Thursday, April 30, 2009

Cacola International - AGM

This is an update on Cacola Furniture International after the AGM which was held on 29 April 2009.

There had been several adverse developments recently:

1st
The chairman and founder Chau Yeung Chau @ Zhou Dagui reduced his shareholdings from 50.63% to 27.72% on 23.10.2008 at a price of S$ 0.20 per share. (Net cash per share at that time = $ 0.146, Net book value per share = $ 0.243)

As a founder and chairman of a company, he should clearly know how much the company is worth. It is absurd to sell his shares at $ 0.20 in a market downturn unless he had a good reason, However, no details had been given so far and he didn't turn up on the AGM, Shareholders had tried to enquire about this in the AGM but we were not satisfied with the answer given by the board.

Generally, there are good reasons as well as bad reasons for this to happen:

1. Urgent need of money for whatever appropriate reasons. (eg. losses on personal investment)

2. To suppress the share price and to fool other shareholders, then buy back at a cheap price.

In the case of Cacola, i do not have any conclusion currently.

By comparing the shareholdings statistic in the AR, the only thing i learned about the buyers of those shares was that they hold their shares through UOB Kay Hian Pte Ltd. I did not know why these substantial shareholders were not required to make disclosure and i felt that it was their intention not to let us know.

2nd
Suspicious amount of RMB 86 million classified as other receivable, for initial set-up costs of new home decoration business by the 'potential associates'. It is surprised to see that a company can give RMB 86 million (one-fifth of their net worth) to 'potential' associates.

When i questioned the board on this issue, the board provided some explanation and assured that the RMB 86 million would be recovered by the end of 2009.

3rd
Financial controller resigned in March. The board is still in the process of searching suitable candidate.

4th
The management of Cacola had issued two negative profit guidances for 4Q08 and 1Q09.
In my humble opinion, this move was not necessary as this would only further shaken shareholders' confidence. The guidance itself did not provide any figures and this would create unnecessary 'fear' to the shareholders between the period of the release of guidance and the release of actual results.

Between, the board mentioned that the 1Q09's result was only about half compared to 1Q08.

5th
Trading halt on 28/4 -29/4 due the service of a writ of summons on subsidiary.

6th
Neither Chairman nor CEO of the company attended the AGM.



All of the above events have a common characteristic, which is that it exerts a huge pressure on share price of the company. Share price just keep falling even though Cacola has a net cash per share of SGD 0.11.

I have to admit that this is my mistake as i have been over focused on the net cash V.S. market capitalisation and have been over relied on bottom-up measures. I realised the importance of management's factor in estimating the investment value of a company. Management's integrity and its willingness to communicate with shareholders are vital, otherwise cash piles could disappear overnight.

Overall, i still believe that a portfolio consist of 10 stocks which are significant discounted to their net cash value would do well in the long term.


This is not a recommendation to buy or sell Cacola or any other stocks. This write-up is just for reference.

2 comments:

Elliot said...

why the net cash per share and net book value per share have such a big different? what are them?

Sechai said...

If you take a look at their 2008 annual report, you will find that the difference composed of:
Property, plant and equipment - RMB 65M
Prepayments, other receivables and deposits paid - RMB 93M (This is the item no.2 i discussed above)