Bonvest

[ghchua]

Hi lavue,

Why did you said that their investment in Cordlife soured? FY2016 disposal gain of $30.087m from financial assets were mainly from their stake in Cordlife. I thought it was a master stroke by them. Securing board seat at Cordlife and forcing the buyer to "show hand" and bought most of their stake in the company.

Bonvests sells 10% stake in Cordlife for S$43m
https://www.businesstimes.com.sg/compani...e-for-s43m

[karlmarx]

Bonvest is similar to the other listed companies like Isetan, Hotel Grand Central, Hotel Royal, and Second Chance Properties; all of whom possess valuable real-estate. Amara, AF Global, and Centurion are heavy real estate owners too, but their debts are also more significant.

All of them generate low ROA of 1% to 3%, though some generate higher profits (and hence dividends) through leverage.

Most of them trade at a large discount to book value because they show no/little motivation to dispose the valuable real estate and distributing the proceeds to shareholders.

Occasionally, one of them will dispose an asset, or privatise the company. I won't call them value traps, because sooner or later, a new CEO/owner will come in with new ideas and so on. The value will eventually be unlocked, it just depends on whether one will still be around then.

Since it is hard to tell which will dispose assets or privatise, it is best to buy a few/all of them, rather than just concentrate allocation to one and hope for the best. Morph Investments owns shares in most of these companies.

[ghchua]

Hi karlmarx,

For deep value and asset heavy stocks like Bonvests, one have to be very patient in order to wait for the end game to be played out. In the meantime while waiting, there is still a dividend yield to be collected though their yield is not high with the exception of Hotel Grand Central.

Though ROA of Bonvests operating busineses is low, there are surprises along the way via disposal of assets, as shown in FY2016 and also earlier years. Similarly, Hotel Grand Central have shown instances whereby they have disposed assets for good gains and given out special dividends along the way.

I believe that the controlling shareholder of Bonvests might come again to privatise the company in the future. We just don't know when it will happen. In volatile times like this, it is good to have some allocation in these stocks as they will not fall as much as the general market since earnings expectation of these stocks had been low to begin with. And hopefully, the option of a corporate action or asset sale will give us an upside somewhere in the near future.

[lavue]

Hi lavue,

Why did you said that their investment in Cordlife soured? FY2016 disposal gain of $30.087m from financial assets were mainly from their stake in Cordlife. I thought it was a master stroke by them. Securing board seat at Cordlife and forcing the buyer to "show hand" and bought most of their stake in the company.

Bonvests sells 10% stake in Cordlife for S$43m
https://www.businesstimes.com.sg/compani...e-for-s43m

Yes I didnt check properly on this. You are correct. Bonvest and Tai Tak liked how the previous CEO was shoring up cash and paying out dividends to shareholders. They didn't like the circumstances surrounding his departure/dismissal. They thought that board won't be able to represent their interests well, and so they demand for board seats - which they got. They then got Nanjing Xinjiekou Department Store to buy out their shares for $1.67, which is a >30% premium over the closing price, and an even bigger one over their average purchase prices.

Very astute!

[karlmarx]

Hi karlmarx,

For deep value and asset heavy stocks like Bonvests, one have to be very patient in order to wait for the end game to be played out. In the meantime while waiting, there is still a dividend yield to be collected though their yield is not high with the exception of Hotel Grand Central.

Though ROA of Bonvests operating busineses is low, there are surprises along the way via disposal of assets, as shown in FY2016 and also earlier years. Similarly, Hotel Grand Central have shown instances whereby they have disposed assets for good gains and given out special dividends along the way.

I believe that the controlling shareholder of Bonvests might come again to privatise the company in the future. We just don't know when it will happen. In volatile times like this, it is good to have some allocation in these stocks as they will not fall as much as the general market since earnings expectation of these stocks had been low to begin with. And hopefully, the option of a corporate action or asset sale will give us an upside somewhere in the near future.

Hi ghchua,

I completely agree with your points. If one is not in a hurry to make gains, stocks like Bonvest which offer a 2% dividend yield, low downside, and possible large gains in the future, are definitely attractive. 

During periods of sustained market correction like now, holders of stocks like Bonvest will also have the option of switching to other stocks that might be more attractive to them, without selling at a loss. 

These qualities make such stocks useful in a defensive portfolio. Of course, this is provided one had not purchased them at a high valuation.

[weijian]

Bonvest is similar to the other listed companies like Isetan, Hotel Grand Central, Hotel Royal, and Second Chance Properties; all of whom possess valuable real-estate. Amara, AF Global, and Centurion are heavy real estate owners too, but their debts are also more significant.

All of them generate low ROA of 1% to 3%, though some generate higher profits (and hence dividends) through leverage.

Most of them trade at a large discount to book value because they show no/little motivation to dispose the valuable real estate and distributing the proceeds to shareholders.

Occasionally, one of them will dispose an asset, or privatise the company. I won't call them value traps, because sooner or later, a new CEO/owner will come in with new ideas and so on. The value will eventually be unlocked, it just depends on whether one will still be around then.

Since it is hard to tell which will dispose assets or privatise, it is best to buy a few/all of them, rather than just concentrate allocation to one and hope for the best. Morph Investments owns shares in most of these companies.

Hi Karlmarx,
Thanks for the healthy reminder. Frequently we focus on the "asset selection" portion of value investing, but frequently forget the "asset allocation" portion.

[pianist]

Just curious, regarding the revocation of proposed 1 cent dividends for fy2019 (reduced from 1.6cent in the previous fy) , does this revocation needs to be tabled in the agenda for the coming AGM?

[opmi]

The final div is usually approved via a resolution at the AGM. If it is not approved, just need to remove their resolution can already.

The above is just to give notice that the resolution taken down and inform the shareholders.

This has not stopped Ngo from buying Bonvest shares...hahaha

[pianist]

This is a bad precedence, imagine all companies follow suit to not fairly reward stakeholders for the better 2019 performance

[ghchua]

The final div is usually approved via a resolution at the AGM. If it is not approved, just need to remove their resolution can already.

The above is just to give notice that the resolution taken down and inform the shareholders.

This has not stopped Ngo from buying Bonvest shares...hahaha

I think there is a misinterpretation here. It is not a case of whether the dividend resolution had been put up to shareholders for approval. In this case, it is recission of dividend resolution so it won't be presented at the upcoming AGM for approval.

Anyway, the controlling shareholder have a say. Even if it is put up as a resolution for approval at the AGM, it won't be approved if the controlling shareholder had voted against it.