Thursday, February 2, 2017

This Singapore Counter Is Learning To Fly In The Next Few Months!

My quirky investment methods has bought me another interesting counter.

By exploring different ways of screening for counters, I chanced upon Ocean Sky International Ltd.


What caught my attention was the business activities - Ocean Sky International Ltd - stated on the SGX Website!

"Ocean Sky International Limited, an investment holding company, through its 100% interest in Ang Tong Seng Brothers Enterprises Pte. Ltd., provides building and civil engineering contracting services primarily in Singapore and Southeast Asia. The company offers engineering services, such as earthwork, roadwork, drainage work, basement work, and structural works comprising demolition and underground infrastructure works, as well as other general building works. It also invests in, develops, and manages properties. The company was incorporated in 1988 and is headquartered in Singapore."

I remember Ocean Sky International Ltd (OSI) was in the apparel business. So why is it in the construction business now?

I decided to dig and dig and I came up with this timeline...

07 Jan 2013 - OSI disposed off its apparel operations.

30 Sep 2013 - Cash Offer by Ezion Holding Limited

12 Feb 2014 - Failed Acquisition by Ezion Holding Limited (Yes, a whole year of negotiation)

25 Mar 2015 - Proposed Acquisition of Link (THM) Holdings Pte Ltd and 2:1 Share Consolidation

27 Feb 2016 - Transfer from Mainboard to Catalist

25 Mar 2016 - Lapse of the Long Stop Date of the proposed acquisition of Link (THM) Holdings Pte Ltd (Yes, another failure!)

29 Aug 2016 - Effective Date of Transfer to Catalist is 1 Sep 2016

21 Sep 2016 - Proposed Acquisition of the remaining 70% of an associate (Ang Tong Seng Brothers Enterprise Pte Ltd) and Proposed Share Consolidation 2:1 (YES, AGAIN)

21 Nov 2016 - Share Consolidation Completed (224,720,522 New Shares)

30 Nov 2016 - Completed Acquisition of the remaining 70% of the associate. (So fast!)

At this point, I am amazed by the various failed attempts over 2 years and the eventual complete acquisition of the associate, Ang Tong Seng Enterprise Pte Ltd, at last after a full 3 years.

However,  it is important to note that the fast execution of the acquisition of the remaining 70% of Ang Tong Seng Brothers Enterprise Pte Ltd, was because the former was a related party of OSI. The CEO of OSI was one of the key management of Ang Tong Seng Brothers Enterprise Pte Ltd. Furthermore, it was important to note that the number of shares will be increased to 324,940,302.

If you knew me, you will have guessed that I will have given up on this counter since the complete acquisition was a related party.

However, I bought OSI on 1st of Feb 2017.

BUT WHY?

The reasons as per below:

1. Margin of Safety

Balance Sheet of 3rd Quarter 2016
Investment Property - This is a piece of freehold land in Cambodia, that they have rented to a lessee for 20 years at US$720k per year from Jan 2013. This will have provided OSI with a total cashflow of US$11.5 Million for the next 16 years.

Investment in Associate - This figure post acquisition should be S$10 Million as per announcement based on the net tangible figure. In addition, it also reported that the net profit for 2016 is S$2.5 Million, which is equivalent to US$1.85 Million (US$1 : S$1.35). Therefore, for this figure we can estimate it as US$9 Million ($10,000,000 / 1.35 + $1.85 Million).

Fixed Deposit - This amount should be deducted fully due to the cash payment of S$9.6 Million to Mr Ang Boon Cheow Edward and Mr Wong Siew Hui. The excess should be able to cover the total liabilities figure.

Cash and Bank balances - No Change.

All Liabilities - Deem to be cleared using the excess cash from the Fixed Deposit.

Net Asset per Share -  (US$11.5 Million + US$9.0 Million + US$7.968 Million) / 324,940,302 = US$0.0876

This will be equivalent to S$0.118, which is a 36% of buffer against the share price of $0.076 at the end of 31 Jan. 

2. Continuous of Earnings

Do note that Ang Tong Seng Brothers Enterprise Pte Ltd has been earning US$2.0 Million in 2014 and US$2.3 Million in 2015 as per 2015 Annual Report. In 2016, although it is lower, the business has reported a net profit of S$2.5 Million.

3. Civil Construction Business

I am on the lookout for more Civil Construction Business to invest in, after divesting all of my TTJ Holding Limited shares. My belief is that, due to the continuation of the poor business environment, the civil construction business will continue to increase in 2017 and 2018. Since Ang Tong Seng Brothers Enterprise are in the civil construction business, the company will stand to gain.

4. Sales Shares at $0.132 per share

For the acquisition, "The Board wishes to announce that 93,061,224 and 7,158,556 Consideration Shares have been allotted and issued to Mr Ang Boon Cheow Edward and Mr Wong Siew Hui respectively at the issue price of S$0.132 on 30 November 2016 in accordance to the SPA. The Cash
Consideration has also been paid by the Company to the Vendors in accordance to the SPA."

The shares given to Mr Ang Boon Cheow Edward and Mr Wong Siew Hui, in excess of the Cash Consideration of S$9.6 Million, was issued at $0.132.

5. Moratorium of 6 Months

"Mr Ang Boon Cheow Edward has under the SPA undertaken to subject his 93,061,224 Consideration Shares under a moratorium, for a period of six (6) months from the date of Completion, on the sale, transfer, assignment and/or disposal of any of his Consideration Shares and provide a written undertaking to the Company and the Company’s sponsor for such moratorium, provided that he shall be entitled to sell any of his Consideration Shares in the event of any of the following events occurring:

(a) a general offer for all the shares of the Company under Rule 14 of the Takeover
Code;
(b) a reverse takeover under Rule 1015 of the Catalist Rules; or
(c) any change in control of the Company."

Therefore, within the next 6 months from completion, the CEO will not be selling any of his shares.

In Short

This investment is kinda of like a bet. The reasons 1 to 3 satisfy my view that the balance sheet will not deteriorate and I have a margin of safety BUT it will not allow the share price to fly.

In my opinion, the share price will only fly in the event the scenarios below are played out. 

Note that on 30 November 2016, the company has already completed the acquisition of Ang Tong Seng Brothers Enterprise Pte Ltd. 

Therefore, for the full year financial report out around end of Feb, I should be expecting a better result, possibility a net profit, and a totally different balance sheet then. I am also expecting the company to announce its book order then and amazed the public.

If these events happens, Ocean Sky International will be flying.

Current Price: $0.093 as of 02 Feb 2017.

Please do your own due diligence before you invest in this stock. The current price is due a purchase of 100 shares.

Do note the author is vested in this counter/company. 

Oh... and do remember, please like our Facebook page (T.U.B Investing) and follow me on InvestingNote.

No comments:

Post a Comment