Complete liquidation of shares in Cordlife

I have sold out of all my Cordlife shareholdings at 0.24 per share. This is a pretty good annualized return of 85% from about a year of holding.

Maybe a short recap is in order, if nothing else but for entertainment sake.

Like most of the stocks in my portfolio, I was attracted to... problems. And Cordlife have a major problem (notice I use present tense, it is not out of it yet!). It has two groups of users which cordblood units (CBU) are damaged. One is high risk, which are pretty much no longer 'useful', and low risk, which expert opined that given the temperature or duration of which the incident last, it should still be viable. 

They are still looking at the test results of the low risk group. The report, as the group announced in sgx, should be out in the latter half of this year. That timeline isn't very useful since there isn't much of this year left... 

In terms of value, I do believe that if the low risk CBU is not damaged, Cordlife is worth way more than 0.127, which was my holding price.

Genesis
It started with a private placement (which was thwarted) and most of the directors were then removed during the AGM after which TransGlobal (my opinion, it is anyone's guess if the incumbents are TransGlobal allies), lost the ability to control the company, and as expected, the CEO (TransGlobal's non-exec director's younger brother) quit recently. It looks like the company has passed on from the power struggle stage and could rebuild. 

I think they are still in the early stages of rebuilding, and this could be a lengthy process. At least they regained the license from MOH to continue business as it is.

Sometime during this incident, I joined one particular telegram group, which primarily consist of parents of affected CBU. Obviously I would like to know if they could legally challenge the company. They were forming various group representation to sue. I do read their concerns and felt that, for the high risk group, they were undercompensated by the company.

I am not too sure what to think of the low risk group's parents. Basically, if the CBUs are not damaged, there should be no basis to sue. Unless you have evidence that they have been negligent for a long time, then yes, you have some basis to sue.

Sometime during the conversation some parents told me certain disturbing issues about Cordlife which was on the back of my mind. I told her that I would talk to Cordlife's management when I have the chance. Unfortunately, I missed the EGM due to work. With this liquidation, I guess there won't be.

Don't f**k with parents
Something negative happened during this course of research as well. I was out openly in the telegram group and accused of being a spy. My opinion stays that these parents are better served by buying stocks than engaging these lawyers. Firstly, by buying shares, you are having some kind of psuedo-ownership over the company you hate. You could question them during the AGM. Secondly, you are not provided additional capital to the company-- only stock ownership was transferred. You are not providing additional funds or gunpowder to the very company you hated. "Investing" in Cordlife had a very misleading naunce to it. 

Of course none of them were having it and I was asked to leave.

I am not sure how much did they paid the lawyers, and the odds that they going to get anything back eventually

But I was certainly not getting a single cent from offering that investing advice, and my opinions and intent were pretty clear. I was very willing to explain to these parents the investing thesis of it all, and if anyone had listen, they would be slightly happier today. 

About Journalists:
The only person that actually listened was a Straits Time reporter. The Business Times reporters were pretty snobby (LOL) and only Ben Paul replied. None of his underlings/colleagues bothered; neither were they willing to write from an angle that there is potentially a lot of value in this company. They were only keen about the board power struggle (which I actually spent a damn long time to understand the players involved, and tried to reach out to them), the parents-MOH angle (understandable). But hey, you guys are Business Times. Nobody wants to stick their neck out and look at it from a distressed angle?

The End
The offer price of 0.25 from Thailand's Medeze is a fair deal, considering the following factors:

a) it is possible that the low risk group is affected.

b) The timeframe of which the value of the company that could be revise by the public market might take a long time (not that I wasn't willing to wait)

c) any other possible problems which I might be unaware of, such as financial fraud.

d) quite a few directors resigned, which worried me a fair deal.

What should happen next
The low risk group should be ... still viable, and eventually all the suits involving the low risk group could be thrown out. I afraid that these parents would be doubly disappointed by the outcome.

The company should be able to afford the outcome of the group representation suit from the high risk group, although it would significantly impact its coffers.

Cordlife, after clearing these legal issues, would be privately bought out by NJXJK or a consortium consisting of it. I suspect the company is worth at least over 30 cents if the low risk group isn't a liability. It could be a long wait, but it wasn't the waiting that is an issue, it is the uncertainty of things. A return of a few hundred percent over a lengthy course of 5-6 years is not a big deal.

What if the low risk group is an issue? Thing would be very bad indeed.

Short Update on the Cordlife idea

I know I am supposed to be releasing an idea on Cordlife since my teaser post last week.

However, in between drafts, the company has been posting updates, and I have been trying to call major shareholders for advice. Attempts were also made to solicit views from certain parties which I am unsure would be comfortable in what was told. Everything felt very legally sketchy on both ends, so I feel the need to tread carefully.

So I figured I would put up a quick post since certain dates are looming near. 

On the 10-May, 10am, there would be a chamber hearing to decide if the interim injunction, which is preventing the company from going ahead with the private placement, could be lifted (at least until a final judgement is made).

This could possibly mean that the private placement could go through before the AGM, which translate to another 51.2m shares, and more importantly, another 51.2m votes. To call it a game changer would be an understatement. Any party that enjoys the allegiance of shares that many would crush the other side, even if every other substantial share holders were to stand with the latter.

Assuming the private placement does not go through, the voting for the resolutions tabled for the AGM (on 14-May) would be quite a puzzle. There are certain parties which could need to abstain from votes (since there is, to me, conflict of interest). As of now there is no clarity.

I have also sent in very pressing questions to both SIAS and the company. The company states that it would make public the answers to the questions post no latter by 48 hours after the deadline for the proxy forms. I am not very familiar with the legalese, but looking at the proxy form, it does indicate somewhat that a shareholder might be rejected from recommending a proxy 72 hours before AGM. So this means maybe the company could only answer a or two day before AGM?

I be keeping my eyes peeled because I took some time to draft and finalize those questions.

Lastly, I have acquired additional shares in the last few days. Cordlife now stands at about 4.8% of my portfolio. I am planning to acquire more as I think the issue is moving alongside my thesis. At the very minimal, I believe Cordlife shares to be very depressed. I have spoke to some friends about my idea (along with anyone who is willing to listen, really), and they cast doubts which I myself harbored.

Until the next post. Apologies.

Apr 2024 Portfolio Update (Hong Kong Recovery, Cordlife Teaser)

Don't ask me why there is a shoe missing. Maybe it reflects a missed opportunity on Anta Sports..

Topics Discussed:
-Recovery of Hong Kong market and how it affects my option income portfolio
-Teaser post on Cordlife

S&P 500 (ytd): 9.3%
STI: 2.35%
Tracker Fund: 1.09%

My portfolio: 17.3%

Portfolio upsurge was contributed by the surge in OKP's share price, which stands at currently 40% of entire equities portfolio size. Clifford Modern Living announced a special dividend which brought the share price modestly. At this writing, it has already gone ex-dividend.

Other notable transactions made:
1) Complete divestment of very small holdings in Fraser's Hospitality Trust.
2) Purchase and increase of Cordlife; more on this later.
3) Huge increase in Clifford Modern Living, as detailed in the earlier post, "The Maths of CML"

***

Recovery in the HK Market and its effect on my option income portfolio

Not long after my remarks that option income strategies are far inferior to directional ones, the market decided that it is time for an upturn and the Hong Kong market staged a recovery of sorts.

Of the few stocks that I have interest on, and their last month performance, as follows:
1) Anta Sports (+9.7%)
Anta Sports was a very good opportunity missed. It was languishing around the low 70s and even 60s. Valuation at 70 was very good-- its current back-of-the-envelope valuation as follows:

Cash + short term investments: 36b RMB
Long term fixed deposits: 11.8b RMB

Debts (of all maturities): ~15b

Net Cash of 32.8b RMB, or 36.18

Earnings: 11.7b this year, 8.9b last. Give or take 10b, which is about 11b HKD

Market Cap: 253b HKD,
it was 200b HKD if its share price was 70 HKD

Market Cap less net cash: 217b HKD
that would be 164b HKD if its share price was 70 HKD

Given the rough earnings of 11b HKD, it is not very high price to pay about 15-16 times multiple for this kind of growth company. Anta is a owner-operator, so management motivation should not be a concern..

Unfortunately, opportunity loss. I was too concern with selling puts and selling calls, and I have a limited net asset value to maintain. 

So I only have 400 shares of Anta Sports. I was quite bullish, even to to the point of selling in-the-money puts on Anta. They have since expire worthless.

2) Hong Kong Exchange (up 9.3%)

I do not think HKEX was cheap pre-recovery, so I wasn't too sore about this.

3) Link REIT (recovered 9% since 19-Apr). 

Link has been quite volatile these days. Pre-recovery, I am looking at a loss of 25% on 1000 shares of Link, which means I could no longer sell calls without making a loss.

4) Tencent (up 15%)
Unfortunately, I am out of Tencent as they are called away. My opinion on the valuation of Tencent is not too dissimilar from HKEX's. It is not dirt cheap but it still feels like an opportunity missed.

5) Alibaba (up 9.5%)
My positions are still way underwater for this recovery to be meaningful.

On the whole, I count myself lucky that I covered the sold-calls on my Tracker Fund before the uptick. There is now a modest capital gain (my avg price is 17 HKD).  I have sold calls at 18.5 till end of May, which net me a small premium of 0.275 per contract. That is a yield of (0.275/17) 1.6% for 1 month.

Assuming the HSI does have further legs upwards, I would use the funds on Cordlife, or to adopt a directional strategy on Hong Kong (using synthetics), or to sell put spreads, or even migrate over to America if there is a selldown.

***

Cordlife is a very interesting opportunity, which I would try to expound on in the next post. Its troubles began way before Nov-2023, the day where MOH began their investigation on the tanks. As I leafed through the annual reports for the last ten years, I think this is a pretty good opportunity. More later.