GDH Guangnan Holdings Ltd (1203:HKG)

Recent Share Price: HK$ 0.74
Accounting: HKAS
Fiscal Year: Dec. 31st
Market Cap: HK$671.6 million ($86.3 million)
Industry: Basic Materials / Steel

Incorporated in 1982 and based in Hong Kong, GDH Guangnan Holdings Ltd. (GDH) is primarily a manufacturer of steel-related products that are used for the packaging of consumer staple-related goods and is heavily invested in the pig business. Although based in Hong Kong, GDH is a PRC company–operationally speaking. I can see the red flags immediately going up: PRC, SOE, Pig Business… PASS! And I can’t say I really blame you. Who wants to get involved with that! On the other hand, those dividend checks keep rolling in and it’s hard to find evidence of shareholder abuse. Also, GDH has a solid long-term working arrangement with POSCO, a quite reputable Korean steel mill. And the company is cheap. Pretty darn cheap. However, remind you, this is based on a diversified approach, i.e., 30 to 60 stocks. There is a chance of being blindsided, so risks of this nature need to be handled with diversification.

We care about the country where the company is run. There is a disadvantage being outside of the US. A few years ago we were looking to invest in either PetroChina or Yukos in Russia. We ended up picking PetroChina because the political situation was more stable. It turned out to be a good decision. I care about the country and the geopolitical environment I am investing in. The whole company was selling for $35 billion. It was selling for one-fourth of the price of Exxon, but was making profits equal to 80% of Exxon. I was reading the annual report one day and in it I saw a message from the Chairman saying that the company would pay out 45% of its profits as dividends. This was much more than any company like this, and I liked the reserves. If it were a US company, it would sell for $85 billion; it’s a good, solid company. I don’t understand the Chinese culture like I understand the US culture. However it said right in their annual report that they will payout 45% of their earnings as dividends, basically they say if they make money they will pay it out. I invested $450 million and its now worth $3.5 billion. I decided I’d rather be in China than Russia. I liked the investment climate better in China. In July, the owner of Yukos, Mikhail Khodorkovsky (at that time, the richest man in Russia) had breakfast with me and was asking for my consultation if they should expand into New York and if this was too onerous considering the SEC regulations. Four months later, Mikhail Khodorkovsky was in prison. Putin put him in. He took on Putin and lost. His decision on geopolitical thinking was wrong and now the company is finished. PetroChina was the superior investment choice. 45% was a crazy amount of dividends to offer but China kept its word. I am never quite as happy as I am in the US, because the laws are more uncertain elsewhere, but the point is to buy things cheap. Russia is just a bad geopolitical environment. On the other hand, China has kept their word on paying the dividends. In fact, when the dividends check comes in, it is calculated out 10 or so decimals, these guys keep their word. I don’t know the tax laws in China, but you can buy a good business cheap.

Source: Student Visit 2007 URL:

Tinplating (2020 Revenue: HK$ 2,115.6 million, HK$ 8.7 profit; 2019 HK$ 2,022, HK$ 36.1 m profit)
This segment produces and sells tinplate and related products used as packaging materials for food processing manufactures. GDH Zhongyue, 100% subsidiary, (located in PRC) has an annual output capacity of 290,000 tons tinplate, 80,000 tons of tin-free steel (TFS), and 140,000 tons of blackplate (cold-rolled steel plate).

In 2006, the group formed an alliance with POSCO Co. to establish a joint-venture: GDH Zhongyue Posco. GDH has a 66% interest in the JV and POSCO has a 34% interest. The JV has an annual output capacity of 200,000 tons. The products are used for the packaging of beverages, food, medicine, and chemicals. In the first half of this year, GDH reported 72% of revenue from this division with 159,640 tons of tinplate products produced–a 15% increase y/y. Year over year revenue was up 44% with profit up 140%. On the negative, ex-PRC revenue declined due to increased competition, supply chain constraints and the cancellation of the export rebate policy on chrome-plated iron.

Fresh & Live Foodstuffs (2020 Revenue: HK$ 321.0 million + HK$ 81.9 million distribution = HK$ 403.0 m, HK$113.3 profit; 2019 HK$ 326.4 rev / HK$ 49.2 profit)
This segment distributes, purchases, and sells fresh and live foodstuffs. The name of the game here is pig farming. GDH has a wholly-owned subsidiary, GDH Food, a 65% interest in GDH Food Foshan, a 51% interest GDH Trading, a 13% interest in Hubei Jinxu and a 34% interest in Guangdong Baojin.
In the first half of 2021, this division contributed about 28% to total company revenue. The company reports that the pig market is seeing increased demand as China emerges from Covid but experienced some headwinds in rising costs and pricing pressure in some instances. The company highlighted the new slaughter business and the chilled meat wholesale and retail business in the PRC as growth centers. GDH claims an overall market share of live pigs in Hong Kong at 47%. Also, the company reported that GDH Food Foshan has begun construction of a meat processing plant in Nanhai District, Foshan City which they expect to be operational by early next year–with a capacity of processing (slaughtering) 2.18 million pigs, 73,000 cattle, and 90,000 sheep per year.

The company focuses on the Guangdong-Hong Kong-Macao greater bay area and has increased capital injections on vertically integrating their business from breeding to processing to cold storage and distribution. The company has expressed interest in expanding into retail with plans to set up a number of retail chain stores in the greater bay area for meat and non-staple food businesses.

Property Leasing (2020 Revenue: HK$ 19.4 million, HK$ 12.8 profit; 2019 HK$21.3 rev, HK$15.3 profit)
This segment leases office and industrial premises. For 2020, the properties were listed on the books at an appraised value of HK$ 450 million. The properties leased are plant and dormitories at the GDH Zhongyue production facilities and office units in Hong Kong

  1. 29/F, Shui On Centre, 6–8 Harbour Road, Wan Chai, Hong Kong
  2. Land, buildings and structure of GDH Zhongyue (Zhongshan) Tinplate Industry Co., Ltd., 25 Yanjiangdongyi Road, Torch Development Zone, Zhongshan, Guangdong Province, the PRC.

Risks. Guandong Holdings, a private state-owned enterprise, has a 59% interest in the company. Guandong Holdings also has interests in Guangdong Investment (270) and Gurandong Tannery (1058), among other interests.

Change in Working Capital HK$      (138,806,000) HK$        760,933,000 
Net Income HK$        416,770,000  HK$     1,129,906,000 
D&A HK$        373,313,000  HK$        824,695,000 
Other non cash charges HK$      (155,109,000) HK$      (385,440,000)
Capex HK$      (151,140,000) HK$      (462,952,000)
Owner Earnings HK$       345,028,000  HK$    1,867,142,000 
Dividends HK$      (163,368,000) HK$      (349,348,000)

Disclosure: We own shares in GDH Guangnan Holdings Ltd (1203:HKG). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

McCoy Global Inc (MCB:TOR)

Recent Share Price: CAD$0.44

Accounting: IFRS

Fiscal Year: Dec. 31st

Market Cap: CAD$12.0 million ($9.1 million)

Industry: Energy / Oil Related Services and Equipment

McCoy Global’s primary business is selling hydraulic power tongs for onshore and offshore rigs. The company claims to be the market leader and reports to have the largest installed base in the world.

Sales per region
CAD (in Million)2019
United States & Latin America $               23.98 45%
Middle East & Africa $               13.85 26%
Europe & Russia $               10.00 19%
Asia Pacific $                 3.21 6%
Canada $                 2.36 4%

The power tongs are used to connect and disconnect tubing at the wellhead at the proper torque, which is better and safer than connecting by hand. Every active rig, both onshore and offshore, will need a threading device–so financial results for the company are heavily correlated to active rig counts and footage drilled. The piece that comes in contact with the pipe is called a die, which wears out eventually and needs to be replaced. The video below is of a working power tong by Eckel, a competitor to McCoy, but gives you an idea of how this works.

McCoy is looking to lead in the technological advances in their niche field of expertise. This is evident in their purchase of DrawWorks last year. The video below is of their new threading system.

Overall, McCoy is looking to keep up their R&D spend to improve cloud based services for their customers. The thinking here is to push for better technology at the wellhead to allow customers to reduce their headcount at each wellhead and allow rigs to be monitored and run more remotely.

Recent History


Given the pain in the energy sector, McCoy has worked to reduce working capital needs and tightened the belt on operating expenses. Their Q3 results make for 5 quarters of positive EBITDA (and 7 of the last 8). If they can eke out positive cash flow when it’s this bad, their ability to remain solvent looks promising. (But who knows for sure.)

McCoy recently secured a new US$2.5 million line of credit to support working capital needs and refinanced its existing US$2.4 million note with a US$3.4 term facility to extend maturity and pay for their R&D they want to spend.

November Investor Presentation


McCoy completes the first phase of their “Digital Technology Roadmap” with the introduction of two new products: Virtual Threadrep and Calcert Technology. McCoy states they spent $1.9 million in 2019 on these cloud-based products..

Effective October 2, acquired DrawWorks LP for $7.8 million ($5.8 million cash, $1.9 million note) and booked $3.6 million to goodwill and $2.6 million to intangibles. McCoy points out DWCRT, a new type of a casing running tool, as an example of technology driven product offerings they are excited about.


Acquired 3PS, a maker of torque sensors, for $8 million.


My calculated M-Score for 12/31/2019 is acting quite funny. It appears to be coming from a blow-out in the Asset Quality Index (AQI) with a score of 17.43. Two things may be causing this: (1) the acquisition of DrawWorks put $3.6 million in goodwill and $2.6 million in intangible assets (which they called Acquired IP) on the books in 2019 and (2) McCoy capitalized R&D expense of $2.2 million as IP. Due to write-offs of capitalized R&D in 2018, Intangible assets and Goodwill went from $9 thousand to $8.1 million–that’s quite the move.

Change in Working Capital $       32,041,000  $      (15,117,000)
Net Income $      (66,778,000) $      (10,374,000)
D&A $       21,498,000  $       46,968,000 
Other non cash charges $       10,393,000  $       46,033,000 
Capex $      (10,679,000) $      (46,152,000)
Owner Earnings $      (13,525,000) $       21,358,000 

Cannell Capital (Carlo Cannell) owns 12% of shares outstanding. It’s always nice to see a respected value shop in a name.

What happens to oil prices is the obvious unknown.


Value Investors Club

Disclosure: We own shares in McCoy Global Inc (MCB:TOR). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

Cofidur SA (ALCOF:PAR)

Recent Share Price: €294

Accounting: French Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: €11.4 million ($13.5 million)

Industry: Technology / Printed Circuit Boards

Cofidur SA is electronics manufacturer that works as a subcontractor to predominately French companies in a variety of industries. Information is quit difficult to come by, but with €16 million in the bank and a €11 million market cap, I’m willing to make some acceptions.

In what was a blood-bath for the first half of this year, with their plants practically sitting idle, Cofidur secured a €5 million loan guaranteed by the state (which I presume to be at favorable terms) and took a negative EV valuation at the start of the year to over €5 million EV at the half-way point. The company followed through with their €8 dividend which is a good sign, but the future is quite uncertain. (The company stated in their first half report that they remain confident given their cash level.)

The Laval and Périguez sites are therefore practically at a standstill, only a few rare productions remain to meet customer demand and the company is implementing the measures adapted to this decrease in activity (taking leave, partial unemployment, etc.) as well as those making it possible to limit the impact on cash flow (deferral of expenses, social security, bank maturities, etc. ) Given this assumption, the first half of 2020 will necessarily be significant decline compared to 2019 (It is still too early to quantify the impact) but the current cash level of the company allows us to remain confident to approach the second half of the year.

Cofidur Press Release (Google Translate)

I cannot find information on their concentration of customers. I have also been unable to ascertain if French Accounting Standards mandate reporting customers that contribute over 10% to revenue, for example (as is the case in the U.S.). Any help on this would be appreciated!

Segment RevenueFranceEuropeUSAOther
2019 (in millions)€61.2€4.50€2.3

I have read that they own their factory in Montpellier, but I have been unable to verify this. The depreciation schedules do not provide help either. Their sites in Laval (where they are headquartered) and in Périgueux appear to be leased. In their 2019 annual report they list €687K in rental contracts on the balance sheet, which they report “mainly concerns real estate at Laval sites and Périgueux”.

In 1998, Cofidur issued approximately €28 million in convertible bonds. Since then, through buybacks and conversions, it has been reduced to a negligible redemption value of €254,000 (conversion ratio: 1 share for 200 bonds).

Cofidur reports no material off-balance sheet commitments.

Cofidur has a share buyback program in place with a max purchase price of €350 per share and up to 10% of shares outstanding, or 3,867 shares. No sign of activity on this though, as the program has been sitting dormant for the past few years. There is a history of share buybacks, so all is not lost.

From the 2019 annual report, EMS Finance is the majority shareholder of Cofidur, with over 50% and over 2/3rds voting rights.. (EMS Finance was established by management to protect itself from the takeover bid of Olane.) In 2019, it appears that the 4 member company was reduced to 3 members (Henri Tranduc, Philippe Broussard, and Serge Villard) with the buyout of Thierry Richli for €5ooK. It is reported that at the 2019 member meeting the buyout was due to Thierry’s retirement. With EMS Finance controlling approximately 50% of Cofidur, and assuming (1) Thierry Richli controlled 25% of EMS Finance, and (2) the purchase price of €500K is accurate, this may provide very interesting insight on the value management places on Cofidur. My assumption is that there is additional information out there that would better explain these numbers.

We accumulated the majority of our shares in the first half of this year. Management appears to have done a nice job allocating resources and making sensible decisions with the company’s capital over the greater part of 5 years. If they continue to make similar decisions in the future, the stock, at current prices, has a good chance of working out favorably over the next 5 years.


Change in Working Capital €   2,300,000  €       679,000 
Net Income € 10,124,000  €  18,423,000 
D&A €   6,858,000  €  15,511,000 
Other non cash charges € (3,783,000) €   (5,675,000)
Capex € (5,115,000) € (12,568,000)
Owner Earnings € 10,384,000  €  16,370,000 


Liquidation Almanack


Johan Wigert (and 2017)

TES Optimal Value Investing

Disclosure: We own shares in Cofidur SA (ALCOF:PAR). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

Somar Corp (8152:TYO)

Recent Share Price: ¥1,741

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥3.4 billion ($31 million)

Industry: Basic Materials / Plastics Material and Resin Manufacturing

Somar Corporation is a Japanese manufacturer of primarily resin products for various industrial uses (e.g., smartphones, automotive parts). In their environmental division, they make various cleaner and disinfectant products, as well as chemicals used in the papermaking business. In the food division, they make food additives (mainly thickening stabilizers) and dehydrated vegetables. The also have small interests in managing golf courses (with Nagatsuta Corp, Sink Co., and Tama Kosan Co.), a real estate rental management business (Soya Co.), and an insurance agency business (Sowawa).

[Nagatsuta Corporation is a wholly owned subsidiary of Think Corporation. Sink Co., Ltd. is a wholly-owned subsidiary of Sakai. Tama Kosan Co., Ltd. is a wholly owned subsidiary of Soya.]

The company was founded in 1943 by Tadashi Masutani to produce tatami mats.

In addition to their Japanese operations, they have 8 subsidiaries (Hong Kong, Zhuhai (China), Taiwan, Thailand, India, U.S., Europe, and Vietnam)

The Sotani Family owns 15% of the company. President, Futoshi Sotani, owns 10,600 shares personally.

Revenue JPY (in million)20182019%
Revenue per region JPY (in million)20182019%
  1. Industrial Materials
    • Coating Products
      • Film for electronic parts, precision parts, industrial materials, design & copying
    • Resin Products
      • Resins for electrical insulation, adhesives and sealing resins for electronic components
    • Electronic Materials
      • Circuit board materials, circuit forming materials, functional films
    • Functional Resin
      • Thermosetting resin, thermoplastic resin, additive for resin
  2. Environmental Materials
    • Industrial disinfectants, industrial fungicides and other fine chemicals
    • Papermaking
      • Paper coating binders & paper-related chemicals (slime control agents, preservatives, water retention aids)
  3. Food Materials
    • Food Ingredients
      • Thickening stabilizer (e.g. guar gum), dehydrated vegetables (e.g., onion, garlic), food additives


A lot of the companies I’m looking at seem to be using similar phrasing, so it’s hard to get a read on it. I don’t know how Brexit affects a lot of these Japanese microcaps, but apparantely it does!

[The Company] is supported by relatively strong overseas economies in the first half under the government’s continued economic measures and the Bank of Japan’s monetary easing policy improvements in business performance, employment and income conditions continued, and the Japanese economy maintained a moderate recovery trend. In the seconde half of the year, the US-China conflict, especially the US-China trade friction, the UK’s exit from the EU; as a result of geopolitical risks that continue in the Middle East and East Asia, the global economy slowed down clearly. However, the country’s economy is gradually changing to a downward phase, and it is in a difficult situation that does not allow foresight.

2019 Annual Report (Google Translate)

Recent History


Established Somar Vietnam Co., Ltd. (currently a non-consolidated subsidiary) in Hanoi, Vietnam.


Obtained IATF 16949 certification, an international standard for the manufacturing industry in the automotive industry.
Established Somar Europe BV (currently a non-consolidated subsidiary) in North Holland, the Netherlands.


Established Somar North America Corporation (currently a consolidated subsidiary) in New York, USA.


Change in Working Capital ¥      (1,953,313,000) ¥  (1,751,556,000)
Net Income ¥          430,745,000  ¥  (2,310,039,000)
D&A ¥       2,202,858,000  ¥   6,525,032,000 
Other non cash charges ¥       2,213,367,000  ¥   2,509,298,000 
Capex ¥      (1,180,360,000) ¥  (9,304,143,000)
Owner Earnings ¥       1,713,297,000  ¥  (4,331,408,000)

Disclosure: We own shares in Somar Corp (8152:TYO). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

Sanko Co Ltd (6964:TYO)

Recent Share Price: ¥428

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥4.3 billion ($40 million)

Industry: Basic Materials / Electrical Equipment & Components

Established in 1963, Sanko Co., Ltd. manufactures precision components primarily for the automotive industry. The Company operates under five divisions.

As of March 31, the Company had two subsidiarys, a 100% owned production facility in Thailand (Thai Sanko Co, Ltd.) and Sanko Trading USA.

Segment Revenue (JPY, in millions)FY2109y/y growth
Automotive Products (e.g., auto electronics)¥9,56512.8%
Housing Equipment (e.g., electric power meters)¥2313.6%
Digital Consumers (e.g., digital cameras)¥1,60314.8%
Office Equipment (e.g., printers)¥2909.3%

The company pointed out Brexit uncertainties, the Chinese economy and Sino-US relations as headwinds, but still expects solid growth from their automotive division. The company believes it is well positioned for the growth in demand for auto electronics with an emphasis on EV and hybird vehicles in their annual report.

Major Customers (JPY, in millions)20182019 %
Osakidenkikogyo Co., Ltd.¥2,146¥1,77113%

The Tamura family have a controlling interest in the company.

Major ShareholdersShares%
Tamura Shoji Co., Ltd. (Tamura Family)3,045,00033.75%
Masanori Tamura – Chairman2,000,00022.17%

The company has over ¥1 billion in LT Investments, but much of the value is in unlisted companies and information on this is difficult to come by via google translate.

Public HoldingsSharesJPY (in millions)
Hachijuni Bank Co., Ltd.437,650¥200
Mizuho Financial Group183,238¥31
Japan Institute of Metals Co., Ltd.1,000¥1
Osakidenkikogyo Co., Ltd.15,782¥10


Disclosure: We own shares in Sanko Co Ltd (6964:TYO). Leaven Partners, LP may hold any securities mentioned on this blog and may buy or sell these securities at any time.

NKK Switches Co Ltd (6943:TYO)

Recent Share Price: ¥4,770

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥3.9 billion ($37 million)

Industry: Industrials / Switchgear Manufacturing

NKK Switches Co., Ltd., formerly NIHON KAIHEIKI IND. CO., LTD., is mainly engaged in the manufacture and sale of various industrial switches. The company offers illuminated, process sealed, miniature, specialty, surface mount and LCD programmable switches. The company also manufactures toggle, rocker, pushbutton, slide, DIProtary, keypad and keylock switches.

The company was established in 1953 by then chairman, Shigeo Ohhashi. The Ohhashi family remains deeply involved in the company via operations and ownership.

YK Big Bridge*132,00016.0%
Hiroshige Ohhashi – Europe & China Sales29,3003.5%
Naoko Ohhashi28,0003.3%
Chizuko Ohhashi20,1002.4%
Tomoshige Ohhashi – President19,2002.3%
*May be part of Ohhasi family

The Company operates in three business segments (company and five subsidiaries). The Asia segment is involved in the assembly processing of switch products in China, and the sale of products in Hong Kong, China, and rest of Asia.

  • NKK Switches of America, Inc. (Scottsdale, AZ)
  • NKK Switches Hong Kong Co., Ltd. (Hong Kong) 2004
    • 2015 – China (Shanghai) Hirakiseki Co., Ltd
  • NKK Switches Mactan, Inc. (Philippines)
    • 3rd production base circa 2015
Revenue – JPY (in million)20182019%
United States¥2.499¥2,41432%
Largest Customers by Revenue- JPY (in million)20182019%
Chiyoda Electronic Equipment Co., Ltd.¥1,470¥1,43818%
Nippon Denka Industries¥1,036¥99513%

The company has developed a medium-to-long term plan of pushing global growth beginning in 2017 called “Change100” [google translate].

The company aims to break away from mere switch sales, from the “design process” of Kawakami to “production process” of the downstream.

This 4-year initiative to accelerate international growth is not gaining traction, based on the numbers. Management has sited a slowdown in China and trade disputes as headwinds. They also point to increasing raw material costs, rising labor costs (in China and Japan), and costs due to the “Mactan plant construction”.

Because of this, the company has lowered their 4-year goal from ¥10 billion in revenue and a 10% operating margin to ¥9 billion in revenue and a 7.8% operating margin (¥700 million). As of recent annual report, order backlog is at ¥8.4 billion.

Reverse stock split 1-10 in 2017

The company holds ~¥1 billion in common securities which is ~10% of TBV.

The company owns rental real estate that generated non-operating income of ¥10 million in 2018 and has an estimated market value of ¥391 million which is ~4% of TBV.


Disclosure: We own shares in NKK Switches Co Ltd (6943:TYO)

Marufuji Sheet Piling Co Ltd (8046:TYO)

Recent Share Price: ¥2,200

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥8.8 billion ($81 million)

Industry: Basic Materials / Construction Material Wholesale

Marufuji Sheet Piling Co., Ltd. is a wholesaler of construction materials. They sell, store and transport items such as, steel sheet piles, steel plates, H-shaped steel, architectural steel processed products and reinforced soil wall products.

It operates through the following divisions: Sales, Factory, and Transportation.

  • The Sales division engages in the procurement and sale of steel and construction materials.
  • The Factory division manages the production, processing, and maintenance of construction-related products.
  • The Transportation (Fuji Transport) division provides product transportation services.
JPY (in Million)2017%2018%
Transportation Contract3,0099.1%3,1129.4%
Processing Consignment2,6378%2,5907.9%

The company was founded by Ryozo Fujimori in 1926 and is headquartered in Tokyo, Japan.

Their largest customer is Kajima Corporation, (one of oldest and largest constrution companies in Japan), which represented a little over 15% and 10% of total revenue in 2017 and 2018, respectively.

The company has two pieces of investment property on their books (¥1.5 billion) which they do not use in normal operations. One (land only) in the Kanagawa Prefecture and the other (land and building) in Fukushima Prefecture. Company also has ¥1 billion in LT Investments.

The Tokyo Olympics (2020) is putting added doubts in the near-term prospects, as investors may be concerned with possible lack of new projects. Low insider ownership is another concern.

In 2017, did a 1:10 reverse split. In 2018, bought back shares and put in treasury.

In the end, too cheap to ignore.


Disclosure: We own shares in Marufuji Sheet Piling Co Ltd (8046:TYO

Sears Hometown and Outlet Stores Inc (SHOS:NAQ)

Recent Share Price: $2.18

Average Purchase Price: $1.85

Accounting: US GAAP

Fiscal Year: Feb. 2nd

Market Cap: $49.5 million

I’ve been working on this as my next post, but due to the recent change of events, I will post this as it is and move on. I tried to avoid this stock (and the Sears empire for that matter) for as long as I could due to its perennial history as a value destroyer. But I heard a presentation by Ryan O’Conner at Crossroads Capital last year that nudged me into changing my mind. The three drivers that made me more comfortable at the time were: (1) the inventory on the books has a stronger floor valuation compared to most retailers, (2) the outlet business is a decent business hidden by a really bad hometown business, and most important (3) the closing of the hometown locations do not appear to be costly and free up working capital.

But in the end (as he has a history of showing), Eddie Lampert does not appear to be concerned with maximizing shareholder value, but is more interested in maximizing ESL. The next Warren Buffett? Unless his idea of playing the long game is a generational long game, it sure doesn’t look like it.

Although the returns should work out for us, I think this was a bad decision on my part. There is a long list of not-so-good treatment of shareholders at Sears Holdings (that I was fully aware of) that should have kept me from buying this stock.

A buyout at $2.25 is highway robbery. But I should be thankful they didn’t drive the stock to $0.50 and buy it then or do a takeunder.

Sears Hometown and Outlet Stores, Inc. is a national retailer focused on selling home appliances, lawn and garden equipment, tools, and hardware.

The Company operates through two segments:

  • Sears Hometown and Hardware segment (Hometown)
    • Its Hometown stores are designed to provide its customers with in-store and online access to selection of national brands of home appliances, lawn and garden equipment, tools, sporting goods, and household goods. Hometown segment included 497 dealer-operated stores, 18 franchisee-operated stores, and 34 Company-operated stores, including all eight Buddy’s Home Furnishing Stores.
  • Sears Outlet segment (Outlet).
    • Its Outlet stores are designed to provide in-store and online access to purchase outlet-value products across a range of merchandise categories, including home appliances, mattresses, apparel, sporting goods, lawn and garden equipment, tools, and other household goods, including furniture. Five of the 128 Sears Outlet stores were operated by franchisees.

SHOS became a publicly held company following their October 11, 2012 separation from Sears Holdings Corporation.

Sears Holdings

In 2015, Seritage Growth formed and purchased 235 properties from Sears Holdings and leased all of them (except for the eleven third party properties) back to Sears Holdings, and also purchased the JV Interests.

Following the Chapter 11 bankruptcy filing of Sears Holdings on October 15, 2018, Transform Holdco LLC (“New Sears”) purchased substantially all of the assets owned by Sears Holdings for $5.2 billion. The new company is owned by Edward Lampert’s ESL Investments.

As the folly continues, Old Sears is suing New Sears.

Sears Holdings has been the textbook value trap, even for the most sophisticated value investors. For example, Chou Associates put nearly $50 million into SHLD beginning in 2005. I was interested to learn, however, that the investment was nearly only dead money (not including opportunity cost) due to the material earnings on lending their stock out for short selling.

Chou Associates 2018 Annual Report

Eddie Lampert has a hall-of-fame track record. And when Eddie merged K-mart with Sears, I think value investors assumed Eddie would focus on increasing shareholder value via asset conversion. I don’t think anyone was expecting Eddie to use the assets in an attempt to do a turn-around.

Bruce Berkowitz has been a long time believer in the value opportunity at Sears Holding, but has recently thrown in the towel as well.

Management has given up on Hometown

The Hometown segment has experienced multiple successive years of operating losses that have continued, and are continuing, to worsen. For SHO’s 2014 fiscal year the Hometown segment’s operating loss was $11.9 million, excluding the impact of goodwill impairment. The segment’s operating losses have grown each year since then, and the segment suffered an operating loss for our 2018 fiscal year of  $58.3 million. […] SHO believes that these cost increases and Kenmore and Craftsman availability issues are unlikely to improve in the near term and perhaps longer. We also believe that we have exhausted all of the means at our disposal to turn the segment’s businesses around. We also believe that, regardless of our commercially reasonable efforts to improve the Hometown segment’s operating results (which efforts we intend to continue), the segment likely will continue to experience operating losses.

2018 10-K

Freeing up working capital

Store Activity: 
In the third quarter of 2016, we opened four new stores and closed 12 under-performing stores in Hometown. For the first three quarters of 2016, we opened six stores and closed 51 stores in Hometown and had no openings or closures in Outlet. The Hometown closures, which unfavorably impacted EBITDA $0.6 million during the first three quarters of 2016, are largely part of our previously disclosed intent to close the portion of our Hardware stores and Home Appliance Showrooms that have historically underperformed. We continue to take proactive steps to make the best use of capital and reduce costs. In the fourth quarter of 2016, we anticipate closing approximately 100 locations (90 Hometown segment; 10 Outlet segment) resulting in one-time charges of $17.0 million to $19.0 million related to inventory markdowns, future rent obligations, and impairment of fixed assets. These closings will also free up approximately $30.0 million to $40.0 million of net working capital that can be used more productively.

2016 Third Quarter Press Release


On April 5, the company received a proposal from Eddie Lampert, via Transform Holdco LLC, an entity affiliated with the company’s majority stockholder ESL Investments, to acquire all of the outstanding shares of the company’s common stock not already owned by ESL and its affiliates for a purchase price of $2.25 per share.

This has to be considered a low-ball offer and certainly not in the interest of existing shareholders. I view this offer as another strike against Eddie. (I assume he wants to use Transform Holdco instead of ESL for tax reasons, i.e., to better utilize the NOLs.)

The company granted a special committee of independent directors (Kevin Longino, William Phelan and David Robbins) exclusive authority to review and evaluate the proposal.

The special committee countered at $9.50 per share, which ESL Investments considered “unrealistic”. In addition, the special committee and board communicated to ESL Investments, that, absent a deal, they would move to liquidate the Hometown Division. This must have been a hail-Mary plan, in the hopes of pushing Eddie towards a more reasonable number.

Not surprisingly, on April 15, ESL Investments stepped in and fired board members William Phelan and David Robbins, replacing them with Alberto Franco and John Tober. In addition, they amended the by-laws to prevent any future liquidation without better board representation.

From current Proxy


Completed the sale of a property in Newington, Connecticut. The sale price of the property was $2.8 million net of closing costs, and recorded a gain on the sale of approximately $1.4. Did not sell any owned property in fiscal 2017. There remain a few pieces of hidden property for sale.


  1. Eddie comes in with another low ball offer
  2. See #1


Multiple write-ups on VIC

csinvesting blog [here]

Disclosure: We currently own shares, but are in the process of closing our position. I don’t see the probablity of the buyout going above $2.25 to be very high.

Hengdeli Holdings Ltd (3389:HKG) (HENGY:OTC)

Recent Share Price: HK$0.41

Accounting: Hong Kong Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: HK$1.6 billion ($238 million)

5 Year
3 Year

Hengdeli Holdings Limited operates a retail network comprising: Elegant (high-end brands, acquired 2006), Hengdeli/Watchshoppe (mid-end and mid-to-high-end brands) and single-brand boutiques. Hengdeli has 67 retail outlets, selling watches from more than 50 internationally renowned brands in Hong Kong, Macau (2010), Taiwan (2009) and Malaysia (2018). They also provide integrated after-sales warranty maintenance.

Hengdeli has a strong and intergrated relationship with SWATCH Group, LVMH Group, Richemont Group and Kering Group.

Hengdeli is heavily tied to the Hong Kong market, which has recently seen an improvement in demand.

Recent History


Acquired the watch business of Watchshoppe, a well-known local watch retailer in Malaysia, thereby expanding its operations to Southeast Asia.


Announced in late 2016, plans to sell majority of buisiness. The deal was fair-ish for existing shareholders with the deal valued at approximately one times net asset value.

Sold its mainland Chinese business and it low-end watch and jewelry business in Hong Kong (Harvest Max) to Yu Ping Zhang, the chairman and contolling sharehoder for RMB 3.5 billion. The valuation was based on the unaudited net asset value of the Disposal Group of approximately RMB5.1 billion and the minimum Dividend Payout of RMB1.6 billion. Profit before tax for the disposal group in 2014 and 2015 was RMB 678 million and RMB 365 million, or 5x EBT and 9x EBT respectively.

The proceeds were used to retire USD denominated debt and to pay a special dividend of HK$0.20 per share.


Share price was pushed lower following a report in Next magazine which questioned the following:

  1. Some of the store outlets were either nonexistent or not branded as company stores.
  2. There was negative operating cash flow between 2006–2008 and 2010 despite being profitable.
  3. The company had lost key distribution licenses and exclusive rights for brands like Omega, Rado, Bucherer, Audemars Piguet, Fendi, and Dior.
  4. The company raised US$350 million of senior notes despite holding 3.4 billion yuan in cash as of June 30, 2012.
  5. The company has invested in a bond of 259 millon yuan with an interest rate of 13 percent.
  6. The company made three short-term loans amounting to 720 millon yuan at an interest rate of 11–18 percent.
  7. The chairman has pledged its shares to Swatch for a three-year US$100 million loan for his private business

Bloomberg wrote a follow up article in which Nick Hayek, chief executive officer of Swatch, denied the claim that relationship with Hengdeli was compromised.

Insider Ownership

Yu Ping Zhang1,585,556,50134.00%
Jinbing Zhang452,968,0009.71%
The Swatch Group AG437,800,0009.39%
LVMH Moët Hennessy Louis Vuitton SE230,280,4004.94%
Yong Hua Huang52,172,8001.12%



value and opportunity [here]

Disclosure: We own shares in Hengdeli Holdings Ltd (3389:HKG) (HENGY:OTC)

Sasakura Engineering Co Ltd (6303:TYO) (SKENF:OTC)

Recent Share Price: ¥2,550

Accounting: Japanese Accounting Standards

Fiscal Year: Mar. 31st

Market Cap: ¥7.9 billion ($70 million)

Sasakura Engineering Co., Ltd. is a Osaka-based company engaged in the marine vessel equipment business. Founded in 1949, the company operates in five business segments:

  • The Marine Vessel Equipment segment (¥1,240M Revenue, ¥149M OI) manufactures and sells seawater desalination equipment, heat exchangers, sewage treatment equipment, oily water separators, liquefied natural gas (LNG) ship use ultracold butterfly valves and others.
  • The Land Equipment segment (¥1,494M Revenue, ¥145M OI) manufactures and sells air-cooled heat exchangers, land use ultracold butterfly valves, heat pipe cooling rolls and others.
  • The Water Treatment Equipment segment (¥1,177M Revenue, ¥351M OI) manufactures and sells seawater desalination equipment for land use, reverse osmosis water processors, evaporative concentration devices, ozone evolution devices and others.
  • The Sound Deadening and Air Conditioning Equipment (¥1,109M Revnenue, ¥32M OI) segment manufactures and sells noise control equipment, equipment for ice thermal storage tank systems use and others.
  • The Others segment operates parking lots rental business.
Revenue (in Million)2017
Middle East¥1311.30%¥5104.80%
Published 2016

President, Toshihiko Sasakura, age 65, owns ~48% of common stock.

Largest customer, ~11% of total revenue, is Hitachi Zosen Co. Ltd.

Recent History


Established Sasakura Taiwan Co., LTD.

Began manufacture and sales of Fresh Water Generator series X

Obtained an order for rehabilitation of Al-Jobail Phase 2 C4 MSF Desalination Plant from SWCC of Saudi Arabia


Obtained an order for Expansion of the Existing Shoaiba Phase 2 Desalination Plant (MED-TVC–Type Desalination Plant, 91,200T/D×1 unit) from SWCC of Saudi Arabia


Acquired ALQ Environmental Engineering Co., Ltd. (currently Sasakura ALQ Acoustic Engineering Co., Ltd.) as a consolidated subsidiary.

Launched the Association of Radiant Cooling and Heating Systems of Japan (ARCH) with Toyox Co., Ltd., Inter Central, Inc. and Kubota ChemiX Co., Ltd.


Acquired Arabian Company and Sasakura for Water & Power (currently Sasakura Middle East Company) as a subsidiary through further acquisition of shares.

The Vapor-Compression device with distillation tower, developed in cooperation with Nippon Refine Co., Ltd. won both the Technology Award from the Society of Separation Process Engineers, Japan (SSPEJ) in May, and the Chairman’s Award from the Japan Society of Industrial Machinery Manufacturers (JSIM) in June.

Reverse 1:5 stock split


Company states, “to improve asset management and efficiency” the company has liquidated some of its investment holdings. In most recent quarter reported extraordinary gain of ¥898 million on sale of 3 listed securities (11% of current market cap; cash generation on sale was probably in the range of ¥2 billion). Post-liquidation, the balance sheet reports ¥1,480 million of investment securities held.

It appears recent results have been dragged by poor performance in Saudi Arabia, due to, what appears to be, conservative accounting for loss reserves on their large projects. For the first 3 quarters, a y/y comparison shows a loss of -¥64 million last year versus a gain of ¥558 million this year. This variance appears to be primarily due to their write down of loss reserves of ¥348 million; which appears to show up in higher revenue recognition, whereby improving gross margins materially. Their Land Equipment division also materially contributed to their improvement in operating income.

For the first 3 quarters, y/y, core business orders are up 11.2%; sales are up 2.7%; and order backlog is up 11.8%.


The bottom of the shipbuilding industry looks to be 2016; it appears things are improving for LNG and for shipbuilding in general. For Sasakura, the recovery is slow, but hopefully this provides added stability for the segment.

The company is pushing for inroads into the Chinese market for water treatment via their Tawainese subsidiary. This could lead to some areas of unexpected upside.

From what I can gather, there do not appear to be any major projects scheduled for the Middle East.

All told, the company looks safe and cheap and appears to be doing things that will increase shareholder value.



Bargain Hunter [here]

Disclosure: We own shares in Sasakura Engineering Co Ltd (6303:TYO)