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Wednesday, May 16, 2007


Slightly dated, but I think could be worth studying ... my comments in italics:


OSKVI to step up investments in regional telco, media
Updated : 19-04-2007
Media : The Edge
Story By : Isabelle Francis via www.biznewsdb.com

OSK Ventures International Bhd (OSKVI), which intends to almost double its fund size to RM1 billion in two years, plans to step up its presence in the regional telecommunications and media sectors.

A growth from $600M (estimated NAV, or what the article called "fund size") to $1B in 2 years time is equivalent to 29% per annum growth rate - very decent return. However, the per share NAV is $4 (=$600M/150M shares), which is higher than current share price of $2.36. So, if one buys at $2.36, then, the potential upside is even better. Since OSK already own 65% of OSKVI, I will not be surprised if one day, OSKVI does a VGO when the time is right - the potential returns are just incredible.

Its executive director and chief operating officer Eddie Yap said it had identified a "few" new businesses in the telecommunication and media sectors to invest in, both locally and abroad.

If anyone has more details on the new businesses, I would appreciate hearing from you. Thanks.

He said it was keen to expand in China and have direct exposure in the Indian and Vietnamese markets.

"These are sectors that are growing rapidly. We also focus on dynamic regions. We focus a lot on the Southeast Asian and North Asia region, particularly China," he told reporters after OSKVI's AGM in Kuala Lumpur on April 19.

He said OSKVI, which is the venture capital and private equity arm of OSK Holdings Bhd, had to date invested in 20 companies, of which 12, including Green Packet Bhd and mTouche Bhd are now listed.

On its current investment overseas, Yap said its latest venture in China was the outdoor advertising businesses there.

It has also invested in a Singapore-based industrial waste management company.

He expected these two investments, which are worth over RM53 million, to spur the growth in the near future.

Actually, the way I would interpret the $53M figure is that it is not "worth" but cost OSKVI $53M. Technically, the actual worth to OSKVI is still unknown, until they list both ventures. And it is not unreasonable to think that the China and Singapore ventures combined could be worth close to $300-$400M? (being the difference between $1B and $600M). If so, that's not a bad return for a $53M outlay.

"20% to 30% of our portfolio are foreign entities but all our companies have business overseas although listed in Malaysia,¨ Yap added.

Yap said as of Feb 28, 2007, the total market value of its investments in the listed investee companies was about RM536 million while its cost of investments was only RM145 million, giving an unrealised gain of RM391 million.

The $391M figure should be more reliable as it captures everything. My earlier figure of $260M is on a different date (31/12/2006 - older date - big difference), and is based on a sub-set, i.e. just the 6 Mesdaq listed stocks. I believe it is sufficient to show that at current prices, OSKVI is clearly under-valued. This is also why I prefer NAV reporting, to show a truer picture of its net worth.

"When we reach a certain value, and we think it is a right sale, we will sell.

We are in the investment and divestment business. We need to make money for our shareholders,¨ said Yap.

In retrospect (and hindsight is 20/20), I think it would have been better to sell more of their large holdings during the Feb 2007 bull run. Prices were higher, trading volumes were much bigger, that the conditions were perfect for a large block sale. At its peak, GPACKET was trading above $5.30 (peak=$5.85). Last night, it was only $4.18. They did sell 3,500,000 GPACKET shares on 19/4 on an off-market transaction, but the price range on that day was only $4.96-$5.05.

In addition, he said, OSKVI fund size had grown at a commendable compounded annual growth rate of over 40% to over RM600 million now. It expected it to grow to RM1 billion in the next two years.

"In terms of profitability, we definitely grew over 100%,¨ Yap said, adding that the company remained optimistic with its financial growth moving forward.

For the financial year ended Feb 28, 2007, OSKVI's net profit jumped 132% to RM47.01 million from RM20.3 million a year earlier.

I understand the market currently prefer to focus on "net profit" and in the ideal world, it would be correct. But in OSKVI's case, due to its unique business model, I believe NAV is the clearly better measure of the underlying business performance for reasons mentioned before. Personally, I prefer OSKVI to educate the public that NAV is the better measure, but the accounting profession might disagree (although I am not an accountant, and I still can't understand why the accountants report OSKVI books the way they did). This is why I don't recommending owning OSKVI more than 5% of one's stock portfolio. It has the potential to tie up capital, as long as OSKVI, the accounting profession and Bursa don't focus on the right tool to measure OSKVI's success. Still, I'm sure the parent - OSK - isn't bothered, and so, I will follow the parent.

Disclaimer: As usual, use your own judgement and invest (buy, hold, sell) at your own risk.