Boustead Singapore

[Musicwhiz]

My views from reading all the previous audio transcripts on MW blog tell me that Boustead investors should not hold their breadth about getting a special dividend. Mr Wong is already of the view that the company is rewarding investors well and he has stated more than a few times that he is happy with the dividends dished out.

The company has been sitting on its horde of cash for > 2 yrs now. Its not in a hurry to invest the monies and seems to have rather stringent criterias. And I kinda of suspect that perhaps that was partly the reason for the collapse of the deal with TTI. Maybe Bousted will do the unthinkable and make a takeover attempt at TTI instead??

Not vested in Boustead. Vested in TTI.

Hi lonewolf,

Yes, you are right to say that FF Wong has repeatedly reiterated that Boustead is already very generous with its dividend policy. However, I am of the view that at the time, Boustead was still actively looking out for M&A deals such as the Bio-Treat Convertible Notes and the (now failed) TTI Big Box Project. I guess FF Wong was being cautious in giving out too much cash in case the cash was badly needed to fund these projects. Basically, he was keeping a buffer at hand in case it needed to be deployed.

Now, with the news out that the TTI Project has fallen through, and with no further news on Bio-Treat (I will assume the due D did NOT pass, and that Boustead will NOT be investing in their Notes); the cash is now "free to use". Unless Boustead are contemplating another serious M&A target, I don't see why they should hoard it. You may also have noted that FF Wong is more than pleased to increase the dividend as he is a direct beneficiary of it! In fact, interim dividend for FY 2011 was raised from 1.5c last year to 2c per share.

One thing I like about FF Wong is his conservative nature and his penchant for being very conservative about M&A deals, even if this means most deals will slip through his filters. I guess it's back to the drawing board for him again, and we shall see what else Boustead can come up with to utilize the cash hoard.

And if they cannot use it, please declare higher dividends (no need special haha).

[egghead]

I reread the interview with FF Wong that was posted by MW in the earlier part of this thread and noted that there was mention of divesting some units to raise fund to focus on building the company into an Asian MNC. As such, I am also not optimistic that there will be large dividend.

It is interesting to note that the TTI deal is aimed at providing a stable recurring income to the company to smooth out the earning which tend to be lumpy due to the project business nature. Would the next M&A target be of a similar nature?

As an investor, I am also growing impatient with the lack of return on the cash pile, although I am still happy to leave it to Mr Wong to work his magic.

[mrEngineer]

Drama in TTI announcements. This is the first time that I know of a trading halt was requested with non-material or rather non-value adding announcement provided. I have full respect of Boustead management to say no when they are unable to derive full maximum value out of any deals.

[Musicwhiz]

Hot off the press....Boustead will NOT acquire Bio-Treat''s notes but will instead subscribe for 100 million shares in Bio-Treat at 4 cents per share for a total investment of S$4,000,000 which will be financed through internal resources.

Not sure how much of the Company Boustead will own as a result of this as I have yet to check Bio-Treat's issued share capital. Any ideas?

Am glad they decided to scale down this investment, and also hope they can deploy their cash stash to more promising ventures soon.

[Nick]

I think they will have 1.984 billion shares post-rights issue.

Boustead stake will only be around 5%.

[mrEngineer]

Boustead seems to really see something interesting with Bio Treat. This deal is better anyway to previous Notes deal where the conversion price approximates to 5cents and they are only purchasing at 4cents now but at a much lower stake of 5% instead of 20%. However they have to forego some sort of interest compensation from the notes.

There is nothing mentioned of a deal breakdown but instead as a postponement due to Bio-treat preference of using rights issue to finance instead of the Notes. I smell a possible buyout in the future.

Look like its time to visit Bio-treat prospectus.

[Musicwhiz]

I think they will have 1.984 billion shares post-rights issue.

Boustead stake will only be around 5%.

Thanks very much, Nick. I wonder what FF Wong sees in Bio-Treat to want to sink in S$4 million into the Company.

Anyway this is a very small amount compared to the cash hoard they have. I guess FF Wong should still be scouting for opportunities to use up all that cash......

[lonewolf]

I wonder what FF Wong sees in Bio-Treat to want to sink in S$4 million into the Company.

I was wondering about this myself. And from my limited understanding of FF Wong (thanks mostly to your blog), I'm wondering if its worth taking a lead from him.

Its the same with Warren in US. He has a large group of investors that mimics his every investment move.

Of cos we shouldn't just blindly follow anyone cos FF Wong's objectives from buying into Bio Treat may be quite different from our individual objectives. Still its worth a thinker.

[Musicwhiz]

Hi lonewolf,

I took the liberty to glance at Bio-Treat's latest deal worth $500 million RMB, and also at its 1Q 2011 financial statements (it has a June year-end). It has very high net current liabilities and is technically insolvent, which is why it was necessary to have the right issue to raise funds for their BOT deals.

The problem with BOT is that there is a lot of upfront capex involved with zero cash inflows, which means a large cash outflow is required up-front, after which admittedly cash flows stream in at a consistent rate. The problem is the financing for the initial phase which can be daunting.

From Bio-Treat's announcement, they will need to fund at least $80 million RMB as an initial investment as part of the $500 million RMB BOT deal.

Their bank loans exceed their cash by such a huge amount that it's scary.....and cash flows are also dismal for such a business as there is very high capex (and thus negative FCF is always present).

Then again, if FF Wong thinks that Bio-Treat is able to "turn-around" in 4-5 years time just as Easycall did with Boustead College in Tianjin, then we may have a winner. Easycall (China Education) was one good example of Boustead multiplying its return on investment by many multiples when it was sold to Raffles Education a few years ago.

[Nick]

Hi MW,

I think the latest right issue should shore up Biotreat balance sheet to some extent. But BOT projects are pretty capital intensive so financing is the key. But lets remember that $4 million is pretty small sum compared to Boustead's cash hoard so this could just be an opportunistic bet.