Monday, December 31, 2007

Housekeeping: What to do with those losers? part ii

(2) WKK (up 12% from $1.12 in Jan 07)

This one is technically not a loser as it share price is above water, but its significant underperformance against the index made it so.

I had hoped for something to happen to this M&A prospect when I suggested it last year. And a second privatisation attempt did come by, at $1.68 in April which wasn't generous but still would have netted a 50% return if I sold it back then. Actually I had planned to sell part of my holdings just before the SGM as a hedge, as I knew Senta Wong and his parties would be buying all votes they could muster so there'd be no problem getting rid of my shares.

Then something unexpected happened as David Webb showed up and announced he had enough votes to block the deal. He obviously tried to force a better offer (he suggested $2.5) but failed as Senta Wong did nothing. In the end the share price retreated and we are back to square one. I don't blame Webb for raising the stake as shareholders' movement is sorely missing in HK and his work is good for everybody in the long run.

Things then took another downturn as WKK announced a worse than expected interim results (Jan - June 07) with turnover and profit both sharply down. This was confusing as Senta Wong should've known about this already and if he had waited until say Oct to put up his offer, he would have likely succeeded. From what I saw in the SGM, Senta Wong appeared a competent business man and I guess he should have known about this better than anyone.

So what really is his plan? Is the business really going downhill or is there unspotted value inside that's worth two privatisation attempt? This continues to be a mystery.

I begin to see a pattern in my bad calls. I tend to hang on too long with owners who are smart but sometimes too smart for us shareholders - a good lesson learnt for 2007.

Similar to Dickson, I'm thinking of unloading this share when there's more turnover. Another reason for doing so is to keep fewer shares that have little or no (margin) financing in the portfolio, which is another goal for me in 2008.

DISCLOSURE: I hold 532 at time of writing.

Friday, December 28, 2007

Housekeeping: What to do with those losers?

This is a hard question. Because more often than not the share price of those losers would rise after I'd sold. At least I seem to believe it that way. But if I really did the math and included the total time I needed to hold the share and the extent of subsequent appreciation, then I'd also probably conclude that it wasn't worth the effort. The time is usually too long and unpredictable. It's for the same reason I now shy away from asset shares with little earnings stream, as I can never predict when the price will meet, if ever, the underlying asset value.

So this years' losers go to:

(1) Dickson Concept (down 9% from $7.91 in Dec 06)

I really thought this was one safe recommendation that I didn't have to worry much. Well looking back I've overlooked its owner Dickson Poon, whom I should've given more 'special' attention. I originally had hoped for a $300m earnings in FY2008, but now after reading the interim results which were flat, full year earnings are likely to be around $200m, at most $250m. That'd give a p/e of 10-13x.

Disclosure continues to be non-transparent and I don't really know what happened in each business line other than some qualitative description by management. There should be positive contribution from the TH stores acquired last year, better sales from Admiralty and Mongkok Seibu, offset by weaker than expected performance of TST Seibu and initial losses of China Seibu. As there's no breakdown this was the most information I could gather.

Dickson itself is still a good story waiting to happen. I guess my timing was wrong by one year as I tried to be clever. The new stores, especially China ones, really take time for their market to develop since they are not typical everyday department stores. HK and other Asian stores (save Taiwan) should also do great this year as everyone is feeling a little rich. Taiwan is never in my equation so I need not worry. $300m earnings a year should still be attainable, but one year later in FY2009.

The only thing which makes me wary though is its owner. I'm still unconvinced about the merit of the injection by Dickson Poon of the TH network in 2006 (I have no way to verify its post-acquisition performance since there's no separate disclosure) and especially over the fact that the entire consideration of $400m was settled in cash, when the issuance of shares could've been an option.

Subsequent development was more unsettling as the name of Dickson Poon was associated with many pre-IPOs placement (obviously making good use of that $400m) and then Dickson the company did a $460m placement in Oct, which caused the share price to drop like a stone from $8 to as low as $6 (since there's suddenly a whole bunch of placees making a quick buck). So it appeared Dickson the company needed the cash after all and one has to wonder why it passed it all to Dickson Poon one year earlier. Perhaps I shouldn't place too much hope on a company named after its owner. It's his concept that matters after all.

Dickson is a good company but with an owner who has questionable intent at times. I don't have a firm view yet but I incline to sell when there's more interest developed in this share. I shall make a note to review my decision again during the Chinese New Year holiday.

DISCLOSURE: I hold 113 at time of writing.

Wednesday, December 05, 2007

Something Else

I just came back last weekend from Egypt and what a magnificant civilization there was. I said 'there was' because nothing notable has happened afterward for the next 2,000 years (up to now). Talk about an extended slump!

The historical sites are plenty and quite well maintained given their age. But you really have to be there to appreciate it. So today I only want to share with you one toilet tip, i.e. you do need a tip (1 Egyptian pound) to visit every toilet. There's a toilet man usually waiting at the entrance or he will sneak up from nowhere after you have 'unloaded' to collect his toll.

The tricky bit is how to get enough 1-pound bills to last your day, everyday, afterall Egypt is a hot country and a lot of water is consumed. The quick answer is 'you can't'! You could try get a change from the toilet man but 9 out of 10 times he'd say either he had no change or could only give you a lesser change becoz that's all he had (which of course is a lie). You could try your luck in the restaurants and shops but again 9 out of 10 times they'd have no change. What about if you buy something to get a change? Well you'd soon find out everything in store is priced at 'whole' prices like 5, 10, 20, etc. So you'd never get anything less than a 5-pound bill!

The toilet pound is like an underground secret currency, nowhere to be seen elsewhere, and worse, is only kept by those who run the toilets! And the bill's look and condition is also exactly as its name would suggest (gross), not unusual given all the moist in its surroundings.

Many US or European elders who don't 'hold up' well have given up hope and paid USD or EURO instead, which is at least 5 times more expensive than the Egyptian pound, and only if they have that many dollar bills.

Eventually after a few days of observation I founded a workable solution when I don't have the toilet pound. I'd just stand next to the toilet man and watch people come by and drop him the pounds. Once after 5 or 10 people had paid him, I'd say to him 'Hey I just saw you got 5/10 pounds for a change so don't fool around this time!'

And I just earned myself a few more tickets to the great Egyptian loo.

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