(08-10-2011, 04:15 PM)d.o.g. Wrote: [ -> ]Qiaofeng Wrote:He referred to Peace Mark in his speech.
I was also vested in Peace Mark thru the scrips given out by Sincere when they delisted; the takeover was a combi-offer of PM scrips and Cash.
Altho I made quite some money from the cash portion, I am left holding worthless Peace Mark scrip when they collapsed.
According to Cheah Cheng Hye, he is still looking for the scion of the majority owners of Peace Mark .
I looked at Peace Mark a while back. Anyone doing an Excel spreadsheet on it would have realized something was very wrong given the persistently negative free cash flow and continuous share placements (154m shares in 2000, 993m in 2007).
Despite reported profits rising over 17x(!) in 7 years, from HKD 17m in 2000 to HKD 300m in 2007, book value per share was actually LOWER after 7 years, HKD 1.82 in 2007 versus HKD 2.91 in 2000. So despite the reported accounting profits, the management had actually destroyed shareholder value due to excessive share placements.
Other fishy signs: the continuous rise in gross margins (13% in 2000, 32% in 2007), and the continuous rise in ROE (4% in 2000, 17% in 2007).
IMHO the failure of Value Partners to avoid the Peace Mark debacle suggests a weakness in their "mass manufacturing" approach to investing. In my personal view, it is not realistic to hand a checklist to someone fresh out of school and expect them to become a competent investor immediately.
My thots….
1) Peace Mark (PM) when it took over Sincere initially wanted to keep it listed. That was in Dec 2007. Then it did an about-turn, choosing to delist for 80% cash and 20% PM scrips; paying SGD 2.564/shr.
In delisting they kept Tay Liam Wee (TLW) on the PM Board and allow him to manage Sincere Ops.
http://www.sincere.com.sg/about/AnnualRe...esults.pdf
It was buying Sincere at P/E 22X & P/B 3.5X, perhaps a tad too high, implied goodwill was perhaps too generous.
Having collected most of my Sincere shares at SGD 1 and less, I was happy to accept the offer and the PM shares.
But, that was when complacency set in and oversight took over.
I did not pour over the B/S of PM like you did. Sitting on profit, I only did a qualitative type assessment of the PM biz. The rich Chinese had an insatiable appetite for luxury watches and were key buyers in HK and Sg. PM had just taken over a watch movement manufacturing company (rivaling Seiko) and seemed overly ambitious. The expansion in China seemed overly rapid and risky since Chinese were buying overseas and NOT in China (due to sales tax and authenticity problems).However, my conclusion was that Sincere and TLW must have done due diligence before coming on board and that they will be there to iron out the kinks.
Sincere, IMHO, was a reasonably well run biz, reasonable FCF, backed by dividends with a shrewd niche marketing and incremental targeted expansion strategy.
2) By Aug 2008, PM was suspended by HKEx, by Sept 2008, liquidators were appointed.
Apparently, PM 2 majority owners had pledged their shares and the syndicated loans fell thru when the rumors about this spread and it was were later substantiated that 30% of A1 shares was pledged. The shorts brought the share price from HKD 9+ (HKD14+ at time of takeover of Sincere) to HKD 1.50 (May 2008) . Carlyle took a look and rejected.
Rumors were also rife that Egana & PM was related and suffering similar problems. PM B/Ss was rubbished. With the accounts & B/Ss rubbished, PM was a gone case, the banks were pulling out of loans and leaving in a hurry.
3) To cut the long story short, PM was delisted. Sincere Watch operations were ringfenced and TLW eventually partnered LVMH to re-boot Sincere. Chow Tai Fook bought the HK & Chinese retail & distribution operations.
With Hind sight
I guess for an investor you can go visit the operations, kick tyres, visit the watch making operations, check out their retail outlets etc.
But if the accounts are fake and that pertinent facts like pledging of shares not disclosed -- what can you do?
From the proposal on the SGX to delist in Apr 2008 to the collapse in prices in May 2008, the speed of PM fall was just too fast for any investor to react. The rumor mill and the media simply took over.....