Avarga (formerly: UPP Holdings)

[Clement]

KUALA LUMPUR (Oct 5): Berjaya Corp Bhd (BCorp) is disposing of a 39.09% equity interest and C$52.91 million (RM166.5 million) worth of unsecured subordinated notes in Toronto-listed Taiga Building Products Ltd — Canada's largest independent wholesale distributor of building products — to Singapore-listed UPP Holdings Ltd, which is controlled by businessman Datuk Tong Kooi Ong, for a combined C$65.58 million (RM206.37 million) cash.

According to BCorp, the proposed disposals represent an opportunity for it to realise its entire investment in Taiga. The proposed disposals will result in a total net gain of about C$23.14 million (RM72.82 million) and it plans to use the proceeds for working capital.

Taiga is currently a 39.09%-owned associate of Berjaya Forest Products (Luxembourg) S.A.R.L (BForest), a wholly-owned subsidiary of BCorp. The Taiga group owns and operates three wood preservation plants that produce pressure-treated wood products. It also has 15 distribution centres in Canada and two distribution centres in California, the US.

http://www.theedgemarkets.com/en/node/307054

Borrowing the spirit from the other company post: Up 17% today due to unexpected good news!

No offense, just kidding myself.

I am not overly optimistic (or at all) about Taiga's prospect. It is commodity-like business with few barrier entries (if any).
The advantage of taiga is likely the lowest cost, economic of scale and distribution networks.
The first is probably the more substantial than the more important weaker second & third.

But at least the valuation doesnt look expensive to me and it comes with the immediate accretive earnings.

I noticed the company has notes paying 14% annually (it is stapled unit i guess and not unlike reit).
But i find it strange as the business should be rather cyclical (follows property cycle) and not of the stable cashflow.
In a glance (or several glances) from AR2003 till AR2016, it seems that they are able to pay the 14% and still churn out some profits.

Went through AR2003-2007, jumped to AR2016 and 2017Q1.
AR2004 is particularly interesting as the chairman (guess who? mr Tong) tried dramatically turning around the company (from the core itself).

Learn something new on the art of turning a company to a more owner-mentality cultured company.

Actually, the investment is not too bad an idea. I am not particularly optimistic on the prospects of Taiga in the short term but like you mentioned it does not look expensive.

UPP is paying approximately $75 million for 58.33% of the company and about $48 million in 14% notes due September 2020. From the interest on the notes itself, UPP will receive $6.7 million on its money or about 9% on the total investment. Looking at it from another standpoint, this $6.7 million can be seen as return of capital and as long as the notes do not default (i note that Mr Tong's notes are not part of the deal), UPP will be just about able to recover the entire investment by September 2020. So from October 2020 onwards, UPP's share of Taiga will be effectively free.

[ksir]

KUALA LUMPUR (Oct 5): Berjaya Corp Bhd (BCorp) is disposing of a 39.09% equity interest and C$52.91 million (RM166.5 million) worth of unsecured subordinated notes in Toronto-listed Taiga Building Products Ltd — Canada's largest independent wholesale distributor of building products — to Singapore-listed UPP Holdings Ltd, which is controlled by businessman Datuk Tong Kooi Ong, for a combined C$65.58 million (RM206.37 million) cash.

According to BCorp, the proposed disposals represent an opportunity for it to realise its entire investment in Taiga. The proposed disposals will result in a total net gain of about C$23.14 million (RM72.82 million) and it plans to use the proceeds for working capital.

Taiga is currently a 39.09%-owned associate of Berjaya Forest Products (Luxembourg) S.A.R.L (BForest), a wholly-owned subsidiary of BCorp. The Taiga group owns and operates three wood preservation plants that produce pressure-treated wood products. It also has 15 distribution centres in Canada and two distribution centres in California, the US.

http://www.theedgemarkets.com/en/node/307054

Borrowing the spirit from the other company post: Up 17% today due to unexpected good news!

No offense, just kidding myself.

I am not overly optimistic (or at all) about Taiga's prospect. It is commodity-like business with few barrier entries (if any).
The advantage of taiga is likely the lowest cost, economic of scale and distribution networks.
The first is probably the more substantial than the more important weaker second & third.

But at least the valuation doesnt look expensive to me and it comes with the immediate accretive earnings.

I noticed the company has notes paying 14% annually (it is stapled unit i guess and not unlike reit).
But i find it strange as the business should be rather cyclical (follows property cycle) and not of the stable cashflow.
In a glance (or several glances) from AR2003 till AR2016, it seems that they are able to pay the 14% and still churn out some profits.

Went through AR2003-2007, jumped to AR2016 and 2017Q1.
AR2004 is particularly interesting as the chairman (guess who? mr Tong) tried dramatically turning around the company (from the core itself).

Learn something new on the art of turning a company to a more owner-mentality cultured company.

Actually, the investment is not too bad an idea. I am not particularly optimistic on the prospects of Taiga in the short term but like you mentioned it does not look expensive.

UPP is paying approximately $75 million for 58.33% of the company and about $48 million in 14% notes due September 2020. From the interest on the notes itself, UPP will receive $6.7 million on its money or about 9% on the total investment. Looking at it from another standpoint, this $6.7 million can be seen as return of capital and as long as the notes do not default (i note that Mr Tong's notes are not part of the deal), UPP will be just about able to recover the entire investment by September 2020. So from October 2020 onwards, UPP's share of Taiga will be effectively free.

I am not familiar with the subordinate note. Just curious, what will the note value be when it is expired in 2020? Zero? Or similar to bond, it will be the initial cost? Thanks.

Anyway, I am not saying it is a bad investment, i actually think that it is a value investment.
In short term, earning could be hit, but in long run, it should be ok.

[Clement]

KUALA LUMPUR (Oct 5): Berjaya Corp Bhd (BCorp) is disposing of a 39.09% equity interest and C$52.91 million (RM166.5 million) worth of unsecured subordinated notes in Toronto-listed Taiga Building Products Ltd — Canada's largest independent wholesale distributor of building products — to Singapore-listed UPP Holdings Ltd, which is controlled by businessman Datuk Tong Kooi Ong, for a combined C$65.58 million (RM206.37 million) cash.

According to BCorp, the proposed disposals represent an opportunity for it to realise its entire investment in Taiga. The proposed disposals will result in a total net gain of about C$23.14 million (RM72.82 million) and it plans to use the proceeds for working capital.

Taiga is currently a 39.09%-owned associate of Berjaya Forest Products (Luxembourg) S.A.R.L (BForest), a wholly-owned subsidiary of BCorp. The Taiga group owns and operates three wood preservation plants that produce pressure-treated wood products. It also has 15 distribution centres in Canada and two distribution centres in California, the US.

http://www.theedgemarkets.com/en/node/307054

Borrowing the spirit from the other company post: Up 17% today due to unexpected good news!

No offense, just kidding myself.

I am not overly optimistic (or at all) about Taiga's prospect. It is commodity-like business with few barrier entries (if any).
The advantage of taiga is likely the lowest cost, economic of scale and distribution networks.
The first is probably the more substantial than the more important weaker second & third.

But at least the valuation doesnt look expensive to me and it comes with the immediate accretive earnings.

I noticed the company has notes paying 14% annually (it is stapled unit i guess and not unlike reit).
But i find it strange as the business should be rather cyclical (follows property cycle) and not of the stable cashflow.
In a glance (or several glances) from AR2003 till AR2016, it seems that they are able to pay the 14% and still churn out some profits.

Went through AR2003-2007, jumped to AR2016 and 2017Q1.
AR2004 is particularly interesting as the chairman (guess who? mr Tong) tried dramatically turning around the company (from the core itself).

Learn something new on the art of turning a company to a more owner-mentality cultured company.

Actually, the investment is not too bad an idea. I am not particularly optimistic on the prospects of Taiga in the short term but like you mentioned it does not look expensive.

UPP is paying approximately $75 million for 58.33% of the company and about $48 million in 14% notes due September 2020. From the interest on the notes itself, UPP will receive $6.7 million on its money or about 9% on the total investment. Looking at it from another standpoint, this $6.7 million can be seen as return of capital and as long as the notes do not default (i note that Mr Tong's notes are not part of the deal), UPP will be just about able to recover the entire investment by September 2020. So from October 2020 onwards, UPP's share of Taiga will be effectively free.

I am not familiar with the subordinate note. Just curious, what will the note value be when it is expired in 2020? Zero? Or similar to bond, it will be the initial cost? Thanks.

Anyway, I am not saying it is a bad investment, i actually think that it is a value investment.
In short term, earning could be hit, but in long run, it should be ok.

The subordinate notes will have to be redeemed at par on the maturity date.

Interestingly enough, there are "change of control" provisions in the indenture that requires Taiga Building Products to make an offer to repurchase all the notes at 101% of par value + accrued interest within 30 days of a change of control. However, given the attractive yield, i doubt any holders will accept.

[ksir]

KUALA LUMPUR (Oct 5): Berjaya Corp Bhd (BCorp) is disposing of a 39.09% equity interest and C$52.91 million (RM166.5 million) worth of unsecured subordinated notes in Toronto-listed Taiga Building Products Ltd — Canada's largest independent wholesale distributor of building products — to Singapore-listed UPP Holdings Ltd, which is controlled by businessman Datuk Tong Kooi Ong, for a combined C$65.58 million (RM206.37 million) cash.

According to BCorp, the proposed disposals represent an opportunity for it to realise its entire investment in Taiga. The proposed disposals will result in a total net gain of about C$23.14 million (RM72.82 million) and it plans to use the proceeds for working capital.

Taiga is currently a 39.09%-owned associate of Berjaya Forest Products (Luxembourg) S.A.R.L (BForest), a wholly-owned subsidiary of BCorp. The Taiga group owns and operates three wood preservation plants that produce pressure-treated wood products. It also has 15 distribution centres in Canada and two distribution centres in California, the US.

http://www.theedgemarkets.com/en/node/307054

Borrowing the spirit from the other company post: Up 17% today due to unexpected good news!

No offense, just kidding myself.

I am not overly optimistic (or at all) about Taiga's prospect. It is commodity-like business with few barrier entries (if any).
The advantage of taiga is likely the lowest cost, economic of scale and distribution networks.
The first is probably the more substantial than the more important weaker second & third.

But at least the valuation doesnt look expensive to me and it comes with the immediate accretive earnings.

I noticed the company has notes paying 14% annually (it is stapled unit i guess and not unlike reit).
But i find it strange as the business should be rather cyclical (follows property cycle) and not of the stable cashflow.
In a glance (or several glances) from AR2003 till AR2016, it seems that they are able to pay the 14% and still churn out some profits.

Went through AR2003-2007, jumped to AR2016 and 2017Q1.
AR2004 is particularly interesting as the chairman (guess who? mr Tong) tried dramatically turning around the company (from the core itself).

Learn something new on the art of turning a company to a more owner-mentality cultured company.

Actually, the investment is not too bad an idea. I am not particularly optimistic on the prospects of Taiga in the short term but like you mentioned it does not look expensive.

UPP is paying approximately $75 million for 58.33% of the company and about $48 million in 14% notes due September 2020. From the interest on the notes itself, UPP will receive $6.7 million on its money or about 9% on the total investment. Looking at it from another standpoint, this $6.7 million can be seen as return of capital and as long as the notes do not default (i note that Mr Tong's notes are not part of the deal), UPP will be just about able to recover the entire investment by September 2020. So from October 2020 onwards, UPP's share of Taiga will be effectively free.

I am not familiar with the subordinate note. Just curious, what will the note value be when it is expired in 2020? Zero? Or similar to bond, it will be the initial cost? Thanks.

Anyway, I am not saying it is a bad investment, i actually think that it is a value investment.
In short term, earning could be hit, but in long run, it should be ok.

The subordinate notes will have to be redeemed at par on the maturity date.

Interestingly enough, there are "change of control" provisions in the indenture that requires Taiga Building Products to make an offer to repurchase all the notes at 101% of par value + accrued interest within 30 days of a change of control. However, given the attractive yield, i doubt any holders will accept.

Thanks for the info.

Indeed, even with less than 10%, I'd think the banks will want to pick up the tap should any holders feel like dumping the notes.

In actual fact, Berjaya is not asking for premium as well. Which i guess is rather strange. Probably the ongoing withholding tax assessment gotta do with the decision to divest.

[Clement]

Berjaya is getting a premium, UPP is paying them $1.15 per dollar of par on the notes. I am more concerned with Mr Tong himself. If he had decided to include his notes as part of the deal, i will view it as a negative. Since his notes are not part of the deal, he must view them as good value and as chairman, he will make sure that Taiga is able to redeem them come 2020.

[BlueKelah]

was reviewing this stock today,

noticed that big buy up by some SHH called kamaruddin of SGD$1.3m worth of shares earlier last month after 3Q quarterly was out. No further buy in this month so not sure what to make of it, but it is an interesting thing to happen.

[ksir]

The 2016 Annual Report is out.
As always, the CEO letter is a rare piece of frank message to shareholders and imho, an insightful learning opportunity for Business Investors.

The content is wide, ranging from general Management knowledge (I quote):
"Critically, businesses work best when interests are aligned, whether it is with suppliers or customers or with staff and management. Many companies provide stock options and performance bonuses based on achieving Key Performance Indicators (“KPIs”) and profit targets. Instead of creating value for the company, it sometimes encourages short term opportunistic behaviour and high risk taking. Giving someone an option on the upside without an equivalent downside cost is irrational. And most KPIs are only focused on short term targets, and therefore not holistic and comprehensive enough to encourage decisions that promote long term sustainable profitability and value."

To uncommon yet common-sense view:
"E-commerce is one of the fastest growing industries (whether it is online purchase of high end fashion or everyday home delivery of food). It is an integral part of the digital economy, widely used by the younger generation and attracting ridiculous valuations and huge new investments. But regardless of who wins the logistic game of selling and delivery, or how it is delivered (by person or drones), packaging materials and boxes are necessary. And more critically, demand will continue to grow as E-commerce continues to grow and more sales are moved online from retail shops."

And even this:
"There are also clear capital market inefficiencies. The huge growth in Exchange Traded Funds and Private Equity generate new opportunities. The trend to Beta investing and funds pouring into private markets, especially new technology start-ups, is a gift to value investors."

I reckon Warren Buffett has the final words on someone like him:
"I am a better investor because I am a businessman, and a better businessman because I am an investor."

<vested, near core>

[Cash cow]

I talked to him after the only AGM that I attended few years ago. Really feel that he is a savvy businessman and in fact you can check his past records of developing businesses. Regretted did not load this stock much

[zz...]

From AR16, seems like the paper and power business have reached their max potential, hence the need to buy Taiga for another growth, looks like he's doing something like Warren Buffett did to BK to buy many difference kind of business, likely more purchased would be made in the future. Also I feel he prefers to use shareholders' money instead of using bank loans too much (rights issues and recent private placement of new shares).

[ksir]

Inverting is probably the best way to kill off our idea and staying on the ground.
Tried inverting by providing the reason why not to invest in Avarga (formerly UPP):
1 Avarga at this point is primarily Taiga and since Taiga has converted its bond, it is hard to calculate the forward normalised earning.
After the bond converted to equity, the tax level will rise and hence it may no longer efficient and the impact to Avarga is overall negative.
This is because previously Avarga held Taiga bonds which earned good interest and also more tax-efficient Taiga earning.
2 Taiga revenue is based on commission from building products it distributed.
Commission in turns is percentage of building products prices.
Since more than 50% of its revenue is in selling lumbers, lumber price has significant impacts.

below case to illustrate:
Let's say commision is 5%.
When lumber price is $400, commission is $20
When lumber price falls to $200, commission is $10
When lumber price rises to $600, commission is $30
However, volume could be more when lumber price is low, hence it sort of mitigates the impact, but not quite.
After taking in the fixed costs (such as depreciation, employees etc), impact of low revenue is significant to bottom line.

3 Powerplant business seems to be languishing.
Although it has minimum intake to the myanmar gov, but it seems like the revenues keep falling and not stable.
What is the reason of falling revenue in S$ amidst the rising US$ which is the currency of the powerplant revenue?
Management doesn't really provide any clear reasons behind that.

4 Management has gotten the approval to effectively be "Bershire"-like company.
However, from their track records so far in Classic scenic investment, the result is far from satisfactory.
It'd be far better for them to just buy Avarga and Taiga shares (which they should have more insights).

5 The only bright side in this thesis of uninvesting (if such word exists), is the original UPP business (see the irony?).
UPP Msia is doing pretty well even when RM fell off the hook.
It is mainly due to supply push and demand pull (lots of supply and demand).
However it remains to be seen if such is sustainable.

<currently invested in Avarga>