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Thursday, May 17, 2007

OSKVI NAV vs Share Price

You might not have seen this before.

I have estimated the NAV using publicly available data (see basis below). No doubt it will differ if OSKVI publishes its own NAV figure (except perhaps at the starting date at 31/12/2006), but it looks to be the right order of magnitude. Buffett quote ... "it is better to be approximately right than precisely wrong".

Share Price Observations
(see pink line)
1. Note the peaks ($2.90 10 Apr, $2.84 23 Feb) and low ($2.26 5 Mar).
2. The peak to low fall is 22%.
3. Seems irrational, since the NAV didn't even come close to the share price on 5 Mar.

NAV Observations
(see blue line)
1. Note the peak ($4.60 23 Feb) and low ($3.77 twice - 5 Mar and yesterday)
2. Only 18% fall - proportionately stabler.
3. Still big gap between Low NAV ($3.77) vs Peak Price ($2.90), or 28% potential gain.
4. Still bigger gap between Low NAV ($3.77) vs yesterday's price ($2.40), or 54% potential gain.

Other Observations
(compare pink with blue line)
1. Some correlation between Price and NAV. Both peaks on Feb 23, and both lows on Mar 5. Not perfect, but close.

2. Correlation would make sense, if there was no gap between NAV and OSKVI share price. But given the huge gap, it doesn't make full sense. It suggests Mr Market doesn't really know how to value OSKVI, due to largely inefficient market.

3. As noted before, closed end funds rarely (almost never?) trade at such a large discount for such a long period. Eventually, the investment community and investing public will discover the mispricing, and blogs like this and others will come up to reduce the information gap.

4. Just a couple of days ago, AMANMFB announces a proposal to shareholders to buy back a limited amount of its shares at 97% NAV. Note the discount is only 3%, not 28% to 54% potential gains above.

5. Since 31/12/06, several OSKVI's holdings has taken a significant price beating:
- Green Packet fell 27% from $5.75 peak (23-26 Feb) to $4.22 low (yesterday).
- MNC fell 37% from $0.295 peak (19 Jan) to $0.185 low (yesterday) - 37% fall.
- mTouche fell 46% from this year's high of $3.70 (8 Jan) $1.96 low (4 May), before recovering to $2.19 (yesterday).

Individually, these falls are scary. And the May effect, possible Shanghai crash rippling to the rest of the world, and other scary stories are not even here yet ...

6. Yet, OSKVI NAV didn't fall that badly, and didn't even come close to Share Price. This is due to the big starting gap, and the diversification benefits in its portfolio. When Green Packet, MNC and mTouche fell, eBworx gained 126% and Willowglen gained 38% (from 31/12/06 to yesterday).

7. Further, valuing OSKVI based on just NAV is understating its true net worth, as we get closer to the date when its China and Singapore ventures are listed. Its future venture capital business must surely be worth something too. There is no doubt in my mind that OSKVI is worth a lot more than yesterday's NAV of $3.77.

- Do read my earlier posts on OSKVI for context and additional information.
- Do read the disclaimers there also.
- As usual, use your own judgement and invest (buy, hold, sell) at your own risk.

NAV Estimation Basis
- My starting point is the data reported in the 31/12/2006 Balance Sheet and the Notes in the Accounts. This gives a calculated NAV of $594M.
- At the same date, the sum of the Market Values of its 6 listed Mesdaq counters is $444M.
- This gives a difference of $150M (=594 - 444), which I have assumed to remain constant since 31/12/06 (I believe this is not critical at this stage, since the number is relatively smaller, and the degree of under-valuation is high).
- Therefore, the fluctuations since 31/12/06 is simply due to the daily changes in share price of the 6 listed Mesdaq stocks that it owns.


Ben Gan said...

A superb analysis, I would say. However its value is not reflected in the chart. Well, if it walks like a duck, quacks like a duck and has feathers, probably it is a duck.
Since the formation of a top on Nov 16, 07, the stock has been in a steady downtrend. It may find support at 2.30. Unless the downtrend is reversed or show sign of reversing, it is better to avoid the stock for now.

Seng said...

Hi Ben,

Thanks for visiting.

Yes, technically, after a rapid ascent since Jun 30, 06, the stock reached its peak on Nov 16, 07, and started on its medium term decline till today. Yes, technically, it might find bottom around 2.3-2.35 region, yet there is also a risk that it might not, and could continue southward. Yes, a TA practitioner would do best to avoid this stock, at least for now.

In calling this stock last Friday, it was actually a tough battle between my "Buffet+Soros" side vs my TA side. In this specific instance, the deciding factor was Buffett, who never paid any attention to TA in his youth (and today), and still has a reasonably good investment record after first discovered Graham.

Yes, Malaysia today is not the same environment as US 40-50 years ago (when Buffett first practiced Graham's style of investing), but in some ways (especially from a fundamental side), it is similar, since there were still many businesses in the US then with fairly simple business models, like OSKVI. Actually, OSKVI's fundamental analysis turns out to be fairly simple as it has a simple business model, balance sheet & financial statements, if compared to current US conglomerates with highly diversified businesses in many countries across the world - the latter I find much, much more difficult to evaluate and would rely more on analyst reports and TA.

I also personally believe that when there are more investment blogs that pays attention to fundamental analysis, Malaysia market will benefit in the long-term and the stock market becomes more efficient. I think with increasing technology and Internet, this is an inevitable global trend.

In any case, I'm glad you came along to caution me and the visitors here on OSKVI's TA. Certainly it's prudent to heed it. As per my earlier caution on OSKVI, don't buy more than 5% of one's long-term capital into this stock, as despite its 6%-8% dividend yield (net-gross), there is always a risk that it could tie up one's capital longer than one might expect (although my expectation is that the value should be unlocked in 2-3 years time from various catalysts that I expect to emerge).


vegebotak said...

OSKVI quater reports might coming out in this few days. It might be the key to drive OSKVI to uptrend or even more downtrend ... Let see... ( I bought some OSKVI after ur comment) ....