Hotung Investment (和通）

Hi GG

Can we say that the NAV of (approx 29 cents) really depends on the prevailing market conditions?
e.g. if the general climate is bad, the compay (by nature of their business as VC) would have a hard time trying to get a good price to exit their investment.

Hence, NAV is really the upper limit of their net worth in a sense?

tks.

(04-01-2013, 04:47 PM)greengiraffe Wrote: Hotung can be defined as an investment holding company. However, it is focused on the venture capital segment. In this aspect, it is more difficult to appreciate and understand than traditional closed-end fund like UIS.

As there is limited analyst coverage on the company and Hotung is sitting on net cash (30% of book value is backed by cash and regularly conducting open market buybacks), there is little needs for Hotung to stay listed and try to engage in costly (? - really doubt that the company is trying anything at all) investor relationship effort.

Given all the typical characteristic of a delisting candidate - we just have to wait for the day that shareholders are shown the exit door.

Hotung balance sheet is practically 2 billion TWD cash and 5 billion TWD investments , with negligible liabilities.Yet it capitalizes only 3.5 billion, meaning buyers are paying the 5 billion investments just 1.5 billion, that is 30% of fair value stated by the company.
Bought 100,000 today at 0.146

As explained by potatolover, I think there is a "catch" to this under valuation by Mr Market.
(i.e., NAV at 29 cents but Mr Market only valued it at 14.7 cents).

The NAV can only be realized in the event that the company can sell off all its investment when the market condition is still favourable. In bad times, it would indeed be very hard to sell or dump these investments at good prices and the "true NAV" will be much much lower as well, due to the impairment charges.

Depending on the portfolio mix, if the investments are largely speculative and highly volatile, then best of luck to get rid of investments during bad times...

IMHO

After deducting cash, market is assuming the other assets is less than 50% of its current value.

Vested.

If Hotung is really so undervalued, everyone should be buying like mad...
Every counter that is undervalued is undervalued for a good reason..

Why are insiders selling then? Are they being irrational for selling off their holdings of such an undervalued counter?

(04-06-2013, 03:05 PM)Gaudente Wrote: Hotung balance sheet is practically 2 billion TWD cash and 5 billion TWD investments , with negligible liabilities.Yet it capitalizes only 3.5 billion, meaning buyers are paying the 5 billion investments just 1.5 billion, that is 30% of fair value stated by the company.
Bought 100,000 today at 0.146

Yoda says majority shareholder selling BAD...

this was the comments back in 2Q-2010.
Buying Hotung is akin to allocating 75% of portfolio to highly volatile tech companies.

Historically, Hotung did not pay any dividend back in 2008 because of dismal performances..

*********
Signs of a slowdown in the technology sector. The recent performance
reports for the technology sector have shown strong second quarter numbers on
the back of booming PC sales. However, there has been recent reports of a
deterioration in PC orders over the first week of August 2010 after the shipment
orders in July 2010 came in lower than expected, signaling a possible
slowdown in the technology sector. This could impact the performances and
valuations of Hotung’s portfolio of investee companies as about 75% (based on
book value) are in the technology sector.

http://www.equity.com.tw/eng/hihl/rrt.htm

A key risk is earnings volatility, for the group’s performance is very much dictated by capital market activity. Hotung’s prospects are also tied to the economic and political risks of the countries in which it invests.

Separately, the lack of a track record (since the bulk of Hotung’s investee companies are either in the start-up or expansion phase) renders investment risks high.

Additionally, there may not be a liquid trading market for these companies which are typically unlisted.

All these reasons will justifiy why Hotung trades below its NAV...

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if delisting, would it be delisted at NAV or a certain discount to it?

(04-01-2013, 04:47 PM)greengiraffe Wrote: Hotung can be defined as an investment holding company. However, it is focused on the venture capital segment. In this aspect, it is more difficult to appreciate and understand than traditional closed-end fund like UIS.

As there is limited analyst coverage on the company and Hotung is sitting on net cash (30% of book value is backed by cash and regularly conducting open market buybacks), there is little needs for Hotung to stay listed and try to engage in costly (? - really doubt that the company is trying anything at all) investor relationship effort.

Given all the typical characteristic of a delisting candidate - we just have to wait for the day that shareholders are shown the exit door.

Management does not have a pre-determined dividend policy and
historical payments have been erratic, due to loss-making situations. The
company paid cash dividends annually from its incorporation in 1997 to
2001. No dividends were paid between 2002 and 2005 when the group
incurred losses/low profits. 2006 and 2007 saw a dividend payout of more
than 60% each year on the back of sizeable earnings. Dividend payments
ceased again in 2008 when the group returned to the red.
As a company registered in Bermuda, Hotung faces restrictions in relation
to the quantum of its cash dividends, for there are pre-determined
solvency requirements to be complied with.

It is possible for Hotung to exit their investments via trade sale or ipo. It does not mean it is necessary for companies to be trading in e exchange market to warrant a high valuation. M&A deals are typically done in multiples of enterprise value (which may be worked out from DCF) or precedent transactions.