in Novena.

21 Feb 2007
- About a month later, Novena announced the sale of some of its furniture business to TT International for $13.5mio cash.
- In the same breath, Novena will buy about 18.3mio of TT International shares @20cts. Novena would effectively return about $3.6mio of the $13.5mio back to TT.
- At the end of it, Novena would own about 14% of TT Intl.

What does the whole series of activities mean to each player?
- Mr Oei have purchased 2 properties (not sure whether they are adjacent to each other) for $29.8mio. He also got rid of Tung Lok shares for a stake in Novena and TT International.

- Novena made $2.3mio from the property deals. Novena got about $10mio cash from selling part of its furniture business. Total cash inflow - about $13mio.

- TT International paid about $10mio for Novena's retail assets. Could we see TT transforming itself into a Court or Harvey Norman by marrying furniture with Akira range?

Well all the players have been and will be very busy to make the deals work for ALL shareholders to come.

Useful info from today's ST

Friends,

The following is an illustration of how reading the newspaper can be an important and probably prosperous exercise everyday.

I will be referring to page S25, S28 and S29 of today's Straits Times.

1. "Singapore Land's profit rises 12%"
For the YE 31 Dec 2006, EPS is 24.3cts. (Thus PE ratio is 42x)
Group Net Asset Value (GNAV) - $7.50 against Friday's closing of $10.10.
Proposed dividend of 45cts.
This would give a gross dividend yield of 4.4% at current share price.

2. "TeckWah lifts net gain to $8m"
EPS - 3.65cts
Yesterday closing share price - 21cts.
Thus PE ratio - 5.7x
NAV - 37.9cts
My assessment - Relatively low PE with NAV > current share price ==> relatively attractive

3. "UIC's gain more than doubles to $492mio"
EPS - 35.7cts
Yesterday closing share price - $2.57
PE ratio - 7.2x
GNAV - $1.77
Proposed dividend - 9cts
My assessment - Attractive PE ratio against gross dividend yield of 3.5%. Negative - $2.57 share price > GNAV.

Disclaimer - My above assessment is purely from my simple reading of articles in the papers. This is to illustrate that precious info are available if you know where to look for them.

I have no position in all of the above counters.

HG Metal - Theoretical price after Ex-All

Hi investing friends,

HG Metal's offer on dividends and rights issue wil go ex-all on Monday.

Just want to present the calculation to arrive at the theoretical price after ex-all.

Based on Friday's closing of 54cts and 2-for-5 rights issue @20cts,

Cost of purchasing 5 shares @54cts - $2.70
Cost of 2 rights shares @20cts - $0.40
Total costs of getting 7 shares would be $3.10.
This would give you a theoretical ex-all price of 44cts.

P/S - Computation excludes brokerage costs.
P/S - Edgar does not have any HG Metal share.

Is something cooking in HG Metal?

On Aug 15, 2006,
HG Metal secured refinancing by entering into a $10,000,000 convertible loan arrangement with OCBC Bank @36.1cts. FYI the share price was 45cts on that day.

On 13 Dec 2006,
HG Metal's share price dropped to as low as 24cts.

On Jan 5, 2007,
OCBC converted $3,176,800 for 8,800,000 shares.

On Jan 8, 2007,
SGX gave its in principle approval for 2-for-5 rights issue at 20cts per share.

There is also a special dividend of 4cts per share to partially assist to pay for the rights issue.

On Jan 19, 2007,
Its share price closed the week at 51cts. The shares are trading on a cum-all basis till Feb 5, 2007.

I am curious with the following questions.

1. Why would OCBC be interested in HG Metal with 4.76% stake?
2. On what basis did HG Metal convince OCBC to accept the convertible deal?
3. While banks are encourage to diversify their non-core assets, are banks allow to take these relatively "tiny" equity positions?
4. In 4 months, OCBC's $10mio convertible loan is in the money with a return of 41%. Will OCBC be holding on to the shares from conversion? Any more conversion to be expected from OCBC before Feb 5, 2007?

Does anybody out there got any answer to the above?

Business Trust - What is that?

There is a bit of hype going on with Business Trusts as a new investment class. Hyflux is already a benefactor.

What is a Business Trust (BT)?
Essentially, BT is a vehicle that allows investors to collectively own an asset with the following features:-

• stable predictable growth in earnings,
• stable cashflows and;
• low capital expenditure requirement in the near future ie. a generally completed infrastructure.

The BTs are set up as trusts rather than traditional companies. BTs are subject to corporate income tax rates.

Some examples of such asset would be power plant, water production plant, refining facilities, a plane, a ship, an oil tanker, etc.

It is similar to REIT. REIT focuses on properties.

Investors should generally focus on income yield. Capital appreciation is limited to those with longer term perspective.