Avarga (formerly: UPP Holdings)

[setan]

I think I replied to Setan in most part except for the case where subsidiaries are wholly owned. Then, the only place to find is company change of equity statement where the income the company received will be dividends from direct subsidiaries but this way of looking is so rough that it is better off not trying to find out.

Anyway, there is no point looking at how the money flow within a group unless there are special insights to be gleaned. There are cases but most of the time, just to assume the money flow around within the rules.

Thanks, Donmihaihai.

I just wanted to learn my mistake for investing in Avarga and from my reading the answers to those substantial questions. Personally for me, it does not provide comfort to continue holding and the accounting beyond my understanding at to my level.

[ksir]

Taiga is listed, its dividend was announced and amount flowing to Avarga can be calculated.
Whether the dividend is held under which Avarga's entity, don't think has substantial impact, it's under Avarga pocket and no longer under Taiga's.
But my guess is, it flows to Avarga holding co to pay debt at Avarga level (as mentioned, 2 banks stopped renewing their debts).
Taiga has substantial net cash in its balance sheet.
Their call to hold cash tightly in the past several years during the heighten interest rate seems like a great timing call on hindsight. Taiga is now ready to deploy the net cash either on working cap (take more orders) or acquisition or buyback or dividend.

I observed from own experience, only when our invested company plunged in share price, we finally get to dive deep and understand the company more.
The lower the share price the more we dig and understand the company.
It's great, really
But to really understand Avarga, it helps to focus the digging in Taiga.
To me, investing in Avarga is a cheap proxy to Taiga.
Hence understanding Taiga is key.

[weijian]

@setan,
To set the record straight - I do not have an accounting background. Every accounting knowledge I have learnt thus far, is a result of what ksir described - forced to learn when your investment drops! VBs here had been more than gracious to spend their precious time to explain it to me, over the years - allowing me to "get a little better everyday".

I looked at Avarga's FY23 results - There is no company (ie. holding company) cashflow statement and hence we are not able to directly "see" Taiga dividends paid to Avarga. Nonetheless, as ksir mentioned, Taiga has declared a dividend and if you want to directly "see" it, you can go to check out Taiga's cashflow statement, which isn't a hard thing to do since Taiga is listed. An alternative would to back calculate it as I mentioned - Since the FY23 cashflow shows 6,978k paid out to non Avarga minorities (28%), Taiga would have paid (6978k/0.28) - 6978k =18mil to Avarga.

@donmihaihai,
My comment is more towards those who are looking at 2 similar assets (Asset A vs Asset B, and Asset B has some of Asset A) for some arbitrage opportunities. Generally, some of us try to look at it from liquidation standpoint (well at least, that's how I look at it). For your case of private wholly owned subsidiaries, I agree it is not applicable. As for those with NCI, as long as the NCI has a "history of profits", very good chance it is already undervalued on the BS - regardless of any discount the holding company may have. Of course, undervaluation and value realization are different things.

@ksir,
There is "return on equity" and "return on brain damage". Ideally, we want the former but in reality, we have to accept the latter in the ordinary course of events as an OPMI. And keep the faith that the latter sets the stage for the former.

[ksir]

@ksir,
There is "return on equity" and "return on brain damage". Ideally, we want the former but in reality, we have to accept the latter in the ordinary course of events as an OPMI. And keep the faith that the latter sets the stage for the former.

To me, the "return on our investment" is really the realization of our knowledge of our investee (ie: the company business, its structure etc). 
The main risk is in incorrect assessment and expectation of our investment.

If the share price is down and you don't feel "excited" either to buy more or let the company buyback more cheaply or buy more shares from the dividend, something must be very wrong with our assessment. 
In this case, either re-look at our assessment and if still not confident, the best way is likely out. 
It just means our knowledge of the company doesn't deserve our expected return.

[donmihaihai]

I think I replied to Setan in most part except for the case where subsidiaries are wholly owned. Then, the only place to find is company change of equity statement where the income the company received will be dividends from direct subsidiaries but this way of looking is so rough that it is better off not trying to find out.

Anyway, there is no point looking at how the money flow within a group unless there are special insights to be gleaned. There are cases but most of the time, just to assume the money flow around within the rules.

Thanks, Donmihaihai.

I just wanted to learn my mistake for investing in Avarga and from my reading the answers to those substantial questions. Personally for me, it does not provide comfort to continue holding and the accounting beyond my understanding at to my level.

The accounting are essential the same, whether for a listed holding company with many wholly owned subsidiaries or one with many non wholly owned subsidiaries. However, the former is simpler. Just because you don’t see the money flow within a holding company and its wholly owned subsidiaries doesn’t mean it is not there. Money still flow, and withholding taxes are still paid. 
 
Avarga might look complex, but is not a significantly more complicated than a listed holding company with private non wholly owned subsidiaries. For me, I find Avarga account much easier to understand as compared to most STI components such as Singtel, CapitaLand investment, Comfortdelgo, JMH group, banks, Fraser properties and even REIT.
 
I agreed that understand the accounting is important, but to what extent? I don’t believe in knowing every single detailing of the accounting and operations, but a general understanding is a must.

[setan]

Thanks all for the kind sharing.

Besides, the accounting aspect which I need continuous learning, my personal observations on the corporate actions they had taken during these 2 to 3 years does not give the confidence (mine only) in the company and walk away.

1) The withdrawal of its dividend policy after it was announced shortly.

2) The change of auditor in the midst of financial year.

3) Most importantly, it's not a business that align with my investment objective.

However, I wish those are still vested well and are able to achieve their expected return.

[weijian]

OPMIs have been asking very good questions and Tongs have been giving really good replies to help us to understand the business.

Minutes of the 57th Annual General Meeting of the Company

Question: Besides improving efficiencies and containing cost, are there any other strategies to improve the Company’s top-line since it is difficult to acquire distributors businesses in Canada and the United States?

Answer: In Canada, Taiga can be considered the biggest distributor and there is not a lot of scope to grow except if we consider the export market. The Company used to export to China but had since tapered off. Export market for wood-based construction home is limited. Hence, we are using technology to improve efficiency and better our margin.

https://links.sgx.com/FileOpen/Avarga_AG...eID=803461

[ksir]

OPMIs have been asking very good questions and Tongs have been giving really good replies to help us to understand the business.

Minutes of the 57th Annual General Meeting of the Company

Question: Besides improving efficiencies and containing cost, are there any other strategies to improve the Company’s top-line since it is difficult to acquire distributors businesses in Canada and the United States?

Answer: In Canada, Taiga can be considered the biggest distributor and there is not a lot of scope to grow except if we consider the export market. The Company used to export to China but had since tapered off. Export market for wood-based construction home is limited. Hence, we are using technology to improve efficiency and better our margin.

https://links.sgx.com/FileOpen/Avarga_AG...eID=803461

Mr TKO is definitely as frank as always. 
Their M&M (Msia & Myanmar) biz reminds me of the struggle of Bershire textile biz. 
It again shows how difficult it's to get out of lousy biz.
I guess to go next level, they perhaps can "clone" Buffett evolution from cigar butt biz to great biz. 
Taiga canada I'd say is an okay but not great biz. 
Since it's tough to grow Taiga biz, why not using the warchest there to build up a quality investment portfolio? 
No need to think too much about dividend tax etc...
Or just bite the bullet, send the cash (minus dividend tax) back to Avarga and build a quality investment portfolio (hey, they have home advantage in SG & Msia market, and SG is not a difficult pond to fish for fat yummy fishes).

[ksir]

Interesting, Taiga went up 20% yesterday with trading volume of 146K shares (before you shout, it's peanut, this is the highest volumes in a year time, generally the volume is few 100 to below 50K).
To borrow the cliché, something is brewing?? haha.
At C$3.85, Taiga market cap is about C$400M.

Just for fun, I bet could be due to below:
Going to be buyout (either via privatisation by Avarga or Avarga selling their stake to someone else and then privatised).
If Avarga were to sell Taiga, what's left? CASH, tons of Cash but nothing much left but to follow the 3Cnergy way?
Sounds unlikely though.
I hold both, but my Taiga shares is now alot lesser after reallocated back to Avarga in this past 1 year.
Popping my popcorn in case got interesting show to watch

[money]

i think it is better to be sold out to a 3rd party. If it is privatised by Avarga, my gut feel is the cash will stay on Taiga's balance sheet and Avarga shareholders can only see but cannot touch the cash. But hard to say lah, never say never