Exited UKC Holdings Corp (TYO:3156)

So UKC hit a valuation of above net current assets a lot sooner than I expected. Not because the share price took of on a rocket, but because the company made large write-downs of receivables and prepayments.

The share has traded up since I took my position, but I feel a bit anxious about the write-downs so I sold. You know “Misfortunes never come singly” – there could be more problems with the books. The need to put together an independent audit committee indicates managerial problems.

Exited at ¥1922, so return of about +17 % in 5 weeks.

 

Entered GigaMedia Limited (NASDAQ:GIGM)

I took a small position in GIGM today. It’s a Taiwanese mobile game/IT company listed in the US. The share has been trading at below net-cash valuations for some time.

It’s a quantitative bet, the balance sheet is strong. The underlying business is poor, but cash burn-rate is slow. Some recent inside purchases. No share issues. Trading at net-cash ratio of 0.57.

Not much else to say. This share should obviously be part of a large basket net-net holdings.

 

 

 

Entered UKC Holdings Corp (TYO:3156)

UKC Holdings is engaged in the sales and distribution of semiconductor and electrical components. It´s a typical Japanese net-net low margin business. Entered at ¥1630 or a NCAV ratio of about 0.51. The company pays dividends and have some IR info in English.

Current assets  ¥  134 895 000
Total liabilities  ¥   85 111 000
Net current assets  ¥   49 784 000
Market cap  ¥   25 500 000
Ratio 51%

Entered Sin Ghee Huat Corporation Ltd (SGX:B7K)

Sin Ghee Huat is a stainless steel sales and distribution company, a one stop shop for shipbuilders, oil and gas companies etc. SGH is in the pipes, fittings and plates business. There are a number of similar net-net around the world, for example CosmoSteel (B9S). The sector is obviously hit hard by the declining oil and energy prices.

None the less, SGE has a strong balance sheet with plenty of cash and almost 0 liabilities.  The company does also seem to run prudently.

Entered at 0.2 SGD. NCAV ratio at 60%. Market cap of 44 million SGD.

 

Exited Kingboard Copper Foil (SGX:K14)

Today I exited Kingboard at 0.405 SGD. There is a tender offer for all shares in Kingboard.

During the time I’ve owned the share there has been a pending lawsuit from minority share holders against the company.  The story has many twists and turns and you can read more at the blog Cigarrfimpar.

As the shares where tendered at a slight premium to net current assets I am pleased. I decided to sell the shares on the market instead of accepting the tendered offer, mainly because it was nice to take some gains of the table.

I entered at 0.181 SGD, so the gain ended up at +124 % for a 18 months holding period.

 

Entered Odawara Auto-Machine Mfg (TYO:7314)

Odawara is principally engaged in the manufacturing, development and sale of bus fare and ticket systems. The company has it’s roots in the 1950s and seems to have been involved with bus fare equipment since the 1970s. The company was listed in 2009. The company has less than 1500 share holders and a market cap of circa 14 million USD.

All reports are in Japanese. From what I can gather business is a bit slow. The Tokyo Summer Olympics in 2020 may give an upswing, as public transport will be overhauled and the company is well established in the Japanese metropolitan areas.

The company has current assets of 4.6 B¥, total liabilities of 1.2 B¥. Current assets includes 1.7 B¥ in cash. Market cap is 1.6 B¥.  The company is in other words trading at 50 % discount to the current assets. Price 507¥.

 

Double taxation of capital gains

It’s the time of the year to hand in tax reports for the previous year. That got me thinking about trading shares on foreign markets.

In many countries, including where I live, there is a capital gains tax. The capital gains tax is calculated as a portion of the return (purchase price minus sales price). Gains tax varies between countries, from 0 % to upwards of 40 %. Local laws can also make a difference between long term and short term ownership. Typically, there is some type of incentive for long term ownership.

It occurred to me that trading shares on some markets could perhaps make you liable for tax in a foreign state. That made me a bit uneasy. I have good knowledge of my local rules, but I am certainly no expert for every state in the world. The idea seemed not too far fetched, we pay plenty of foreign taxes when trading shares – withholding tax on dividends, stamp duty, transaction taxes and what not.  Incurring an unknown tax debt in a foreign land would obviously be bad. The trading returns could be vastly overstated. Also, correct tax deductions would not be applied for, making the total tax higher than needed (ie double taxation – you have to pay tax twice on one income).

It turned out this issue is dealt with in double taxation agreement between states. The lawmakers agree that double taxation is bad and prevents investment and free movement of people, goods and service. Just one thing, there are many agreements – a typical state can have 100 to 200 agreements with other states. And the agreements are written in complicated legal-speak. And it is one of these particular agreements that govern how stock trading is taxed in your particular situation.

Thankfully, most of the double taxation agreements are based on the OECD Model Tax Convention. Article 13 in the model agreement deals with capital gains taxation and paragraph 5 states:

Gains from the alienation of any property, other than that referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in the Contracting State of which the alienator is a resident.

In other words, capital gains tax on shares is paid in the state you are a resident in. There are exceptions, for example for some real estate companies. Feel free to read more if interested. Article 10 deals with the taxation of dividends.

Note: Don’t take my ramblings as tax advice. Just had to get my findings on paper… what’s written above may not be applicable to your situation.

 

Entered C C Land Holdings Limited (HKG:1224)

C C Land is a real estate company based and listed in Hong Kong. The share is trading at P/B of 0.43 and P/NCAV 0.62. The company assets are mainly cash after they divested various holdings.

C C Land has a large market cap of 5.5 bn HK$. Large net-nets are said to perform worse than small-cap companies, however I still found this position good enough. This is mainly due to the company is trying to acquire the Leadenhall Building in London, one of the few skyscrapers in the city.  It seems there is a reasonable chance the asset discount will decrease with such a major and prolific change in business direction.

The company can fund almost the entire purchase with net-cash, but will also make a complementary rights issue. The transaction is not without risk, as they are paying a large premium to the buildings cost (it was completed in 2014).