HupSteel

[Shiyi]

Catalyst or driver is required to unlock value for the deep value companies. In the case of Hupsteel, the driver could be the Fund that invests in the company.

There is a fund called Morph Investment whose name appears in quite a number of deep-value companies. It's a true blue value investor, holding company shares for years. Does anybody know the background of this fund?

[specuvestor]

@BigToe, for every value trap that unlocks value, there would probably be ~2-3 more that continues to stay the same for a long time. Time and time again, I see that if OPMIs can display the same temperament as the Big Boys (collectively the founders/entrepreneurs), ie. ability to endure illiquidity and able to hold for a long time, one has a high probability to get great rewards in the end. But alas, the ability to check brokerage prices any time in the day and calculate net worth (to the 2nd decimal place) on a spreadsheet - is like opium to the OPMI that constant triggers dopamine to our brain.

To behave like an owner is probably a bridge too far for regular wage-dependent joes. And this is more than just a case of being patient. Joe's confidence in a stock's price comes from movement of the price, not an understanding of the business and its economics. Anyway, this is just another one of those investment principles that look simple on paper, but is tremendously difficult to practice in reality.

Say a regular joe reads the numerous arguments of Hupsteel being undervalued in VB, back in 2012/2013. Joe proceeds to buy some shares, becomes excited at the initial jump in price, but becomes increasingly despondent over the next few years as price slowly slides over 2014 and 2015. Some may have sold at this point.

If joe had not bailed out yet, the sharp fall in 2016 may have rattled his nerves, with unrealized losses amounting to probably 40% at some point. Some more may have sold at this point.

The price recovered somewhat in 2017. Yet some more may have sold at this point.

The price continued to recover in 2018. Finally, the joe who bought in 2012/2013 is whole again. Together with dividends received, he/she may even feel lucky to have managed to make a gain. And yet some more may have sold at this point, feeling relieved at finally being rid of the 5-6 years of pain seeing red.

And finally, when the GO is made last week, there were no cheers. Because almost all have sold at some earlier point in time. 

Those who bought in 2012/2013, and endured the 6-7 years leading to last week, probably made a total gain of about 50%. 

The difference, of a year or so, of say selling in 2018 instead of 2019, can mean so much difference.

As specuvestor likes to say, there is no NG in life. And this is what joes fear most.

yes there is no NG in life. And no reversal of opportunity lost

In the past 7 years STI has gained about 50%. So depending on your time and opportunity cost, if one was unable to wait for this day of rekoning the opportunity cost is massive. Even more so past 10 years from low of 2009. Special Sit has different strategies and may require publicity and activism. OPMI may not have such incentive or organisation.

Psychologically we are excited by binary events rather than daily accumulation or grind that reaches the promise land slow and steady. Latter is not newsworthy

[BlueKelah]

This is a similar value trap story to St******. There is no point keeping many years and getting measly dividend and then a lousy delisting price just when the industry bottoms.
I reckon steel prices and both shipping/OnG which hupsteel cater for will be on the rebound soon after so many years at the bottom. That is if global economy doesn't go into recession.

[Bibi]

The main reason i sold it off is because Hupsteel made losses for a few quarters and I do not have any idea whether it will continue to do so. Despite deep discount to NTA, as long as a co makes losses, sooner or later the NTA discount will reduced. Penguin is the other co I have sold off for the same reason. One co left which I kept and continued buying during dips is Boustead.

[dreamybear]

This is a similar value trap story to St******. There is no point keeping many years and getting measly dividend and then a lousy delisting price just when the industry bottoms.

I am still stuck with a few value trap counters bought a few years back. I did not sell those because of the usual "hate to realize" loses. Now I try to avoid buying counters simply because they trade at a deep discount to NAV. Yes, the worst part is waiting to get a low ball offer eventually. But then again, I guess these counters may appeal to passive investors with full time jobs(no time to monitor industry/company news) with spare cash(instead of putting in FD).  

In the case of Hupsteel, those who just vested days/weeks prior to the offer must have gotten a windfall. For deep value plays, I think luck(a good GO price) and timing(short waiting period) play a more important role than investing skill.

[specuvestor]

In the case of Hupsteel, those who just vested days/weeks prior to the offer must have gotten a windfall. For deep value plays, I think luck(a good GO price) and timing(short waiting period) play a more important role than investing skill.

And hence the mentality of 守株待兔. Sometimes the experience of getting a win may not be positive in the long run if the principle is incorrect.

OPMI investing is very different from activist or institutionalised investing. Saves a lot of pain when one figures out which one are we. Challenger has institutional activist leading the way. Otherwise the outcome is predictable.

Or one has to be prepared to hold a very diversified basket and expect to hold 10 years average. That's another way.

[Big Toe]

The current wave of GO are triggered mostly by Owners/founding families themselves.
As the reasons for staying listed is no longer valid

1. Better valuations. (Sad valuations for small to mid caps in unexciting sectors)
2. Publicity. (Start ups have far better stories to tell, think Beyond meat, IPO @ $25 in May 2019, now trading at ard $150. And during this meteoric rise, best world remains suspended May-Jul and is still suspended)
3. The need to raise cash. (operations generating good cash flow for too long, too much cash lying around)

But I would not bet on a company solely for the purpose of a GO.
The point really is to invest in companies that will generate stable positive cash flows at reasonable valuations.
Stability is of great importance and paying a slight premium is justified.

[brattzz]

Call me conservative, any biz that produces real positive cash flows consistently in its biz cycle, deserves to be given time for it to flourish, if it comes with paid up physical assets (FH land), it’s even better!!! 👍👍👍👍

Think I qualify Long term investment just like GiC? 🤣

[dreamybear]

2. Publicity. (Start ups have far better stories to tell, think Beyond meat, IPO @ $25 in May 2019, now trading at ard $150. And during this meteoric rise, best world remains suspended May-Jul and is still suspended).

Unfortunately, we cannot participate in US / HK / China IPO(or maybe we can - but I dunno how). We rarely(or never) see this kind of mega famous stocks in SGX IPO.

[lavue]

This privatisation offer is attractive to recent or new shareholders, for they will be sitting on gains on some >50%.

But for the majority of shareholders who bought in during the earlier periods, the offer is not very compelling. For these earlier shareholders from between 2011 to current period, they would have bought at prices from between $1.00 to $1.15 per share. They have sat through years of falling revenues, profits and dividends. It's only recently that some of the initiatives are starting to bear fruit, e.g. redevelopment and leasing for Kim Chuan and Genting Lane. Earnings (and dividends) are only starting to recover.

The oil and gas sector (and construction) went through a rough patch for a few years, but like all market cycles, it should recover in due time. In its heyday, Hupsteel was raking in revenues in excess of $300m. Today because of circumstances, the revenues are lower at around $50m.

Is the founding family delisting on the cheap and short-changing these long suffering shareholders? They are not even offering a price that matches the NAV per share, which according to their 3QFY2019 financial statement (unaudited) stood at $1.34 per share as at 31 Mar 2019.

The Offeror has secured irrevocable undertakings representing 54.16% of the total number of shares. Will they get 90% of the shares and succeed in their maiden attempt to delist the company? What recourse do the dissenters have?