Saturday, 8 December 2012

Maxwell's puzzling acquisition

Maxwell International Holdings Bhd. is one of the China-listed companies on the Bursa Malaysia. Although it's financial results are very good, potential investors are apparently not impressed, the share price is hugely down since its IPO:


The company is on track to make about 19ct per share net profit, in other words the share is trading at a PE of 1.7 only. Its balance sheet is rather asset light and it has RM 212 million cash.

If these numbers are indeed to be believed, then it would be very easy to unlock the value to a more realistic price:
  • By issuing a decent dividend, if it would pay 10ct per share that would translate to a whopping 31% dividend yield
  • By embarking on an aggressive share-buyback program
  • By the major shareholders buying large amounts of shares

All the above are actually happening, but in tiny amounts. Puzzling, and not exactly giving (much needed) credibility.

"Where is Ze Moola" wrote about Maxwell and noticed the very low interest it received on its cash. This is one of the known red flags with Chinese companies listed on the Nasdaq.

On December 4, 2012 Maxwell announced to acquire 92.5% of the shares of Lim Ying Ying Ltd (LYY) for HKD 15.6 million.

The main activities of LYY are rather ..... virtual:


The current shareholding structure of LYY:



Maxwell plans to buy the shares of the small shareholders, but that might be a tall order (from a legal point of view) with three of the six shareholders being deceased:

Bursa Malaysia asked for some much needed clarification, and the company provided the following data:


These numbers do not look very impressive, to say the least, the company is making losses in each of its last three years.

Also, the data of December 31, 2011 is almost exactly one year old, Maxwell should have provided some numbers over 2012.

And lastly, LYY owns half of the beneficial interest of the "Hang Fung Property", that property will be excluded from the deal, but most likely this property does generate income, are those numbers excluded from the profit numbers? I doubt it, since it is only explicitly excluded from the Net Assets.


To end with, the following, rather puzzling, statement:

"Madam Li Kwai Chun’s role in the Proposed Acquisition is to guarantee the full completion and observance of all the terms and conditions of the Sale and Purchase of Shares Agreement by the Purchaser. Accordingly, she is not deemed to be interested in the Proposed Acquisition."

If she guarantees this all (for any financial consideration?), then it sounds to me she is interested in the acquisition.

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