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Wednesday, May 23, 2007

OSKVI Q1/07 Result Comments and possible Catalysts

OSKVI reported its Q1/07 financial results last night.

Not surprisingly, its after tax "earnings" (per existing report format - see above) is lower than last year due to lower "Revenue" (see lower revenue figure circled in red) compared to Q1/06. This is simply and mainly due to the smaller realization of its large paper gains.

The size of its paper gains at 31/3/07 is nearly $290M, easily dwarfing the $3.6M Q1/07 earnings reported above. Had management wanted to, it could have easily taken a small amount - say just 2% - of its paper gains for realization, and thereby report an additional $6M higher earnings for the quarter. However, this sort of practice may not always be in shareholder's best interest, as the best timing for disposals of shares should be dictated by market considerations (e.g. when it provides a high selling price) and not by the need to report higher quarterly "earnings".

As stated in past postings, a clearly better measure of OSKVI's true financial performance is NAV. An updated graph below. I expect the blue line to be significantly higher in 2-3 years time. I hope to be able to add more to my position when the pink line has reached bottom, before the catalysts appear.

This may be a timely place to summarize a few possible catalysts:

1. Conversion of more paper gains to cash. The main reason is to be able to report higher earnings for FYE 2007, besides increasing the cash hoard for other uses such as potentially higher dividend payments, working capital, etc. This is especially important, not just for OSKVI, but also for its parent who owns 66% of OSKVI - if the parent wants to report higher profits to Bursa for FYE 2007. The exact timing of the conversion is naturally uncertain (depends on management), but some needs to be done this year. To me, the 3,500,000 GPACKET shares sold in April is clearly insufficient - it is almost certain there needs to be more paper gains realized this year (unless 2. happens). The earnings in the last 3 years are $6M, $20M and $47M for 2004, 2005 and 2006 respectively. It is clear OSKVI do not need to realize much of its huge $290M paper gains in order to deliver a result like $70M-$80M for 2007, and its parent will be able to account directly its share of that in the parents books.

2. Market value reporting?? IF this goes through by the end of this year, then, OSKVI will be reporting an extraordinary gain of nearly $290M in its earnings, thereby substantially reducing the need to realize its large paper gains in 1. above. As a shareholder, I will gladly let management to do the work (that's what they are paid for) and decide when is the best time to realize the paper gains. In other words, if this doesn't go through, I expect management to use method 1. above to enable higher profit reporting for FYE 2007.

3. Potentially higher dividends? Note that OSKVI has been steadily paying increasing dividends paid, from 0% to 4% to 6.2% net of tax for FYE 2004, 2005 and 2006 respectively. I personally like the nice increasing trend! Last year, the first interim dividend was announced on 30 August, 2006, so, end August might be another possible catalyst.

4. Announcement of its major listing projects in China and Singapore? I don't know when this will be announced, but most of the expenses appears to have already been incurred, and hopefully, there will be some news either this year or the next. (Given the large number of new listings in China and Singapore, it's hard to see a failed listing - the only uncertainty is how successful it will be, and in both markets, it's kinda hard to see an unsuccessful listing too. Even if both markets crashes, I believe it is only a matter of time before they recover ...)

5. Further buying of OSKVI shares by its parent? This has happened 3 times this year, the last 2 times occured when OSKVI was on "sale". Parent now owns nearly 2/3rd of OSKVI. Possible privatization??? Actual timing and plans unknown. Pure speculation, with low downside risks if the parent stops buying more. Given its large current NAV, and its expected growth, I do not expect its parent to dispose its OSKVI holdings. (i.e. if the parent dispose, then, consider selling your OSKVI shares proportionately too first and ask questions later).

6. Further good business news ... E.g. news of success of other venture capital projects. I personally like the high growth stories in markets like China, India, Vietnam, Singapore, etc. The high growth sector stories is also nice. Eventually, the delivery of concrete results (such as 4.) are more important of course, and this one needs time and patience from investor's perspective. My personal time-frame is say 2-3 years, which I believe should be more than enough for average management to deliver.

Happy investing!

Disclaimer: All the views and conjectures expressed above are purely mine. I have no inside information, and relies purely on publicly available information as data for my personal analysis and interpretation. I own OSKVI. Read past disclaimers and posts on OSKVI for full context. As usual, use your own judgement and invest (buy, hold, sell) at your own risk.

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