We renew our bubble warning on Kanstar Environmental Paper Products (8011), which is trading on a price/book ratio of 23.5 and barely made a profit last year.

Bubble Rap: Kanstar
24 March 2006

We've said it before, but it bears repeating. In our view, GEM-listed Kanstar Environmental Paper Products Holdings Ltd (Kanstar, 8011) is a bubble stock. The paper maker just announced 2005 net profits of $103,219 on turnover which increased 6.7% to $53.67m. At yesterday's closing price of $0.325, the market capitalisation is $1,300m, so that leaves it on a P/E of 12,595. Ah, you may say, but what about the net asset value, surely that underpins it? Nope. Net asset value is just $55.27m (about $0.0138 per share), so it is on a price/book ratio of 23.5.

At the end of Feb-06, Kanstar was the 15th largest company on GEM, accounting for 1.75% of the entire GEM market value.

When we last warned readers about this stock on 10-Aug-04, it was trading at $0.39. The SFC subsequently investigated the ownership of the company as at the snapshot date of 17-Aug-04, and on 20-Oct-04 a concentration warning was issued by Kanstar. In addition to the 75% owned by Jacky Chim Kim-kiu and the 5.5% owned by his dad, former jailbird and current legislator for brokers Chim Pui Chung, a further 14.7% was owned by 10 other shareholders, leaving only 4.8% unaccounted for. Details of the 10 shareholders were not disclosed.

Kanstar said in that announcement that it would make a further announcement after investigating the beneficial ownership under section 329 of the Securities and Futures Ordinance, but 16 months later, no such announcement has yet been made.

Turnover in the stock averaged 116m shares per month over the last 12 whole months, equivalent to about 15% of the "free float" - shares not owned by Chim & son. However, if a syndicate is controlling the stock then most of that turnover is just internal to the syndicate.

© Webb-site.com, 2006

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