Merchant House International Ltd (MHI:ASX)

Recent Share Price: A$0.12

Accounting: International Financial Reporting Standards

Fiscal Year: Mar. 31st

Market Cap: A$10.8 million ($7.8 million)

Merchant House International Ltd. engages in the design, manufacture, and marketing of home textiles and footwear products.  They are incorporated in Bermuda, listed in Australia, and domiciled in Hong Kong.

It operates through the following segments:

• The Home Textile segment primarily manufactures kitchen textiles and table linens for import and export.  The Group’s Carsan textile factory in Shunde, China is 100% owned, has been in operation since 2002 employing over 600 workers. In 2017, the company acquired a facility in the U.S. to manufacture textiles, (primarily kitchen and bath towels).
• The Footwear Trading segment exports work boots and safety shoes. In China, the division operates mainly through 2 Tianjin joint venture factories, (listed on the books at A$11 million).
• The Footwear Manufacturing segment produces work boots and safety shoes in U.S. and sells directly to domestic customers. Their 2014 Tennessee factory supplies safety boots through direct injection molded soles.

The company was founded by Bic Hing Lee in 1978 and is headquartered in Hong Kong.  Loretta Lee owns 52% of the company.

If the company can right the ship on the footwear manufacturing division, the company would return to profitability.

The Bristol facility is also an unknown.

Sales per Businesses
	2017		2018
AUD (in Million)		%		%
Home Textile	40.23	55.30%	40.24	63.30%
Footwear Trading	31.68	43.50%	20.41	32.10%
Footwear Manufacturing	1.03	1.40%	2.87	4.50%
Sales per Regions
	2017		2018
AUD (in Million)		%		%
United States	71.33	98%	63.2	99.50%
Australia	1.06	1.50%	0.054	0.10%
Others	0.271	0.40%	0.234	0.40%
China/Hong Kong	0.127	0.20%	0.037	0.10%

Recent History

2019

Company guides (for FY2019, ending March 31) at a loss of A$1,000,000 (US$750,000) due to execution issues at Footwear Industries in Tennessee (FIT).

2018

Footwear Trading (Forsan shoe division) was down y/y due to the company’s decision to resign from retailers which are having financial difficulties, (which I assume to be Sears), and “giving up on the low-end margin product lines and moving toward higher value, branded products”. Net profit was A$0.27 million.

Footwear Manufacturing (Footwear Industries of Tennessee) suffered a loss of A$3.3 million reflecting “weak management, and lack of worker training and productivity”.

While the loss was as projected, the plan is for Hong Kong management to take a more active role in overseeing this business. […] For Footwear Industries of Tennessee improving the management will be our top priority in 2018. Numerous American brands continue to be interested in our factory, and we currently have more orders than we can fulfill.

Home Segment recorded profit of A$3.2 million in FY2018.

American Merchant Inc, (Bristol, VA facility) placed orders for the major weaving and finishing equipment which will begin to be delivered in the fourth quarter of this year. Some renovation on the existing building is currently taking place; they anticipate production will begin in the first quarter of 2019. [article]

During the year, the Group spent A$3.4 million (2017: A$1.5 million) on acquisition of property, plant and equipment and A$3.0 million (2017: A$nil million) on other assets under development, mainly for land and building and machineries of US wholly-owned subsidiary, American Merchant Inc.

2017

Acquired plant for $1.9 million in Bristol, VA, for textile manufacturing.  The company expects to invest $19.9 million to get the facility up and running.  The 260,000 sq/ft facility is expected to employ 405 employees.

2016

Discontinued Dividend.

2013

Purchased a 40,000 square foot building in the Jefferson City Industrial Park where it produces men’s leather boots and shoes.   The initial investment, to acquire and equip the plant in Jefferson City,  was $5 million and employs 50 people. [WSJ article]

Financials

Merchant HouseDownload

Blog Posts

• Valueinvestingblog.net post
• TES Optimal Value Investing post
• Quartz article

Disclosure: We own shares in Merchant House Int’l (MHI:ASX).

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HG Metal Manufacturing Ltd (BTG:SES)

Recent Share Price: S$0.33

Accounting: Singapore Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: S$42.5 million ($31 million)

HG Metal Manufacturing Ltd. operates as an investment holding company, which engages in manufacturing and trading customized flat steel bars and mild steel lip channels.

It operates through two segments:

• The Trading segment involves in supplying steel products and includes the holding of investments in subsidiaries.
• The Manufacturing segment includes producing steel products and provides related engineering services.

With more than 800,000 square feet of land area, HG Metal is one of the largest steel warehouse and processing facilities in Singapore, storing more than 3,000 varieties of steel products for a wide range of industries and applications.

Metal Manufacturing was founded by Tan Chan Too, Tian Chye Heng, Tan Ah Bee, Kuah Kian Leng, and Tan Teng Hian in 1971 and is headquartered in Singapore.

Sales per Businesses

2016 2017 Delta SGD (in Million) % SGD (in Million) % Trading 91.86 84.6% 118.22 72.7% +28.7% Manufacturing 16.67 15.4% 44.39 27.3% +166.34%

Sales per Regions

2016 2017 Delta SGD (in Million) % SGD (in Million) % Myanmar 61.10 56.3% 88.48 54.4% +44.8% Singapore 36.57 33.7% 66.89 41.1% +82.91% Indonesia 7.20 6.6% 6.39 3.9% -11.34% Malaysia 3.50 3.2% 0.846 0.5% -75.84% Others 0.152 0.1% 0.017 0% -88.82%

Recent History

2018

Announced 51.04% stake in joint-venture with Fortune Peak Investments Pte. Ltd. and YNJ Engineering Co. Ltd., to operate a steel rebar Cut & Bend and Fabrication facility In Myanmar.  It is expected to be operational in the first half of 2019 with 50,000-ton processing capability. [press release] [article] [article]

Our current operation in Myanmar focuses on the sale and distribution of steel products. Since 2015, Myanmar has become an increasingly important market for the Group as the country, with a new government in power, increasingly imported construction steel and related materials to accommodate for its infrastructure boom. During FY2016 and FY2017, Myanmar accounted for more than 50% of the Group’s total sales

2017

Announced capital reduction of (i) a write off of part of the accumulated losses to the extent of S$68,176,921.49 and (ii) a cash distribution at S$0.105 per ordinary share. Following the completion of the Capital Reduction, the issued and paid-up share capital is S$76,493,995.87.

Announced disposal of all 42,145,518 ordinary shares of BRC Asia Limited at the consideration of S$0.925 per share (S$38,984,604) of BRC Asia by Esteel Enterprise Pte. Ltd.

Activist Quartz Capital pushed for recapitalization. [HG Response]

2016

Announced reverse stock split 1:10.

2014

Issued 213,600,000 shares at S$0.069 per share (S$0.69 post-split) in private placement for S$14.68 million

Shareholders

Name Equities % Sey Liang Foo 28,405,000 21.7% Regroup Holdings Pte Ltd. 8,608,657 6.59% Tin Htut Aung 8,010,000 6.13% Nah Tan 6,500,000 4.98% Ko Ko Aye 6,500,000 4.98% HG Metal Manufacturing Ltd. 3,193,630 2.45% Ling Sing Sia 1,940,733 1.49% Ah Yen Tan 762,100 0.58% King Sin Ong 732,000 0.56% Wai See Tan 655,000 0.50%

Other

• No options outstanding
• No pension plan

In Millions	12/31/15	12/31/16	12/31/17	6/30/18
Cash and Short-term Investments	50.51 HK$	30.70 HK$	28.85 HK$	18.97 HK$
(0.85 * Accounts Receivable)	27.16 HK$	29.54 HK$	37.64 HK$	42.25 HK$
(0.60 * Inventory)	3.23 HK$	8.53 HK$	10.55 HK$	18.16 HK$
(0.25 * Other Current)	0.05 HK$	1.84 HK$	4.91 HK$	3.29 HK$
Total Liabilities	23.46 HK$	22.39 HK$	18.63 HK$	27.77 HK$
Preferred Stock	–   HK$	–   HK$	–   HK$	–   HK$
NNWC	57.48 HK$	48.23 HK$	63.32 HK$	54.89 HK$
NCAV	64.57 HK$	64.65 HK$	91.73 HK$	84.31 HK$
NCAV + LT Investments	114.08 HK$	115.50 HK$	91.73 HK$	91.35 HK$
TBV	128.98 HK$	129.36 HK$	104.15 HK$	103.84 HK$
Enterprise Value	12.29 HK$	15.38 HK$	24.17 HK$	24.31 HK$
Retained Earnings	22.71 HK$-	21.82 HK$-	33.79 HK$	33.79 HK$
Dividends Paid	–   HK$	–   HK$	14.02 HK$-	–   HK$
Sale or Purchase of Stock	0.02 HK$-	0.31 HK$-	–   HK$	–   HK$
Shares Outstanding	127,418,566	127,417,735	127,417,735	127,417,735
P / NNWC	86%	82%	79%	74%
P / NCAV	77%	61%	55%	48%
P / NCAV + LT Investments	44%	34%	55%	45%
P / TBV	39%	31%	48%	39%
NCAV Burn Rate	-7.2%	0.1%	41.9%	-8.1%
Debt / Equity	5.8%	1.8%	0.1%	0.6%
Sloan Accrual Ratio	-6.3%	10.1%	-21.4%
F-Score	6	6	5
FS-Score	6	6	5
Z-Score	2.3	2.1	3.9
Beneish M-Score			(2.9)
ROIC / Tobin’s Q	-14.7%	-2.3%	-20.8%
EV / EBITDA	N/A	10.14	N/A
EV / Operating Income (5yr)	5.36	(1.19)	NA
EV / Operating Income (10yr)			(0.89)
EV / FCF (3yr)	0.46	0.27	NA
EV / FCF (5yr)	(0.60)	4.53	6.02
EV / FCF (10yr)			0.26
EBITDA (FY)	(6.16) $	1.52  $	(9.78) $
Operating Income (5yr)	2.29  $	(12.98) $	(30.42) $
Operating Income (10yr)			(27.24) $
FCF (3yr)	26.89  $	56.30  $	(21.92) $
FCF (5yr)	(20.44) $	3.40  $	4.02  $
FCF (10yr)			92.12  $

Blog Posts

• Off-Piste Investing [here]

Disclosure: We own shares in HG Metal Manufacturing Ltd (BTG:SES).

Baoye Group Co Ltd (2355:HKG)

Recent Share Price: HK$4.41 (H Shares)

Accounting: Hong Kong Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: ¥2.16 billion ($316 million)

The principal activities are construction services, real estate development and manufacturing and distribution of building materials in the PRC.

The company was founded by Bao Gen Pang in 1974 and is headquartered in Shaoxing, China

Sales per Businesses

2016 2017 Delta HKD (in Million) % HKD (in Million) % Construction 14,956 70.3% 16,465 75.2% +10.09% Property Development 3,684 17.3% 3,066 14% -16.79% Building Materials 2,441 11.5% 2,145 9.8% -12.14% Others 179.71 0.8% 208.75 1% +16.16%

 

2018

As of June 4th, Baoye has bought back an additional 22,616,000 H Shares, lowering overall share count to 563,594,053.

2017

During the year ended 31 December 2017, Baoye repurchased 23,500,000 H Shares, representing approximately 8.98% and 3.84% of the total number of H Shares and a total number of issued shares of the Company, respectively. The total amounts paid were HKD133,713,000 (equivalent to RMB118,420,000).  Baoye canceled 26,162,000 H Shares.

Share Repurchases

Beginning in 2014, the company has reduced overall share count by ~15%

	H-Shares	Hong Kong $	Chinese RMB	Share Count*	% Reduction
2018	22,616,000			563,594,000	-4%
2017	23,500,000	133,713,000  $	¥118,420,000	586,210,000	-4%
2016	2,662,000	15,159,000  $	¥13,535,000	612,372,000	0%
2015	19,372,000	129,927,000  $	¥104,240,000	612,372,000	-3%
2014	31,220,000	151,070,000  $	¥121,982,000	631,744,000	-5%
2013				662,964,000
*Based on retired shares; 2018 estimate

Risk of Fraud

For the last 10 years, the company has been profitable every year; in addition, the company has net borrowings of ¥216,781,000, dividends paid of ¥(755,795,000), and share buys backs of over ¥(400,000,000) — for a net outflow of ~¥(1 billion).  The last issuance of shares was in 2007.

Total compensation for executives in 2017 was ¥4,380,000; EBITDA reported in 2017 was ¥852,429,000.  The company does not report any executive loans.

Insiders control over 50% of shares outstanding.

Pang Baogen (Chairman)	193,753,054	34.38%
Wang Jianguo	47,950,291	8.51%
Gao Jiming	12,059,254	2.14%
Gao Lin	9,544,775	1.69%
Xu Gang	5,971,303	1.06%
Gao Jun	5,794,259	1.03%
Lou Zhonghua	4,533,172	0.80%
Wang Rongbiao	2,647,911	0.47%
Jin Jixiang	2,440,527	0.43%
		50.51%

Yi Cai Zhu, via his wife, reports significant holdings in the H Shares.  I do now know what his association is with the company — if any.

Shareholders – H Shares

Name Equities % Yi Cai Zhu 29,304,000 13.8% Dimensional Fund Advisors LP 6,618,600 3.12% Grantham, Mayo, Van Otterloo & Co. LLC 2,044,000 0.96% AXA Investment Managers Asia (Singapore) Ltd. 1,690,000 0.80% The Caisse de dépôt et placement du Québec 1,252,000 0.59% Mackenzie Financial Corp. 539,167 0.25% Dimensional Fund Advisors Ltd. 446,853 0.21% CBR Investment AG 250,000 0.12% Norges Bank Investment Management 179,999 0.085% Acadian Asset Management LLC 160,156 0.076%

 

In Millions	12/31/15	12/31/16	12/31/17	6/30/18
Cash and Short-term Investments	¥3,839.73	¥4,373.00	¥2,915.45	¥3,865.83
(0.85 * Accounts Receivable)	¥5,061.75	¥6,183.75	¥8,409.90	¥8,757.55
(0.60 * Inventory)	¥4,288.80	¥4,308.60	¥4,959.60	¥4,629.60
(0.25 * Other Current)	¥136.72	¥266.25	¥699.50	¥239.58
Total Liabilities	¥13,622.00	¥15,881.00	¥20,646.00	¥19,608.00
Preferred Stock	¥-	¥-	¥-	¥-
NNWC	¥(295.00)	¥(749.40)	¥(3,661.55)	¥(2,115.44)
NCAV	¥3,867.00	¥4,012.00	¥3,227.00	¥3,236.00
NCAV + LT Investments	¥4,552.58	¥4,717.95	¥4,228.00	¥4,543.00
TBV	¥6,358.47	¥6,810.47	¥7,301.47	¥7,887.47
Enterprise Value	¥(361.52)	¥(857.83)	¥1,515.62	¥546.45
Retained Earnings	¥4,907.18	¥5,372.10	¥5,960.20	¥6,659.83
Dividends Paid	¥(61.24)	¥(61.24)	¥-	¥-
Sale or Purchase of Stock	¥(104.24)	¥(44.68)	¥(92.16)	¥-
Shares Outstanding	612,372,000	612,372,000	586,210,000	563,594,000
P / NNWC	-946%	-409%	-68%	-97%
P / NCAV	72%	76%	77%	63%
P / NCAV + LT Investments	61%	65%	59%	45%
P / TBV	44%	45%	34%	26%
NCAV Burn Rate	17.0%	3.7%	-19.6%	0.3%
Debt / Equity	8.4%	4.1%	24.0%	27.4%
Sloan Accrual Ratio	-4.8%	2.2%	9.4%
F-Score	6	5	3
FS-Score	7	5	3
Z-Score	1.8	1.6	1.3
Beneish M-Score			(1.5)
EV / EBITDA	(0.38)	(1.16)	1.78
EV / Operating Income (5yr)	(0.07)	(0.18)	0.35
EV / Operating Income (10yr)			0.17
EV / FCF (3yr)	(0.16)	(0.33)	NA
EV / FCF (5yr)	(0.21)	(0.27)	5.39
EV / FCF (10yr)			0.92
EBITDA (FY)	946.11  $	738.24  $	852.43  $
Operating Income (5yr)	5,026.97  $	4,716.06  $	4,385.34  $
Operating Income (10yr)			8,778.16  $
FCF (3yr)	2,296.44  $	2,630.62  $	(299.46) $
FCF (5yr)	1,738.42  $	3,223.10  $	280.98  $
FCF (10yr)			1,643.80  $

Write Up

Value Investors Club (skierholic)

Disclosure: We own shares in Baoye Group Co Ltd (2355:HKG).

 

Koyo International Ltd (5OC:SES)

Recent Share Price: S$0.066

Accounting: Singapore Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: S$12.9 million ($9.5 million)

Koyo International Limited, an investment holding company, provides integrated mechanical and electrical engineering services in Singapore.

It operates in three divisions:

2016 2017 Delta SGD (in Million) % SGD (in Million) % Mechanical Engineering 8.77 58% 8.12 51.3% -7.44% Facilities Management 6.11 40.4% 7.30 46.1% +19.45% Electrical Engineering 0.243 1.6% 0.406 2.6% +67.08%

Operations can be broadly categorized into four core business segments. These include the

1. provision of mechanical and electrical (M&E) engineering services;
2. the supply of renewable energy and green products for building services;
3. property development and construction; and
4. the supply of construction materials and ancillary services related to it.

The company was founded in 1983 and is headquartered in Singapore. Koyo International has been listed on the SGX Catalist since 2009

Recent History

2018

Announced it has won a S$5.2 million contract from the Housing & Development Board for mechanical and engineering maintenance work which will go on for 36 months, with the contract starting in July. The latest order brings its total order book to S$31.9 million.

Mr. Foo Suay Lun appointed as the Executive Director of the Company. (Foo Suay Lun is deemed interested in 49,449,500 shares held by Salix Capital Pte. Ltd. which is 100% owned by his grandmother, Madam Heng Jee Moi with Foo Suay Lun being joint tenant with right of survivorship.)

2017

Announced a contract with a contract value of approximately S$2.6 million for mechanical and electrical cyclical improvement works for multi-storey car parks under the Housing & Development Board.

Announced a contract with a contract value of approximately S$1.2 million for supply and installation of bus duct system at Tuas South Incineration Plant under the National Environment Agency.

2016

Serena Lee Chooi Li (Director) purchased 1.5 million shares.

The company bought back 6.3 million shares at an average price of S$0.09976 (S$630,438), reducing share count to 185,258,497 shares issued and outstanding.

Mr. Foo Chek Heng was interviewed by MAS and CAD for possible offenses under the Securities and Futures Act. A small group of individuals was responsible for 60% of its share trading between Oct 26th and Jan 14th.

Insider Ownership

Main Shareholders	Number of shares held	Percent of shares held
Chek Heng Foo	73,125,500	38.52%
Salix Capital Pte Ltd*	49,449,500	26.05%
Serena Lee Chooi Li	1,500,000	0.79%
Yeo Guat Kwang	790,000	0.42%
*100% owned by Heng Jee Moi with a joint tenant with her grandson Foo Suay Lun.
Heng Jee Moi is the mother to Check Heng Foo

Insider Pay

Compensation is a bit egregious, but the ratio of ownership value to compensation offers some protection for shareholders.

Family Compensation	Low	High
Chek  Heng Foo	500,000  $	750,000  $
Dalat Kositanon*	150,000  $	199,999  $
Foo Suay Lun	100,000  $	149,999  $
Heng Jee Moi	50,000  $	99,999  $
	800,000  $	1,199,997  $
Ownership Incentive (Value/Salary)	10.1	6.7
*Wife to Chek Heng Foo

Other

• No options outstanding
• S$359,000 in off-balance sheet lease obligations
• Has unrecognized tax losses of $988,000 at the end of the reporting period which can be carried forward
• No related party transactions
• No pension plan

In Millions	12/31/15	12/31/16	12/31/17
Cash and Short-term Investments	14.39  $	15.64  $	17.57  $
(0.85 * Accounts Receivable)	6.59  $	4.94  $	5.70  $
(0.60 * Inventory)	–    $	–    $	–    $
(0.25 * Other Current)	–    $	–    $	–    $
Total Liabilities	4.25  $	3.55  $	6.08  $
Preferred Stock	–    $	–    $	–    $
NNWC	16.74  $	17.03  $	17.19  $
NCAV	17.90  $	17.90  $	18.19  $
NCAV + LT Investments	17.93  $	17.93  $	18.22  $
TBV	18.03  $	18.02  $	18.58  $
Enterprise Value	58.23  $	(4.24) $	(5.18) $
Retained Earnings	13.98  $	14.45  $	14.95  $
Dividends Paid	(0.38) $	(0.28) $	(0.19) $
Sale or Purchase of Stock	0.02  $	(0.46) $	–    $
Shares Outstanding	196,279,000	189,979,000	189,423,497
P / NNWC	434%	67%	72%
P / NCAV	406%	64%	68%
P / NCAV + LT Investments	405%	64%	68%
P / TBV	403%	63%	66%
NCAV Burn Rate	4.4%	0.0%	1.6%
Debt / Equity	0.0%	0.0%	0.4%
Sloan Accrual Ratio	9.1%	-5.8%	-5.9%
F-Score	5	7	5
FS-Score	5	8	6
Z-Score	13.0	4.7	3.7
Beneish M-Score			(2.8)
EV / EBITDA	45.46	(4.96)	(5.79)
EV / Operating Income (5yr)	9.20	(0.81)	(0.89)
EV / Operating Income (10yr)			(0.52)
EV / FCF (3yr)	26.96	(0.77)	(1.80)
EV / FCF (5yr)	14.73	(1.09)	(0.85)
EV / FCF (10yr)			(0.48)
EBITDA (FY)	1.28  $	0.85  $	0.90  $
Operating Income (5yr)	6.33  $	5.22  $	5.85  $
Operating Income (10yr)			9.88  $
FCF (3yr)	2.16  $	5.54  $	2.88  $
FCF (5yr)	3.95  $	3.88  $	6.07  $
FCF (10yr)			10.79  $

 

Write-Ups

The Secret Investors here

TwinPeak Capital comment

Disclosure: We own shares in Koyo International Ltd (5OC:SES).

Toa Valve Engineering Inc (6466:TYO)

Recent Share Price: ¥1,295

Accounting: Japanese GAAP

Fiscal Year: Sept. 30

Market Cap: ¥2.94 billion ($27 million)

Toa Valve Engineering Inc. is a company mainly engaged in the development, manufacture, sale, and maintenance of various industrial valves. The Company operates in mainly two business segments.

• The Valve segment is engaged in the manufacture and sale of high-temperature and pressure valves for power plant use, as well as valves for ships, petrochemistry plants, and other various industrial uses. This segment is also engaged in the provision of maintenance services such as disassembly, inspection and repair services, as well as the development of construction methods and the provision of construction works.
• The Steelmaking segment is involved in the manufacture and sale of cast steel products.

The company listed in 2000 and is headquartered in Amagasaki, Japan.

Sales per Businesses

2016 2017 Delta JPY (in Million) % JPY (in Million) % Valve Business 6,559 77% 6,322 78% -3.61% Steel Business 1,415 16.6% 1,148 14.2% -18.85% Dyeing Business 546.68 6.4% 632.55 7.8% +15.71%

Recent History

In 2016, Kitz Corporation purchased shares of Toa Valve from Mitsubishi in hopes of building a better business alliance in the expansion of sales in foreign markets.  This goal has seemingly yet to pan out for Toa Valve; the company has yet to show material international sales.

Other

• Defined benefit and defined contribution pension plans.  2017 Report shows a liability of ¥780 million ($6.9 million), which is included on the balance sheet.
• At Sept 2017, the company had tax loss carryforwards of ¥391 million ($3.5 million); the majority of which expire after 2023
• No stock options

Equity Holdings

Common stock holdings are valued at ~$5.8 million, over 1/5th of market cap.

Holdings
Name	Equities	Valuation
Mitsubishi Corp (8058)	103,000	$2,858,147
SEIKA CORPORATION (8061)	54,000	$1,374,195
Mitsubishi Heavy Industries Ltd (7011)	23,000	$912,114
MEIWA CORPORATION (8103)	76,000	$368,557
Kansai Electric Power Co Inc (9503)	12,000	$168,309
NIPPON GEAR CO., LTD. (6356)	25,000	$110,235
Ichiyoshi Securities Co Ltd (8624)	4,620	$56,745
Kobe Steel, Ltd. (5406)	1,000	$10,345
Tokyo Electric Power Company Holding Inc(9501)	2,000	$9,552
Sumitomo Mitsui Financial Group, Inc. (8316)	144	$6,006
		$5,874,205

 

In Millions	9/30/15	9/30/16	9/30/17	3/31/18
Cash and Short-term Investments	¥4,636	¥3,653	¥4,109	¥2,974
(0.85 * Accounts Receivable)	¥2,212	¥2,678	¥2,055	¥1,775
(0.60 * Inventory)	¥1,250	¥1,108	¥1,036	¥1,119
(0.25 * Other Current)	¥18	¥20	¥18	¥24
Total Liabilities	¥4,500	¥3,718	¥3,426	¥2,737
Preferred Stock	¥-	¥-	¥-	¥-
NNWC	¥3,616	¥3,740	¥3,792	¥3,131
NCAV	¥4,893	¥5,011	¥4,899	¥4,939
NCAV + LT Investments	¥5,455	¥5,557	¥5,626	¥5,659
TBV	¥6,903	¥6,941	¥7,142	¥7,064
Enterprise Value	¥1,382	¥642	¥134	¥1,032
Retained Earnings	¥3,754	¥3,857	¥3,973	¥3,912
Dividends Paid	¥(36)	¥(128)	¥(68)	¥-
Sale or Purchase of Stock	¥(0)	¥(67)	¥(0)	¥-
Shares Outstanding	2,334,457	2,329,202	2,267,525	2,270,555
P / NNWC	97%	64%	76%	81%
P / NCAV	72%	48%	58%	60%
P / NCAV + LT Investments	64%	43%	51%	52%
P / TBV	51%	35%	40%	42%
NCAV Burn Rate	24.3%	2.4%	-2.2%	0.8%
Debt / Equity	22.8%	14.2%	6.0%	1.9%
Sloan Accrual Ratio	-4.2%	3.0%	-8.3%
F-Score	8	5	7
FS-Score	9	4	8
Z-Score	2.6	2.5	2.5
Beneish M-Score			(3.0)
EV / EBITDA	1.18	1.23	0.26
EV / Operating Income (5yr)	0.86	0.69	1.74
EV / Operating Income (10yr)			0.03
EV / FCF (3yr)	1.56	1.04	0.06
EV / FCF (5yr)	1.93	0.58	0.07
EV / FCF (10yr)			0.03
EBITDA (FY)	¥1,172	¥522	¥512
Operating Income (5yr)	¥1,613	¥928	¥77
Operating Income (10yr)			¥5,044
FCF (3yr)	¥887	¥618	¥2,148
FCF (5yr)	¥716	¥1,116	¥1,861
FCF (10yr)			¥4,535
In Reporting Shares	1,000,000

Disclosure: We own shares in Toa Valve Engineering Inc (6466:TYO).

Walker Innovation Inc (WLKR:QBB)

Recent Share Price: $0.504

Avg. Cost per Share: $0.404

Accounting: U.S. GAAP

Fiscal Year: Dec. 31

Market Cap: $10.2 million

Fillings:

• PRE14A
• 10-Q
• 10-K

Walker Innovation seeks to develop and commercialize its portfolio of intellectual property assets through its licensing and enforcement operations.

In the 10-K, they stated that in response to the challenging developments in the patent licensing and enforcement environment, and their decision to cease operations of the Innovation Business, they now plan to acquire one or more operating business.  They also announced they retained an investment bank as an advisor.

On June 28, the board approved plans for liquidation and dissolution.

Walker Digital, LLC, a related party, is the owner of approximately 82% of the voting interest in the Company and owns approximately 48% of the economic interest in the Company. Jay Walker, (founder of Priceline.com), owns the majority of shares in Walker Digital, LLC. (Mr. Walker currently ranks as the world’s 13^th most patented living individual, based on U.S. patent issuances according to Wikipedia.)

According to the most recent 10-Q, the company had 20,094,314  common shares outstanding.  In addition, the company issued 14,999,000 Series B Convertible Preferred stock, (convertible to common at 1:1), which is held by Walker Digital.  Stock options totaled 4,875,498.

Total dilution of shares is 39,968,812.

Workout

Current Assets:	March 31, 2018
Cash and cash equivalents	$3,313
Short-term investment	$20,000
Prepaid expenses and other current assets	$92
Total current assets	$23,405
Total Liabilities	$200
Diluted Shares	39,969
NCAV per diluted share	$0.58
Entry price to NCAV	70%

Recent History

2017

Announced that it has raised an additional $16.8 million in funds from agreeing to the redemption of the remainder of its stake in The Upside Commerce Group LLC by Upside.

Prior to 2017, the company operated a second line of business that focused on helping companies innovate more effectively and efficiently.

The company reset option prices with an exercise price at or above $1.37 per share (representing an aggregate of 2,743,000 options, or 58% of the total outstanding) to $0.43 per share; equating to an aggregate option price of $0.405 per share.

2016

Announced that it has raised an additional $2.5 million from the sale of 1.25 million shares of Class A Common Stock in The Upside Commerce Group. The Company partially exercised its warrant to acquire the shares of Class A Common Stock at a price of $0.06 per share.

Announced that it raised $4.9 million from the sale of 2.5 million shares of Class A Common Stock in The Upside Commerce Group. The Company partially exercised its warrant to acquire the shares of Class A Common Stock at a price of $0.06 per share.

Prior to March 31, 2016, the Company had a custom innovation product for small and medium businesses called Haystack IQ™, which used proprietary Big Data software to connect the global stockpile of technology improvements and technical experts, represented by the U.S. patent database and other technical databases, with businesses that can put them into commercial uses that help them compete and grow. On March 31, 2016, the Company ceased operations of its Haystack IQ product and recorded a one-time non-recurring charge of approximately $575,000.

Terms of the Deal

From the proxy, the company expects to make an initial distribution as soon as reasonably practicable.

Excluding cash on the balance sheet, the company does not expect there will be much value realized in liquidation. In other words, the intellectual property and patents are worthless.

We have received a valuation analysis of one of the patent families in the Company’s portfolio which estimates the residual value of such patent as below the continued required maintenance fees, which taken together with the recent financial results of the Licensing and Enforcement business is indicative of the likelihood that any additional distributions to stockholders following the disposition of our remaining non-cash assets are highly unlikely and, if made, will be de minimis.

The patent portfolio consists of approximately 185 U.S. issued patents, as well as 8 pending patent applications and certain foreign counterpart patents and applications.  These enforcement and licensing efforts involving previously filed cases have resulted in $3.6 million in gross revenue from settlement and licensing income since January 2015.  There are currently no pending cases.

The company estimates between $0.53 and $0.50 per share will be distributed to shareholders.  Shares outstanding does not include the stock options, which will be paid out prior to distribution; but does include the convertible preferreds.

Estimated Liquidating Distributions to Stockholders
	High Range of Net	Low Range of Net
	Proceeds for	Proceeds for
	Distribution	Distribution
Cash and cash equivalents of July 15, 2018	$22,723,000	$22,723,000
Employee compensation	$886,000	$886,000
Professional fees (legal, tax, accounting, other)	$344,000	$444,000
Insurance	$345,000	$345,000
Other operating expenses	$370,000	$520,000
Total operating expenses	$(1,945,000)	$(2,195,000)
Total estimated liabilities and reserves	$(1,500,000)	$(2,500,000)
Settlement of in the money options outstanding	$(595,000)	$(462,000)
Estimated cash to distribute to stockholders	$18,683,000	$17,566,000
Shares outstanding	35,093,314	35,093,314
Estimated per share distribution	$0.53	$0.50

Disclosure: We own shares in Walker Innovation Inc (WLKR:QBB)

CosmoSteel Holdings Ltd (B9S:SES)

Recent Share Price: S$0.082

Accounting: Singapore Accounting Standards

Fiscal Year: Sept. 30

Market Cap: S$23.8 million ($17.5 million)

CosmoSteel Holdings Ltd. is an investment company, which engages in the distribution of piping system components.  The company was founded in 1984 and is headquartered in Singapore.

CosmoSteel Holdings Limited, the holding company of Kim Seng Huat Hardware Pte Ltd, is a supplier and distributor of piping system components to the Energy, Marine and other industries in Southeast Asia and other regions.  The Group has over 411,000 sq feet of storage space across four warehouses and offers a comprehensive range of high-quality products, sourced from major international manufacturers. Over the years, CosmoSteel has forged close ties with supply chain partners, ensuring its supply chain quality and continuity. It also has a diverse base of over 400 customers including several blue-chip energy companies such as Shell and Alstom.

It operates through the following segments: Energy, Marine, Trading, and Others.

• The Energy segment covers oil and gas, engineering and construction, petrochemical and power.
• The Marine segment offers shipbuilding and repair.
• The Trading segment includes traders purchase goods and on-sell to end-user customers.
  

  Sales per Businesses

  2016 2017 Delta SGD (in Million) % SGD (in Million) % Energy 40.17 58.4% 57.52 74.8% +43.19% Marine 18.27 26.6% 5.62 7.3% -69.24% Trading 8.83 12.8% 12.75 16.6% +44.4% Others 1.49 2.2% 1.04 1.3% -30.61%

Sales per Regions

2016 2017 Delta SGD (in Million) % SGD (in Million) % Singapore 39.88 58% 25.81 33.6% -35.29% Vietnam 8.36 12.2% 11.33 14.7% +35.53% Others 5.51 8% 4.05 5.3% -26.45% Japan 5.25 7.6% 23.68 30.8% +351.12% Malaysia 3.75 5.5% 1.95 2.5% -48.05% Brunei 3.07 4.5% 2.60 3.4% -15.16% Europe 2.28 3.3% 2.72 3.5% +19.05% Indonesia 0.488 0.7% 1.51 2% +209.22% Middle East 0.119 0.2% 2.46 3.2% +1968.91% Thailand 0.057 0.1% 0.825 1.1% +1347.37%

From the most recent earnings report, revenue increased by $14.2 million or 105.4% from $13.4 million in 2QFY2017 to $27.6 million in 2QFY2018. The increase was due mainly to increase in revenue from customers in the Energy Sector, partly offset by a decrease in revenue from Marine and Trading Sectors.

Investor Presentation 1HY2018

Recent History

2018

On June 4, the SGX-ST put the company on watch due to the consecutive 3-year pre-tax losses accumulated by the company.  Cosmosteel has 36 months to restore financial health.

On April 23, Alan John Crawford, a Director at Ernst & Young, was elected to the board.  He will chair the audit committee.

On February 6, Cosmosteel announced that the net proceeds of S$782,000 previously allocated for the acquisition of machinery and equipment at 36 Tuas Crescent will be re-allocated for the intended use of general working capital purposes.

On January 24, Jovenal Santiago, age 80, retired from the board.

On January 6, Osama Murai was elected to the board, replacing the departed board member, Seiji Usui (since 2014). Hanwa Co., a controlling shareholder, made the election.  This board position has been used as an attempt to expand business in Japan.

2017

On June 5, Cosmosteel was put on the watch list by the SGX-ST due to the minimum trading price (“MTP”) entry criteria.

On February 13, announced plans for the construction of a warehouse at 90 Second Lok Yang Way, by way of the capital funding in 2015.

2016

On November 30, Laura Ng Ying Shu, CFO, age 39, left for personal reasons.

2015

On May 7, the company issued a profit warning, sending the share price considerably lower.

On March 6, 26.4 million shares were issued following a private share placement exercise with Hanwa Co., Ltd., raising the total number of issued shares to 290,399,997.  Net proceeds of placement were S$14.2 million (~$0.54 per share).  CosmoSteel founder and CEO Ong Chin Sum sold his 21.3% stake at 58 cents a share to Hanwa, which will end up with 28.4% of the company’s enlarged share base and get two board seats.  The deal was part of a strategic alliance with Hanwa.

2014

Mr. Ong Ching Sum, the CEO of the Company, and Mr Ong Tong Yang (son), an Executive Director of the Company were called in by the country’s Corrupt Practices Investigation Bureau for giving “illegal gratification to an agent” (i.e., bribes) and released on bail.  It does not appear that charges were ever brought. [Company announcement]

Concerns

• Cautionary flag on the elevated level of accruals
• Debt levels

Other

• No stock options
• No pension plan
• Purchases from Hanwa are approximately 10% of COGS
• S$11.2 million in off-balance sheet obligations

Write-Ups

• Cigarrfimpar here

Insider Ownership

NAME OF SHAREHOLDERS	NUMBER OF SHARES	DIRECT INTEREST %
Daiwa Capital Markets Singapore Limited	82,617,982	28.45%
Ong Tong Hai	28,411,996	9.78%
Ong Tong Yang (Weng DongYang)	19,954,396	6.87%
Mr Ong Tong Hai and Mr Ong Tong Yang are brothers.

In Millions	9/30/15	9/30/16	9/30/17	3/31/18
Cash and Short-term Investments	SGD 26.60	SGD 18.67	SGD 22.90	SGD 12.62
(0.85 * Accounts Receivable)	SGD 21.98	SGD 14.25	SGD 22.98	SGD 26.03
(0.60 * Inventory)	SGD 56.37	SGD 47.30	SGD 41.32	SGD 34.81
(0.25 * Other Current)	SGD 0.14	SGD 0.10	SGD 0.12	SGD 0.05
Total Liabilities	SGD 57.53	SGD 30.05	SGD 39.96	SGD 43.31
Preferred Stock	SGD –	SGD –	SGD –	SGD –
NNWC	SGD 47.56	SGD 50.27	SGD 47.37	SGD 30.16
NCAV	SGD 89.43	SGD 84.63	SGD 79.33	SGD 73.83
NCAV + LT Investments	SGD 89.56	SGD 84.72	SGD 79.33	SGD 73.83
TBV	SGD 122.63	SGD 115.22	SGD 103.64	SGD 101.33
Enterprise Value	SGD 48.79	SGD 32.98	SGD 38.62	SGD 41.36
Retained Earnings	SGD 50.81	SGD 44.78	SGD 37.19	SGD 34.84
Dividends Paid	SGD (1.32)	SGD (1.45)	SGD (1.45)	SGD –
Sale or Purchase of Stock	SGD 14.26	SGD –	SGD –	SGD –
Shares Outstanding	290,399,997	290,399,997	290,399,997	290,399,997
P / NNWC	71%	66%	62%	59%
P / NCAV	38%	39%	37%	32%
P / NCAV + LT Investments	38%	39%	37%	32%
P / TBV	27%	29%	28%	24%
NCAV Burn Rate	7.9%	-5.4%	-6.3%	-6.9%
Debt / Equity	33.9%	15.8%	31.0%	28.9%
Sloan Accrual Ratio	8.8%	-4.4%	-14.5%
F-Score	1	5	4
FS-Score	1	6	5
Z-Score	2.0	2.1	1.8
Beneish M-Score			(3.0)
EV / EBITDA	12.14	N/A	N/A
EV / Operating Income (5yr)	1.48	1.90	NA
EV / Operating Income (10yr)			0.83
EV / FCF (3yr)	NA	NA	NA
EV / FCF (5yr)	3.93	4.37	3.96
EV / FCF (10yr)			2.28
EBITDA (FY)	SGD 4.02	SGD (2.53)	SGD (4.54)
Operating Income (5yr)	SGD 32.95	SGD 17.35	SGD (6.91)
Operating Income (10yr)			SGD 46.57
FCF (3yr)	SGD (0.30)	SGD (4.52)	SGD (6.72)
FCF (5yr)	SGD 12.41	SGD 7.55	SGD 9.76
FCF (10yr)			SGD 16.94

Disclosure: We own shares in CosmoSteel Holdings Ltd (B9S:SES)