This posting is to follow up on the latest development of Bright World. BW just announced its financial results for FY2008 last friday. As i have expected all along, they are able to meet the profit requirement of RMB18 million for Q4 2008. Pls refer to the links below for my earlier posting:
http://level13-analysis.blogspot.com/2008/10/sweeteners-for-bright-world-takeover.html
http://level13-analysis.blogspot.com/2008/09/my-view-on-bright-world-takeover-part-2.html
Having a profit after tax of at least 91% of what was achieved in FY2007, BW has successfully overcome a large hurdle in ensuring that the takeover by CHAC turns out to be a reality. Of course at this moment, nothing is firmed up yet. There are still pre-conditions to be fulfilled. The obstacle that everyone will focus on now will be the shareholders' meeting organised by CHAC. In that meeting, which will take place before 10th March, CHAC shareholders will vote on the takeover offer. The green light from the authorities on both sides should also be made known in March. Once all these have been passed and approved, the share price of BW should move up towards the $0.70 region.
Monday, February 23, 2009
Tuesday, February 17, 2009
False illusion of China's stock market
China's benchmark stock index rose yesterday to a 5-month high on investor enthusiasm about added liquidity amid rising bank lending, shrugging off declines in other Asian markets on news of Japan's economic contraction. The benchmark Shanghai Composite Index climbed 3 percent, or 68.59 points, to 2,389.59, its highest close since August 29. The Shenzhen Composite Index added 1.9 percent to close at 763.3.
The rise was driven not by economic fundamentals but by a surge in bank lending, which has sent money flowing into the market, analysts said. The government says lending hit a new monthly high in January, driven by a massive stimulus plan. "The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long." The rise came despite a government announcement yesterday that foreign investment in China fell 32.7 percent in January from a year earlier. That was on top of last week's news that January exports fell 17.5 percent.
The motive is correct but the end result will lead to another downtrend soon. China government's aim to relax bank lending is to help support the existing businesses and companies tide over this uncertain period. However, the funds are not directed to the parties which needed them the most. Instead, the money is being used to speculate in the stock markets. These speculators are likely to exit the market at the first sign of bad news. As such, the run-up over the past month is not sustainable.
The rise was driven not by economic fundamentals but by a surge in bank lending, which has sent money flowing into the market, analysts said. The government says lending hit a new monthly high in January, driven by a massive stimulus plan. "The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long." The rise came despite a government announcement yesterday that foreign investment in China fell 32.7 percent in January from a year earlier. That was on top of last week's news that January exports fell 17.5 percent.
The motive is correct but the end result will lead to another downtrend soon. China government's aim to relax bank lending is to help support the existing businesses and companies tide over this uncertain period. However, the funds are not directed to the parties which needed them the most. Instead, the money is being used to speculate in the stock markets. These speculators are likely to exit the market at the first sign of bad news. As such, the run-up over the past month is not sustainable.
Sunday, February 8, 2009
Value destruction by Contel
I pity those investors who are vested in Contel since their IPO days (although i dont think the number is high). 1.5 years ago, i had a posting, in which i advised all investors to avoid Contel due to its constant and urgent need for capital. On top of that, free cash flow was non-existent.
http://level13-analysis.blogspot.com/2007/07/raising-capital-at-contel.html
Let me do a recap on the amount of money that Contel raised ever since it was listed and you can make up your mind if it was indeed a value destruction job.
In Dec 2005, Contel was listed at an IPO price of $0.22. It managed to raise $9.1 million. There were about 250.92 million shares outstanding. Thus, the market cap was around $55.2 million. At that time, the book value per share was $0.162.
On 7th June 2006, Contel announced a proposed issue of up to $50 million in principal value of non-interest bearing equity linked redeemable structured convertible notes due 2011 in ten equal tranches of principal value S$5 million each to Advance Opportunities Fund. Investors should head for the nearest exit when the news was released. In a report
http://www.sfc.hk/sfc/doc/EN/speeches/public/surveys/07/exchange_audit_report_070404.pdf by the Securities and Futures Commission on the 2005 work of the Stock Exchange Listing Division published in April 2007, the SFC said (para. 48, p.12):
"In the last few years, several companies issued a particular type of convertible note, now commonly referred to as "toxic convertibles"... In the absence of other factors, each conversion is likely to lead to a reduction of the issuer's share price and an increase in the number of shares into which the remaining notes can be converted, resulting (because of the falling share price) in a spiral of further dilution of existing shareholders and reduction in share prices. In the worst-case scenario, the notes are converted into shares at the par value and the convertible noteholders may end up holding almost all the company's shares."
In June 2007, after taking $26.5 million from Advance Opportunities Fund and seeing the outstanding number of shares balloon to 417.85 million, Contel terminated the subscription agreement of the convertible notes.
In July 2007, the company decided that it needed more funds and so set up an arrangement with ABN AMRO Bank relating to the issue of US$8 million (S$12 million) zero coupon convertible bonds due 2010.
In Dec 2008, Contel made a private placement of its shares and raked it another $2.167 million.
As of 30th Jan 2009, the number of shares outstanding is 486.6 million.
The downfall of Contel is complete with this announcement on 31st Jan 2009. http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_D44C1AC0FBF95ECC4825754F003F55A1/$file/Contel_Galaxy_Business_Disposal_Annc__finalised.pdf?openelement
From the period between Dec 2005 to Jan 2009, the total amount of cash that went into Contel was nearly $50 million. However, the amount of dividend it paid out was ZERO.
I rest my case.
http://level13-analysis.blogspot.com/2007/07/raising-capital-at-contel.html
Let me do a recap on the amount of money that Contel raised ever since it was listed and you can make up your mind if it was indeed a value destruction job.
In Dec 2005, Contel was listed at an IPO price of $0.22. It managed to raise $9.1 million. There were about 250.92 million shares outstanding. Thus, the market cap was around $55.2 million. At that time, the book value per share was $0.162.
On 7th June 2006, Contel announced a proposed issue of up to $50 million in principal value of non-interest bearing equity linked redeemable structured convertible notes due 2011 in ten equal tranches of principal value S$5 million each to Advance Opportunities Fund. Investors should head for the nearest exit when the news was released. In a report
http://www.sfc.hk/sfc/doc/EN/speeches/public/surveys/07/exchange_audit_report_070404.pdf by the Securities and Futures Commission on the 2005 work of the Stock Exchange Listing Division published in April 2007, the SFC said (para. 48, p.12):
"In the last few years, several companies issued a particular type of convertible note, now commonly referred to as "toxic convertibles"... In the absence of other factors, each conversion is likely to lead to a reduction of the issuer's share price and an increase in the number of shares into which the remaining notes can be converted, resulting (because of the falling share price) in a spiral of further dilution of existing shareholders and reduction in share prices. In the worst-case scenario, the notes are converted into shares at the par value and the convertible noteholders may end up holding almost all the company's shares."
In June 2007, after taking $26.5 million from Advance Opportunities Fund and seeing the outstanding number of shares balloon to 417.85 million, Contel terminated the subscription agreement of the convertible notes.
In July 2007, the company decided that it needed more funds and so set up an arrangement with ABN AMRO Bank relating to the issue of US$8 million (S$12 million) zero coupon convertible bonds due 2010.
In Dec 2008, Contel made a private placement of its shares and raked it another $2.167 million.
As of 30th Jan 2009, the number of shares outstanding is 486.6 million.
The downfall of Contel is complete with this announcement on 31st Jan 2009. http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_D44C1AC0FBF95ECC4825754F003F55A1/$file/Contel_Galaxy_Business_Disposal_Annc__finalised.pdf?openelement
From the period between Dec 2005 to Jan 2009, the total amount of cash that went into Contel was nearly $50 million. However, the amount of dividend it paid out was ZERO.
I rest my case.
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