Kamboat and CITIC 21CN bubbles
23 March 2005
What on earth is going on at loss-making Chinese restaurant and bakery firm Kamboat Group Company Ltd (Kamboat, 0318)? As we write this, the stock is closed for lunch at $2.075. There must be much merriment down at the restaurants today. Perhaps they are having a good old stir-fry.
The stock was suspended on 7-Feb-05 at HK$0.40 per share pending an announcement. On 21-Mar-05 Kamboat announced that it proposed to issue 5,400m shares at $0.01 each to raise $54m. There are only about 100m shares in issue, so this represents an increase of 5,400%. At 31-Oct-04, Kamboat had unaudited net tangible assets of $89.5m, or about $0.89 per share.
5,130m of the new shares will go to a BVI company owned by David Vong Tat Leong (Mr Vong), and 270m shares to another BVI company owned by Ms Zeng Shuying. Kamboat has no plans on how to spend the issue proceeds, so send them your suggestions.
Mr Vong was Vice Chairman of CITIC 21CN Co Ltd (0241), from 18-Jul-03 to 30-Oct-04. This company has a 49% stake in a Chinese short messaging service (SMS) and interactive voice response service (IVRS) system, selling data to phone users in China. In our opinion, this is another bubble stock. Trading today at $3.175, it has a market capitalisation of $10.49bn but shareholders' funds of only $0.23bn at 30-Sep-04, or about $0.07 per share. It returned to profit in the first half to 30-Sep-04, making $11.6m on a turnover of $126m, most of it through the joint venture. If you double that for the year, you get a P/E of 452.
If the Kamboat deal completes, the current market price implies an astronomic market value of $11.41bn, or about 81 times net tangible assets of only $0.14bn, which is about $0.025 per share. The deal is conditional on numerous approvals, any one of which could result in it being scrapped.
Now there are two possibilities here. Either the deal proceeds, in which case we think the shares are worth about $0.02, and investors could lose 99% of the current price, or the deal does not proceed, in which case you have shares in a loss-making restaurant and bakery chain currently trading at more than 5 times the price before this deal was announced. Either way, you lose, it's just a question of how much. So anyone who buys the stock today can only be gambling that a greater fool will pay more for them without any fundamental reason to do so.
There is no lock-up on the current controlling shareholder, and if we were them, we would be taking the opportunity to unload stock at prices that we are unlikely to see again.
Another Kamboat shareholder with the ability to profit from the rise is David Tam Shong Tak, who on 27-Sep-04 subscribed for 9.096m new shares, or 9.09% of the enlarged share capital, at $0.44 per share. He is a partner of Canadian law firm Parlee McLaws LLP, and was a non-executive director of GEM-listed Kinetana International Biotech Pharma Ltd (8031) until 23-Nov-04.
On 24-Mar-05, David Tam Shong Tak filed a disclosure with SEHK stating that he had disposed of his entire shareholding in Kamboat in an off-market transaction at $0.32 per share. The transaction was dated Tuesday 22-Mar-05, the day Kamboat resumed trading following the subscription agreement dated 28-Feb-05. The disclosure was published today, 29-Mar-05, following the Easter break.
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