Kingboard Copper Foil

[lonewolf]

Could this be the start of the next audit scandal??

Requisition For Special General Meeting

Summary

Pope Asset Management LLC through Citibank Nominee has requested the KBCF board to hold a special general meeting for the purpose of considering and voting on the following resolutions:

1) the company appoint an independent auditor to audit and review historical internal transfer pricing between the company and its largest customer and provide a report of findings;

2) a detailed analysis and report by an independent auditor as to whether the company has fulfilled the commitments made in its prospectus and abided by all regulations.
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KBCF tried in 2009 to delist the company at 21c but failed.

I think this will be an exercise in futility as its almost certain that the substantial shareholders will vote against the resolutions.

(no longer invested. Divested today at 41c - nearly double what was offered in 2009)

[lonewolf]

Surprisingly, the Special General Meeting is going ahead and scheduled for 21 April in Sofitel Qingyuan Riverside, 8 Beijiang Yi Road, Qingyuan City, Guangdong Province, 511518 Qingyuan, China.

Qingyuan, China?? Haha.. so even if shareholders want to attend the meeting, it may be prohibitive to do so. Yet another tactics by the substantial shareholder to block the resolutions? I suppose shareholders can still send in their proxy form to vote accordingly.

Notice of Special General Meeting

[lonewolf]

And unsurprisingly, the company has announced that the resolution as set forth for the Special General Meeting was not passed.

Pursuant to Clause 704 (14) of the Listing Manual of the SGX-ST, the Board of Directors of KINGBOARD COPPER FOIL HOLDINGS LIMITED (the “Company”) wish to announce that at the Special General Meeting (the “SGM”) of the Company held on April 21, 2011, the resolution set forth in the Notice of the SGM dated April 6, 2011 was not passed by the shareholders.

Source

[harsha]

I'm on sabbatical from markets for more than 6 months, and only started seeing my holdings in detail. I found deep in soup with this holding. is there anyone to share similar feeling being minority holder? I've been holding kingboard from 2006.

[Behappyalways]

not vested...fragile.... handle with care ^^


Extension of The Licensing of Manufacturing Facilties
http://infopub.sgx.com/FileOpen/LICENSIN...eID=254576

[CY09]

Kingboard is an interesting exercise for valuation. NAV is approx. 62 SGD cents and its operating cashflow is positive with little CAPEX. Its current assets aka licensing business of 700M HKD value is a loss making segment. Its cash per share is 22.5 cents SGD.

It is in a less than ideal business and has poor margins. For me, I would value this as an asset play and the valuation is 21.5 cents (25% of PPE + 70% of (cash+ receivables)-100% of liabilities). Assuming if the business and accounting is legit, what is the fair value would other forumers give?

<not vested, just challenging myself on a lazy weekend>
Disclaimer this is not a buy or sell recommendation

[d.o.g.]

Assuming if the business and accounting is legit, what is the fair value would other forumers give?

Personally, I think an analysis based on operating earnings or the balance sheet is not useful here.

The key is to understand how owners of KCF can make money. Minority owners of KCF want it to sell its products at high prices to generate profits that can fund dividends. But for KBL, the majority owner of KCF, it makes more sense to depress KCF's selling prices since most of KCF's sales go to KBL (89% in 2010 before the interested party transactions were blocked). KBL controls KCF. Therefore, under normal circumstances, KBL will try to make money at KCF's expense.

The interested party transaction (IPT) mandates of course require KBL to pay market prices for KCF's output. But the fact is that since KBL is 9x the size of all the other customers put together, it will logically get volume discounts that the other customers cannot get. KCF can offer the same volume discounts to all customers, but no other customer orders in the same quantity that KBL does, therefore only KBL can get the special low prices. This does not contravene the IPT mandates.

So, it should be clear that KCF is unlikely to ever make decent profits for minority shareholders. Thus, it trades at a low multiple of past earnings and a big discount to NAV, implying that it is worth more dead than alive i.e. an outside investor could buy it up and sell off the assets to realize a profit. Or the investor could also operate the business and make good profits given the low cost base.

But is this buy-liquidate/buy-operate strategy workable? No. KBL owns 64% of KCF, a hostile takeover at a cheap price is impossible.

What about a friendly purchase at NAV and operating it? Paying NAV means the owner has to be able to charge "normal" market prices without excessive volume discounts, otherwise the return on investment would be too low. But KBL would probably not be willing to buy from the new owner without big volume discounts. Yet, without KBL, the new owner has to grow the non-KBL business by 9x, a tall order. Therefore, no deal at NAV either.

So if there is no outside buyer for KCF, it means that KBL is the only possible buyer for KCF shares. With no competing bidders, KBL has no reason to pay minorities a fair price in any delisting transaction. Indeed, in 2009 KBL offered to privatize KCF by paying $0.23 in cash or 0.374 shares of KBL for each KCF share. At that time KCF's NAV was HKD 3.12. The market value of the KBL shares was not too far off at HKD 2.95, but of course KBL itself was trading above NAV so it was technically still getting more hard assets than it was giving up.

So what is the fair value of KCF?

Given the above analysis, I don't know if it is possible to estimate fair value with any meaningful degree of accuracy. So I don't bother.

As usual, YMMV.

[CY09]

Wow, interesting observation made that I would never pick up. Guess, in equity analysis, we too have to observe the "interested part transactions" a coy has with its shareholders.

Something new learnt today

[Investmentrealm]

Hi,

Kingboard latest results show that it is holding hkd1120 millions cash n zero debt. It works out to be more than 25 sg cents a share. But they are still not giving any dividends.

Is it the above observations that caused the price to be depressed at 19 cents?

[dzwm87]

A very good analysis/explanation is just two posts above yours.