I spent a few hours yesterday studying about Bamboos Well being Care Holdings (2293.HK). Hong Kong is a spot the place I’m nonetheless discovering a lot of attention-grabbing shares to have a look at and Bamboos caught my eye as a result of it seems fairly low-cost at first look.
This firm illustrates properly why I discover Hong Kong such a difficult place to speculate. There plenty of seemingly screaming bargains to be discovered, however usually I’m left questioning what is basically happening there behind the scenes. Sadly, there are hardly any individuals digging deep into these micro-caps in Hong Kong, so I’m left with questions and there seems to be no actual option to get solutions.
Ultimately I believed, why not simply write a publish about it? I’ll simply record crucial questions and points that I see. Maybe considered one of my you has one thing to say concerning the firm. You are able to do this by leaving a remark, however it’s also possible to contact me here when you desire e-mail.
Abstract monetary information
Bamboos is a supplier of healthcare staffing options in Hong Kong to people and institutional prospects, like hospitals and clinics. The corporate went public in 2014 on the GEM (Progress Enterprise Market) market in Hong Kong. In March of 2017, they delisted from the GEM market and transferred to the Fundamental Board of the Hong Kong inventory market.
Some abstract monetary information about Bamboos:
Share worth: $0.80 HKD
Excellent shares: 400.0m
Market cap: $320m HKD (~$41.3m USD)
E book worth (June 30, 2020): $153.3m
Monetary property: $28.4m
Complete liabilities: $28.6m
Internet revenue fisc. 2020 (ended June 30, 2020): $30.7m
Internet revenue fisc. 2019: $38.9m
This seems fairly enticing: the corporate has $100m+ in money, there’s an additional $28m in different monetary property and also you’re at the moment paying round 10x earnings. As a staffing supplier, capital expenditures for the corporate have been minimal. For fiscal 2020, capex was solely $2.6m and the 12 months earlier than simply $0.2m. In the event you look again additional, you’ll see the identical image.
Why is the corporate shopping for these things?
After this snapshot, I checked out some filings on HKEXnews. The very first one was a few disclosable transaction concerning the acquisition of non-physical gold (.pdf). In late November, the corporate spent $20m to purchase 11,870 mace troy of non-physical gold from Hold Seng Financial institution (0011.HK). And in another filing a couple of weeks earlier, the corporate introduced an extra $18.3m gold buy.
The disclosed causes and advantages for this transaction:
[…] for the aim of enhancing effectivity of use of idle money enhancing effectivity of use of idle money […] The Administrators contemplate that the Acquisitions present the Group with the chance to stability and diversify its funding portfolio. Having thought-about, amongst others, the low rate of interest atmosphere, the instability of world financial atmosphere and the value efficiency of gold, the Administrators contemplate that the Acquisitions are steady investments which might safe the Group from foreign money debasements and inflation in instances of uncertainty. The monetary merchandise are chosen prudently with an purpose to enhance the Group’s effectivity on capital utilization with out affecting the Group’s each day money circulation.
I’ve checked out loads of firms which have plenty of extra money, however very not often have I seen an organization do one thing like this. I’m not an enormous fan of firms making a lot of these investing selections with extra money. The precept must be to spend money on your core enterprise and return extra money to shareholders. After I noticed this submitting, I checked out different issues they’ve accomplished with their money.
It turns on the market’s some extra unique stuff:
On April 6, 2020 the corporate disclosed that they spent $13.3m to buy two senior notes (.pdf) issued by Jiayuan Worldwide Group (2768.HK). The coupon fee on these notes is 13.75%. Jiayuan Worldwide is a Chinese language property developer with what seems te be fairly a big debt load. The said function of the acquisition was as soon as once more “enhancing effectivity of use of idle money”.
What’s additionally a bit unusual is that these investments have been made by a wholly-owned subsidiary referred to as Bamboos FinTech Restricted. Within the newest annual report the principal actions of this subsidiary are described as “funding holding”. I went again and checked out earlier studies and Bamboos FinTech first appeared in fisc. 2018 as a dormant subsidiary. I couldn’t discover any separate disclosures concerning the institution of this subsidiary. The primary investments by Bamboos FinTech have been solely made throughout fisc. 2020 when the subsidiary grew to become lively.
Shopping for non-physical gold from a financial institution and senior notes from a Chinese language property developer don’t have something to do with “FinTech”, as traders perceive that time period. Why would you determine a subsidiary with that title, hold it in a dormant state for a couple of years after which begin making a lot of these investments?
Why is the corporate public?
Bamboos went public in 2015. The corporate did a placing of 100m shares (.pdf) at a worth of $0.50 per share. The online proceeds after charges and bills have been $39.8m. So the prices incurred have been $11.2m – or 22.4% – of the $50m the corporate sought to lift. That looks like an enormous share to me. As an insider you need to have an excellent purpose to pay such a comparatively giant value to do a putting.
Web page 12 of the prospectus (.pdf) exhibits how the corporate deliberate to make use of the proceeds from the putting:
The quantities wanted for any of the subsequent three fiscal years appeared very modest. About $7m for fisc. 2015, one other ~$16m for 2016 and ~$11m for 2017. The corporate was already properly worthwhile and money generative by then: in 2012 and 2013 internet revenue was $13m per 12 months (web page 249). What’s much more notable is that the corporate had $33.7m in money as of Dec. 31, 2013 (web page 246) and solely $9m of debt (web page 247).
Evidently there was no actual want for this enterprise to lift money at that time. They may have simply accomplished the investments they talked about by utilizing future internally generated funds and/or the money on the stability sheet.
Insider Ms. Hai Hiu Chu owned 300m shares and Mr. Kwan Chi Hong owned 30m. Why would they dilute themselves by putting 100m new shares? One purpose may very well be that the putting was accomplished at a really excessive worth, but it surely doesn’t actually look that option to me. On the ultimate putting worth of $0.50, the market cap of the corporate was $200m. Take out the surplus money and searching on the earnings at the moment, the earnings a number of seems very cheap. Internet of money the corporate traded at round 13.5x earnings. In the event that they anticipated earnings development over the subsequent few years, then the choice to put shares seems like a foul one from their private standpoint, even ignoring the prices related to the putting, the prices of being public, and many others. That earnings development has really materialized, the corporate has proven earnings of $30m+ a 12 months since fisc. 2017.
All in all, the share putting doesn’t make a lot sense to me. I’m unable to actually reply the query why this firm went public.
HRnetGroup Restricted buys Kwan’s stake
In Could, 2019 a Singapore listed firm HRnetGroup Restricted (CHZ.SI) disclosed the acquisition of 30m shares at a worth of $1.40 per share. In a submitting on the identical date, Mr. Kwan Chi Hong reported the sale of 30m shares on the identical worth.
I believe that raises some questions for HRnetGroup shareholders. Are they snug with their firm investing on this Hong Kong firm and shopping for this stake from an insider?
A optimistic truth is that Bamboos has constantly paid dividends since its IPO. For fisc. 2020 this amounted to $30m, which is a really substantial quantity for this micro-cap. In earlier years they paid out $10m-$20m. Thus far, the corporate has paid out extra cash to shareholders than they raised, however they did have already got $30m+ on the stability sheet on the time of the itemizing. Regardless, it’s a very good signal to see a Hong Kong listed firm paying out giant dividends. It is a sign that the corporate does generate money.
Bamboos Well being Care Holdings is simply an instance of a Hong Kong firm that appeared very promising to me initially, however the place the share worth additionally displays some skepticism from traders.
I believe that skepticism is warranted on this case. The investments in gold and the notes, the “FinTech” subsidiary that has nothing to do with Fintech, no convincing causes for the share putting – these items all depart me with questions that I’m unable to reply. It ought to nonetheless be attention-grabbing to comply with the corporate and see what different investments they make sooner or later.
Disclosure: no place in Bamboos Well being Care Holdings or HRnetGroup Restricted