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 2011-05logo_tcm102-1497677a 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

Untitled

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

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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:

Walker Innovation seeks to develop Walker-Innovationand 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 13th 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

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

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