DHL/SCMP's Sell Signal
12 December 2001
A word of advice to this year's winners of the DHL/SCMP Business Awards: keep quiet about it! As we endured a particularly boring swansong speech on Thursday night by Mr Po Chung, founder of DHL International, who told us of all the awards that he and his company would have won if they had not been conflicted by sponsoring the awards in the first place, we couldn't help wishing that he had taken the awards anyway rather than give them to some of the budding corporate basket cases who have won in the past.
The awards have been going 12 years now and, rather bravely, the organisers saw fit to remind us of the winners of the 1990-2000 awards in the centrefold of the evening's brochure. All the way through Mr Chung's speech, we couldn't stop laughing - we were thinking about how to write this article!
For the purpose of measuring the post-award performance of stocks, we'll assume that the judging decisions were made on the last trading day of November each year, in time for an announcement in December. As you will see, for some stocks, it doesn't matter what date we pick - they lost 100% and went bust.
From the start in 1990 there were four main awards meant to represent the crème de la crème of Hong Kong business. They are the Young Entrepreneur Award, the International Award, the Enterprise Trophy and the flagship Businessman of the Year Award. In 1992 they added the Executive of the Year Award, taking the total to 5 main awards each year.
Let's kick off in 1990, which saw James Ting, founder of Semi-Tech (Global) Ltd, pick up the Young Entrepreneur award. That company was later renamed Akai Holdings Ltd and went on to record the biggest loss in HK corporate history of US$1.73bn in the year to 31-Jan-00 before going bust. It then emerged that management control of its entire business was delegated to another listed company on 12-Nov-99 without informing shareholders. The press release by the liquidators makes interesting reading.
Also in 1990, Peregrine Capital Ltd, a subsidiary of Peregrine Investment Holdings Ltd, won the Enterprise Trophy. If you don't know what happened to PIHL, then words like "incompetence" from the pen of the inspector appointed to investigate its collapse in 1998 will enlighten you.
In 1991, Businessman of the Year went to pro-democracy activist (we're kidding) Gordon Wu, of Hopewell (Holdings) Ltd, which went on to lose buckets of money in South-East Asian infrastructure projects and earned the nick-name "Hopeless Holdings". The stock closed at an adjusted $15.125 on 29-Nov-91, peaked at $50.50 on 31-Dec-93 (at the height of a bubble in Chinese infrastructure plays) and yesterday closed at $4.725, down 69% in the 11 years since the award and 91% from its high.
Mr Wu famously remarked in Mar-00 that if Martin Lee, head of the Democratic Party, had been Chief Executive of Hong Kong, then "the Hang Seng Index would have dropped to 3,000 and we wouldn't be able to enjoy a relaxed meal today". Let's be thankful that Hopewell wasn't the only stock in the HSI in 1993, or it would be a lot lower now. Hopewell was evicted from the index on 6-Dec-99.
In 1992, the Young Entrepreneur Award went to Eddy Tsang Man Chung, Chairman of Ocean Information Holdings Ltd, listed on 15-Apr-92. That company has been through two name changes and changes of control since then, and is now known as Capital Strategic Investment Ltd. It closed on 30-Nov-92 at an adjusted $1.335, and yesterday at $0.229, down 83%.
In 1993, the Young Entrepreneur Award went to Siegfried Lee Siu Fung, founder of Siu Fung Ceramics Holdings Ltd. That company recorded a loss of HK$1.44bn in calendar 1998 and went into liquidation last year after several aborted rescue attempts. It was finally delisted on 10-Dec-01.
The Businessman of the Year award went to Cheng Yu-tung, Chairman of New World Development Co Ltd, now a highly indebted company which closed on 30-Nov-93 at $27.30, peaked at $58.75 on 8-Aug-97 and yesterday closed at $7.15, down 74% since the award and 88% from the high.
In 1994, the Young Entrepreneur Award went to Matthew Koon Wing Yee, President & CEO of Easyknit Enterprise Co Ltd, a private company which went on to listing on 30-Jan-95 as Easyknit International Holdings Ltd. It came undone in 1998-99, recording a total loss of HK$1.92bn in the 2 years to 31-Mar-99. Umpteen rights issues later, the company is still around, but from an adjusted price of $5.604 on the first day of trading, it closed yesterday at $0.144, down 97% since IPO.
Not content with just awarding Mr Koon, the judges also awarded a certificate of excellence to Alfred Siu Wing Fung, Chairman of Australian-listed OLS Asia Holdings Ltd, a subsidiary of which, OLS Group Ltd, was floated on 26-Jun-97. Both parent and subsidiary were taken over in 1999, and the Hong Kong company is now known as Prosper eVision Ltd. The Australian parent lost about HK$100m punting the equity market in the 1997 crash, and then it turned out that between 1-Jul-97 (4 days after the float) and 28-Feb-98, the HK subsidiary had made payments totalling over HK$46m to or on behalf of its parent in breach of the listing rules, including payment of an interim dividend on behalf of OLS Asia in Oct-97. Mr Siu and several of his board were censured by the Stock Exchange on 16-Mar-99.
In 1995, the Young Entrepreneur Award went to W.W. Wong, Chairman of Gilbert Holdings Ltd, a linen company which went bust in 1999, with a net deficit of HK$1.45bn.
In 1996, the Enterprise Trophy went to privately-held KPS Retail Stores Ltd, which went bust in Oct-98 leaving thousands of video-rental coupon holders as unsecured creditors (unless they kept the tapes), after a last-ditch effort to get consumers to "burn" their coupons by setting an expiration date.
In 1997, Businessman of the Year went to Dickson Poon, Chairman of Dickson Concepts International Ltd, a company which now has a long history of controversial connected transactions with Mr Poon and his private companies. Mr Poon had also won the Young Entrepreneur Award in 1991 and Dickson Concepts won a minor International certificate of excellence award in 1996. The shares reached a monthly peak of $29.40 on 29-Aug-97, crashed to $14.50 by 28-Nov-97 and yesterday closed at $1.98, down 93% from the high and 86% from the time of the top award.
In 1998, Businessman of the Year went to Allan Wong, Chairman of cordless phone and educational toy maker VTech Holdings Ltd, which also won the International Award in 1996. The company went on to make a disastrous acquisition in the US and its stock has fallen from $33.50 on 30-Nov-98 to $6.20 yesterday, down 81%.
In 1999, the judging panel clearly had phones on the brain and awarded the Businessman of the Year Award (or should that be undergraduate of the year?) to Richard Li, Chairman of PCCW, with Executive of the Year going to Linus Cheung, CEO of Cable & Wireless HKT. If you were a shareholder in either company then you don't need reminding of how the stock price collapsed after their merger financed by a combination of PCCW's hot-air paper and piles of debt. Between them, billions of dollars of shareholder wealth has vanished.
Not content with just PCCW/HKT, in the same year the panel gave the Enterprise Trophy to Ricky Wong's City Telecom (HK) Ltd, which on 30-Nov-99 closed at $7.35 per share. Yesterday it closed at $0.80, down 89%. To round things off, the Young Entrepreneur of the Year went to Ian Henry and Peter Hamilton of China.com, which closed on 30-Nov-99 at US$$112 and yesterday at $2.58, down 98%.
In 2000, Business Man of the Year was Patrick Wang of Johnson Electric Holdings Ltd, a quality company which reached excessive valuations. Mr Wang had previously won the Executive of the Year award in 1995. It closed on 30-Nov-00 at $14.70 and yesterday at $8.30, down 44%. The International Award went to Li & Fung, whose listed shares fell from $16.30 on 30-Nov-00 to $9.05 yesterday, also down 44%. In the same period, the Hang Seng Index fell just 16%. Victor Fung, of Li & Fung, was Businessman of the Year in 1995, and his brother was Executive of the Year in 1993.
2001 - Winners Beware!
If you were a recipient of this year's awards (we'll spare you the embarrassment of naming you), having read this article, you may wish to reconsider whether the award is something you want to mention in your annual report. Don't let it go to your head - best to ignore it and focus on running your business and generating shareholder value.
Of course, there have been a few exceptions to the rule, and the judges have on occasion picked people and companies which are still successful today, such as Li Ka-shing (1990), HSBC and Boto (1992) and Esprit Holdings (1998). There are also a number of awards to private companies for whom success is more difficult to measure, and a number of "safe" awards to people who were soon to retire, such as Swire's Peter Sutch (Businessman of the Year 1996), Hang Seng Bank's Lee Quo Wei (1994) and HSBC's William Purves (1992). Another went on to be Financial Secretary - Anthony Leung won Executive of the Year award while at Citibank in 1994.
However, the list of past award winners contains a disproportionate number of abject failures, corporate governance basket cases and simply over-hyped stocks. Unfortunately, a list of past judges was not published, so they are spared that embarrassment unless anyone would care to send us one!
Let's put it this way - a successful investment strategy in the past would have been to sell short the listed winners of these awards for the long-run. Perhaps some fund manager would care to set up the DHL/SCMP Short Fund in their honour.
© Webb-site.com, 2001