Kingboard Copper Foil Holdings Limited

SGX:K14 – 0,275 SGD

Kingboard Copper Foil Holdings Limited is an investment holding company. The Company has two operating divisions, which are polyvinyl butyral (PVB) business and license business. PVB business includes manufacturing and trading of PVB and related products, and License business includes earning license fee income from its licensed assets. Its subsidiaries include Blue Atlas Limited, Hong Kong Copper Foil Limited, Fogang Kingboard Industry Ltd, Kingboard Chemical Investment Limited, Kingboard Chemical Investment (Hong Kong) Limited, Chung Shun Copper Foil (MCO) Limited, Kingboard (Fogang) Specialty Resins Limited, Kingboard (Lianzhou) Copper Foil Ltd and Jiangxi Hong Feng. – Google Times.

1. Adequate margin of safety (criterion a) or b) must be met): 

a)

• P/NCAV < 1x
  • 0,72x ✓

&

• EV/Operating earnings(5y&10y) < 3x
  • 5y =  -10,1x ✓
  • 10y = -3,4x ✓
    • Negative EV and positive operating earnings 5y and 10y.

b)

• P/NCAV < 0,75x
  • 0,72x ✓

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):

a)

• Debt/Equity < 25 %
  • 0 % ✓

b)

• Z-score ≥ 3
  • 6,55 ✓

2.2 The company’s business model is not totally unprofitable (criterion a) or b) must be met):

a)

• Positive retained earnings:
  • 1,468 MHKD ✓

b)

• Positive aggregate operating income for the last ten years:
  •   1,182 MHKD ✓

3. The company does not have a shareholder unfriendly capital allocation:

• Shareholder yield TTM ≥ -2 %
  • Dividend yield TTM = 0 %
  • Net buyback yield TTM = 0 %
  • Net debt paydown yield TTM = 0 %
    • =  0 % ✓

Other notes:

• P/Net cash = 0,8x
• P/TB = 0,4x
• NCAV-burn rate Qx – Qx-4 (YoY) and Qx – Qx-1 (QoQ)
  • Qx – Qx-4 = +6 %
  • Qx – Qx-1 = +1,7 %
• The parent company Kingboard Laminates Holdings Ltd. (listed on Hong Kong stock exchange) own 65,9 % of K14.
  • Shareholder structure.
• Potential buyout catalyst:
  • The company just recently held a special general meeting where they voted for a change in their memorandum of association as well as a share buyback mandate for 10 % of the share outstanding. In relation to this there is a an appeal to take place in March which might change the outcome and the earlier decision of redemption of shares that was decided. Regarding the redemption of shares there is not jet an agreement regarding the valuation for the redemption of shares. With the recent voluntary implementation and approval of the buyback mandate it seems that there exist a conviction from Kingboard that their appeal in March is not going to end in their favor. Therefor they might just start buying back shares at the current market price since the valuation of redemption is likely going to be a lot higher than current market price. To read more about this I recommend two articles:
    • KINGBOARD COPPER FOIL: Will there be a redemption and general offer?
    • KINGBOARD COPPER FOIL: “Privatisation a just measure to settle legal dispute”
• K14 is a micro-cap stock: 144 M$ in market capitalization. The trading is illiquid.

Disclosure: The author is long SGX:K14 when this analysis is published.