Kingboard Copper Foil

[activistasia]

Assuming if the business and accounting is legit, what is the fair value would other forumers give?

Personally, I think an analysis based on operating earnings or the balance sheet is not useful here.

The key is to understand how owners of KCF can make money. Minority owners of KCF want it to sell its products at high prices to generate profits that can fund dividends. But for KBL, the majority owner of KCF, it makes more sense to depress KCF's selling prices since most of KCF's sales go to KBL (89% in 2010 before the interested party transactions were blocked). KBL controls KCF. Therefore, under normal circumstances, KBL will try to make money at KCF's expense.

The interested party transaction (IPT) mandates of course require KBL to pay market prices for KCF's output. But the fact is that since KBL is 9x the size of all the other customers put together, it will logically get volume discounts that the other customers cannot get. KCF can offer the same volume discounts to all customers, but no other customer orders in the same quantity that KBL does, therefore only KBL can get the special low prices. This does not contravene the IPT mandates.

So, it should be clear that KCF is unlikely to ever make decent profits for minority shareholders. Thus, it trades at a low multiple of past earnings and a big discount to NAV, implying that it is worth more dead than alive i.e. an outside investor could buy it up and sell off the assets to realize a profit. Or the investor could also operate the business and make good profits given the low cost base.

But is this buy-liquidate/buy-operate strategy workable? No. KBL owns 64% of KCF, a hostile takeover at a cheap price is impossible.

What about a friendly purchase at NAV and operating it? Paying NAV means the owner has to be able to charge "normal" market prices without excessive volume discounts, otherwise the return on investment would be too low. But KBL would probably not be willing to buy from the new owner without big volume discounts. Yet, without KBL, the new owner has to grow the non-KBL business by 9x, a tall order. Therefore, no deal at NAV either.

So if there is no outside buyer for KCF, it means that KBL is the only possible buyer for KCF shares. With no competing bidders, KBL has no reason to pay minorities a fair price in any delisting transaction. Indeed, in 2009 KBL offered to privatize KCF by paying $0.23 in cash or 0.374 shares of KBL for each KCF share. At that time KCF's NAV was HKD 3.12. The market value of the KBL shares was not too far off at HKD 2.95, but of course KBL itself was trading above NAV so it was technically still getting more hard assets than it was giving up.

So what is the fair value of KCF?

Given the above analysis, I don't know if it is possible to estimate fair value with any meaningful degree of accuracy. So I don't bother.

As usual, YMMV.

Basically what you mean on the above is simply saying KBL control KCF at the expenses of KCF to profit itself. And it's not the question of whether how much value is on its balance sheet but rather whether can the KCF unlocks its value as KCF is holding a majority stake.

Thereafter you go into whether will there be an X that will pay KCF at its NAV, which then your suggestion is no, Which are all very sensible assumption.

Sorry my brain is slow, I still cannot see the how the dot connects that suggest the cash is "real" rather than, stop asking whether the cash is real coz there's no reasonable explanation that the value can be unlock.

My bad. When I say cash is real is to address people whom may think that this is a fraudulent company. I also can't see any value to be possibly unlocked in the near future. But to me, at the current price, it has a large MOS for me to be vested at a small amount. What I lose out is just my opp cost of possibly investing this cash into something better.

I can't believe the litigation case is taking so long to even start.