Simple case study of an asset play

An asset play is a stock which is a good investment because of solid asset backing. If the company were liquidated today, the money recovered from its assets will reap shareholders a satisfying profit after paying down all its liabilities. In other words, the liquidation value is way above the market capitalization traded on the exchange.

Stocks with assets composed of intangibles and inventories are not suitable as asset plays. In fact, when the situation is dire enough to warrant liquidation, the value of such assets can collapse to near zero.

The most suitable candidates for asset play are those with assets that are easy to value and hard to defraud - cash, marketable securities (traded on public exchanges where prices are transparent) and real estate properties.

Tuan Sing is a straightforward case study of an asset play which is composed of these sort of easy-to-value and hard-to-defraud assets. As of 29 Oct 2010, it has a market capitalization of SGD281m. After divesting one of its investment property (Kallang Mall), it has a massive cash hoard of SGD207m which is >70% of the market capitalization. This cash cushion allows one to sleep well even if the 2008 credit crisis returns.

On top of this cushion, its crown jewels are the investment properties like Robinson Towers, International Factors Building which are worth SGD261.65m. These properties are in located Singapore. You can physically see and touch these assets. There is no room for fraud.

Its subsidiaries consist of companies like Gultech and SP Corp which are publicly listed on the Singapore exchange. You can obtain the asset values of these listed companies on a real-time basis.

Below is a breakdown of the assets backing this company worth SGD281m. Assets like inventories, intangibles, plant and equipment whose value will be deeply marked down in the event of liquidation are ignored (assigned a value of zero). To provide for a comfortable margin of error, we shall halve the value of assets whose values cannot be ascertained with comfortable certainty like cash and marketable securities. This is the reason why certain asset values will look significantly lesser than what is stated on the latest balance sheet (2010Q3)

Cash holdings: SGD207m
Subsidiaries: SGD157m
Investment properties: SGD262m
Trade and other receivables: SGD26m
Development properties: SGD55m
Total assets: SGD707m

Total liabilities: SGD281m

Liquidation value = Total assets (conservatively estimated) - Total liabilties = SGD426m

The market cap of SGD281m is only 48.6% of the conservatively estimated liquidation value. This is adequate margin of safety for a risk-averse investor like me.

For a good asset play, the assets alone should already provide adequate backing for the price you are paying. Therefore, as long as there are no future losses, it is okay for the asset play to have no future profits. Zero profit growth will not endanger the margin of safety. Any profit growth is viewed as a desirable bonus. Tuan Sing's profit growth in 2009 and 1st 9 months of 2010 is a big bonus. Profit in 2009 is more than 16 times higher than 2008 (actually an indication of how bad 2008 was, not how good 2009 was). For the first 9 months of 2010, profit grew 53% compared to same period in the previous year. Last quarter earnings were disappointing. Again, earnings growth is not a major consideration for asset plays. Of course, profits are always good to have.

Dissenting views are most welcome.

Disclaimer: I am not a qualified financial adviser. I have no formal training in any finance-related course. It is highly possible for me to make analytical errors, even factual errors which I will be grateful if readers help to correct. I am just an ordinary engineer dipping into the world of investment. The writer has vested interests in the analyzed stock, therefore readers should be wary of non-objective analysis.

The dividend record of Tuan Sing is terrible and that probably hints that the management is not shareholder friendly.
Even in good years, Tuan Sing hardly pays any dividend.

At the AGM in april, the shareholders were trying to shot down the scrip dividend scheme but were bulldozed by the substantial shareholders.
The following was extracted from www.shareowl.com by one unhappy Tuan Sing Shareholder.


Last Fri (23-Apr-2010) : Tuan Sing AGM - left me with a very bad taste in the mouth

resolution No. 8 "To authorise the Directors to issue and allot shares
pursuant to Tuan Sing Holdings Limited Scrip Dividend Scheme"

NB: many small shareholders were unhappy,
they explained, a 0.3c dividend, imply a shareholder with 1000 shares, will get $3 in script div,
==> MEANING at discounted 20c share price, will get 15 shares,
if you sell, you may have to further TOP-UP with cash to pay for minimum brokerage !!


SO given their record of stingy or no dividend,
script dividend resolution was SHOT Down by minorities shareholders for reasons of
"dividend too little, create too much odd lots" and "incur additional cost ($100k) to administer the scheme"

Ofcourse while small shareholders, do have the option to opt for cash dividends instead,
One shareholder pointed out that the $100k to administer the script div scheme, is 3% of total dividend payout (0.3c div amount to totalcost of $3.4m)
and suggested that script dividend be do away with,
and instead, substantial shareholder can always buy shares from open market, if they wanted to increase stakes

==> WHICH sounded perfectly logical and objective to me
and I felt that Tuan Sing could have easily go that way,
and be fairer and beneficial to all, including those with very few shares.


SO VOTEs by show of hands : resolution was resoundingly shot down by minorities

BUT major shareholder immediately strong-armed back !
asking for revote by POLL and ofcourse BULLDOZE through anyway !!

Honestly, after reading their "Gold colour" annual report,
the "AGM experience" left me with a very bad taste in the mouth
==>> I wonder why substantial shareholder was SO desperate to want the Script dividends option so badly ???

===>> is it to have creeping 1% incremental over several years,
====>> so as to crawl over the 50% shareholding level fromits current 45.5% level without need to trigger a GO ???


In sharp contrast, there were also many Companies this year (including even S-CHIPs),
that did NOT extort half as much about their corporate governance,
and yet show greater respect for the voices of minorities
and stay with voting outcome by show of hands, even when they prefer a different outcome.

Example of one such S-Chip was : China Dairy
when resolution to issue placement shares at up to 20% discount was voted down by a show of hands,
the Chinese majority shareholder, show greater respects for the wishes of minorities
and DID NOT jump up and strong-armed back with his super majority in shares, quite unlike the one at Tuan Sing !!

P/s:
despite my liking for the Company's solid FAs,
I feels for the underdogs(shareholders), and so will be trimming my positions upon any strong rallies,
there are many other great companies out there,
dun have to put up with those run by big unfriendly "bulldozer"

Last edited by values1212 on Fri Apr 30, 2010 4:42 pm; edited 3 times in total

To me, a good Asset Play should be premised on -

1. The existence of high-quality, valuable assets - whether property, ownership of business, or cash or near cash assets - in the B/S, which can be quite easily sold, and value of which is not fairly reflected in the share price.

and one or more of the following,

2. There is an intention by the management to realise the value of such assets for the benefit of shareholders - e.g. selling a property being recorded at historical cost on the B/S via an auction, and most of the sale proceeds shall be distributed to shareholders via say a special dividend.

3. There is intention for the management to enhance the value of such assets - e.g. a good-location property which can be redeveloped by a j-v with a 3rd-party who has the expertise or owns an adjoining plot; or a good business ripe for an earning accretive M&A.

4. The controlling shareholder(s) has the desire and means to privatize the company in order to maximize his benefit based on full ownership of such assets. In such a case, the probability of a GO at a premium price will become a real possibility.

(02-11-2010, 06:53 AM)yeokiwi Wrote:
Last Fri (23-Apr-2010) : Tuan Sing AGM - left me with a very bad taste in the mouth

resolution No. 8 "To authorise the Directors to issue and allot shares
pursuant to Tuan Sing Holdings Limited Scrip Dividend Scheme"

SO VOTEs by show of hands : resolution was resoundingly shot down by minorities

BUT major shareholder immediately strong-armed back !
asking for revote by POLL and ofcourse BULLDOZE through anyway !!

side-track a bit
i tot once vote is done, it is final?
ie cannot re-vote by poll unless they call for another EGM?

i rem i was at 2 other different AGMs and similar things happen
ie directors wanted a re-vote by poll after being shot down by show of hands
some shdrs promptly reminded the chairman tat this is against the rules
and the company secretary concur

anyway, yes, so far Tuan Sing's mgt had not been too fair to minority shdrs. Ability to pay div and Willingness to pay div are very 2 different things. one more thing investors shld pay attention to is a firm's past dividend records.

The danger of holding Tuan Sing is the opportunity cost incurred. If the management has no wish to realize the returns of investment and share the investment gains with the minority shareholders, the minority shareholders may not see any significant returns for years.

I totally agreed that Tuan Sing is highly undervalued at current share price. But, looking at the management behaviour in the AGM and the pathetic dividend record, I think I have better choices elsewhere.

ichew Wrote:i tot once vote is done, it is final?
ie cannot re-vote by poll unless they call for another EGM?

This happened during one of Lion Asiapac's EGM's as well, when mgmt was pushing through a IPT using its then huge cash reserve. Shareholders, wanting mgmt to distribute out the cash, naturally voted against it.

The chairman wanted to do a re-vote by poll, after failing to pass the resolution via vote by hand. Shareholders objected.

There was a legal counsel present then. According to her, it's perfectly legal for the chairman to call for a re-vote by poll without conducting another EGM. She quoted some legal acts that only she understood

Thankfully, the chairman came to his senses and decided to respect the result.

(02-11-2010, 10:17 AM)bluechipstamp Wrote: The chairman wanted to do a re-vote by poll, after failing to pass the resolution via vote by hand. Shareholders objected.

There was a legal counsel present then. According to her, it's perfectly legal for the chairman to call for a re-vote by poll without conducting another EGM. She quoted some legal acts that only she understood

The voting by show of hands is actually a "short-cut" method to expedite the passing of a resolution. Technically-speaking, the proper way should be voting by poll, and this is done at some EGM/AGM I've been to (including Boustead). So far there has never been a dispute of a similar nature to what happened at Lion Asiapac or Tuan Sing, but then again if the show of hands fails to carry the resolution, then it's perfectly legitimate to call for a poll.

Sadly though, this is the part where minority shareholders' rights get trampled upon if the majority shareholder is a selfish pig who just wants to enrich himself at the expense of the minorities. It's all legally acceptable, but morally it might be reprehensible.....

I was at one of the MIIF AGM and the show of hand to vote a resolution was shorted down. The Chairman promptly call for a recount using the poll to the uproar of everyone present. Half of them walk out.

I think we should have a listing of shaerholder unfriendly list of companies.... will we be sued or not?

Jacmar Wrote:I think we should have a listing of shaerholder unfriendly list of companies.... will we be sued or not?

Disclaimer: I am not a lawyer and this is not a legal opinion.

My personal view is that if one sticks to the facts and avoids passing judgment, then there is no case for a lawsuit e.g. if you name the list "companies which used a poll to overcome a vote lost on show of hands" and list the dates of the incidents, then you are stating facts. On the other hand, if you name the list "evil shareholder-unfriendly value-destroying companies run by greedy pigs" then you are asking for trouble. You get the idea.

if really people can get into trouble online then the whole lot over at sammyboy forum are in hot soup already