HupSteel

[karlmarx]

The offer is pretty decent, considering that the traded price over the past few years was about $0.90, at the upper limit.

But the offer price is no where close to the 'RNAV' calculated by numerous VBs years ago, which I think is some 40% higher than what has been offered.

And since most of the volume was done before 2015, and fewer after, probably more opmi will see this as a poor offer, than those who see it as a good one.

Most opmi of Hupsteel -- perhaps especially the larger ones -- may have become tired at waiting for the value to be eventually unlocked. From my recollection, this has been a favourite of VBs since 2013, until the 2015 oil price crash. Between 2013 and 2019, opmi had to be content with only some dividends, while waiting for their 'RNAV' to be realised. 'RNAV' was never realised, and if this offer succeeds, never will.

I think it was mentioned somewhere in this thread that it is unlikely for an opmi to be able to unlock the full value of their shares in a GO; there must be some value left on the table for the offeror, for them to be motivate to make the deal. Since it is difficult for opmi to be able to earn every last dollar, they should never 'cut it too close.'

To summarise the lessons Hupsteel has taught us:
1. Value may or may not be unlocked. A 'value trap' is not necessarily a poor investment candidate.
2. Yet, no one know how long it will take for value to be unlocked.
3. And in the event that it does, it is unlikely for the full value to be unlocked.

The investor who takes these considerations into the management of his/her portfolio may then choose to:
1. Limit single exposure of such so-called 'value trap' stocks like Hupsteel. Holding a large basket of them instead.
2. Buy at substantially lower than 'RNAV' price, taking into account reasonable margins for the offeror, and yourself. Assuming you reason that offeror gets 30% of RNAV, and you wish for 30% for yourself, then you should only buy at 40% of RNAV.

So many small cap stocks have had general offers in the first half of this year. Perhaps we may see more in the second half, if the market for small caps continue to dawdle.

[Big Toe]

There are quite a number of companies like Hupsteel.
Current market valuations do not make sense for many companies stay listed.
Also note that financing is still relatively cheap now and there are not many investments out there that can make a decent return. So buying own's business makes a lot of sense. As long as the owner/major share holder is confident of the business going forward, there is no better time than right now.

A lot of the management who happens to own majority of shares, do not like to be questioned when company is performing ok and giving decent returns. You can see some of the news of this happening quite often. A lof of the CEOs are in the view that it is their company, shareholders are somewhat a secondary concern, despite what is written on their annual reports. So it is a push to them to make a GO.

As for value traps, there is no timeline for it to be unlocked, King Board was one, in the end, shareholders who held on and added on to their positions made excellent returns on their investment. If buying a low liquidity counter, be prepared to wait. And that means the invested funds cannot touched under all circumstances for as long as it takes. As NAV and profit improves, share price should naturally rebound in time. But most investors dont have infinite time line to wait, so for most investors, better to stick to more actively traded shares.

[weijian]

http://infopub.sgx.com/FileOpen/Hupsteel...eID=529336

some interesting points mentioned in the Annual Report released this morning under the Chairman's Message:

The Board and management are mindful of the
concerns raised at the last and earlier Annual General
Meetings. A key direction which the management will continue to pursue, will be to seek ways to unlock
value for the shareholders. This can be achieved, for
example, through monetizing long term assets and
returning the cash generated to shareholders by way
of dividends. Management will discuss with relevant
experts to explore ways to unlock shareholders’ value.

The
combined paid and recommended dividends of 4 cents
per share for FY18 are higher than the dividend paid in
FY17, which was 2 cents per share. We hope that we can
sustain or even improve our dividend payout in future.

On hindsight, the part about "Management will discuss with relevant experts to explore ways to unlock shareholders’ value" in AR18 probably alluded to the possibility of talking to investment bankers and/or VC funds about taking bridging/term loans to privatise the company. The privatization would return ~10-15years of dividend one time to shareholders to buy the chance to proceed to unlock (their) shareholder  value.

@Bibi, unless one had insider news, it is probably too hard to sufficiently predict to a high probability of when a privatisation will happen. And OPMIs would still be at the mercy of the majority holder on the price they are willing to pay. The changing of SGX rules and the most recent Challenger failure might have played a part in the when/how much?

@karlmarx, it was actually d.o.g that spoke about "need to leave money on the table for offerer" and should be in the KingBoard thread (since BigToe mentioned it).

@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.

[brattzz]

also, try to know who owns what %, to form a much needed 10%, to block unfair offers! 😅😅😅
Share registers can be very helpful!!

[Shiyi]

There are quite a number of companies like Hupsteel.
Current market valuations do not make sense for many companies stay listed.
Also note that financing is still relatively cheap now and there are not many investments out there that can make a decent return. So buying own's business makes a lot of sense. As long as the owner/major share holder is confident of the business going forward, there is no better time than right now.

A lot of the management who happens to own majority of shares, do not like to be questioned when company is performing ok and giving decent returns.  You can see some of the news of this happening quite often. A lof of the CEOs are in the view that it is their company, shareholders are somewhat a secondary concern, despite what is written on their annual reports. So it is a push to them to make a GO.

As for value traps, there is no timeline for it to be unlocked, King Board was one, in the end, shareholders who held on and added on to their positions made excellent returns on their investment. If buying a low liquidity counter, be prepared to wait. And that means the invested funds cannot touched under all circumstances for as long as it takes. As NAV and profit improves, share price should naturally rebound in time. But most investors dont have infinite time line to wait, so for most investors, better to stick to more actively traded shares.

[Shiyi]

Looking back, the fund that invests in Hupsteel could have prompted the Lim family to launch the GO as a defensive move.
Lesson learnt: follow the fund, esp. for deep value stocks.

[brattzz]

Looking back, the fund that invests in Hupsteel could have prompted the Lim family to launch the GO as a defensive move.
Lesson learnt: follow the fund, esp. for deep value stocks.

Yes! That’s the trigger point!! 💪💪💪

[karlmarx]

Looking back, the fund that invests in Hupsteel could have prompted the Lim family to launch the GO as a defensive move.
Lesson learnt: follow the fund, esp. for deep value stocks.

Saray Developed Markets Value Fund has been buying Overseas Educated for a number of years, and is last known to hold 8%.

Axxion S.A has been buying Sarine Technologies for a number of years, and is last known to hold 9.18%.

Saray and Axxion are currently sitting on losses for their respective positions.

And if investors had simply followed Saray and/or Axxion into these positions, it would have been an unpleasant experience. Funds can be wrong too.

[karlmarx]

@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.

[Big Toe]

In the case of hupsteel, 6-7 years is somewhat an optimistic timeline for value traps. There are those easily > 1 decade without much of a movement. A few things can keep one committed to the case.

1. Know the business inside out, if the business is a viable one and management is competent,have the conviction to hold.
2. Regular dividends help.
3. Accumulate a sizable position, buy more during dips. In any case, it will be tough since trading is thin. An infinite timeline helps in this process.

Then again this strategy is going against what is going around the world right now. Short cuts. Instant gratification. Punishing a sound business with a long track record and rewarding new businesses that have no path to profitability. The list goes on. Madness but a matter of time before sanity reigns again.