A review of my active ideas

And one new quick idea

Nov 27, 2023

I thought I would provide an update on my current active ideas. Maybe I should do this once a month? I don’t want to spam people’s inbox with constant empty updates.

I mentioned Emeren (SOL) a few months ago. I had taken a small starter position due to the involvement of Shah Capital + aggressive buybacks + the fact that solar seems to be a growth industry + potential cheap FW PE. But after digging into it a bit more I could not get comfortable with the low receivable turnover and the way this company books revenue and sold my shares at a small loss after the recent terrible earnings report.

I closed my GAN Ltd (GAN) idea the next day in the comment section as news came out of a company sale. In case you are still in this stock, I think it is a sell now. The buyout hinges on their Coolbet operations in Chile not becoming illegal in potentially new online gambling regulation. After reading this (which actually predates the buyout announcement) it is all a bit unclear to me what the risks are exactly. So I think a wide spread is probably warranted.

And I just bought a small stake in Theseus pharmaceuticals (THRX). Tang Capital has a bid out of $3.8 + CVR. And this morning Orbimed and Foresite capital who together own 53% of shares outstanding, expressed interest in making a bid themselves. I got the idea from Clarkstreetvalue who thinks there are about $4.3/share of liquidation proceeds (all cash). But this may actually be higher as cash burn may not continue for 4 quarters if this is bought out (the write-up predates the buyout offers). Additionally a reverse merger is now very unlikely and there is a strong incentive to close this ASAP (due to cash burn). I got my shares for $3.82.

I wrote up Spanish Broadcasting (SBSAA) common stock a while ago and have mentioned that the bonds are a good deal here for 60c on the dollar. The stock has performed horribly so far. There was some good news earlier this year with a sale of their TV operations, then followed by bad news recently about sale not going through and SBSAA suing the buyer for using the sale process to gain proprietary information. They have also been acquiring new radio stations which have depressed their margins. As these stations are basically tiny startups.

So hopefully these new stations get up to speed in 2024 and margins increase again. Although there will now also be legal costs dragging down results. 2024 is a political year so TV should probably at least break even. It is all a bit of a clusterfuck and I don’t see them generating significant FCF the coming year. It doesn’t help that Alarcon keeps creaming off millions of dollars off the top.

But as long as radio does well underneath I am not too worried. This whole mess actually increases the odds that either part of the company or the whole company is sold within the next few years. I really don’t see them refinancing their debt in 2025 at an attractive rate if they keep this up. Underneath all the fat there is $50-60m of EBIT, which is why I hold a tiny stake in the common and a sizable stake in the bonds. A $200m valuation seems too cheap.

Given that Alarcon has not prepared a heir who can take over this overleveraged mess and he is 67 already, I think a sale of the company in the medium term is probable. And if this sale happens, the common would probably be a multibagger. Until then it will be dead meat.

Track Group (TRCK) is another one of my (luckily) rare disasters. Market cap of a few million $ now and debt of $40m that will come due in 2027 (extended in April this year from 2024 due date). If their Chile lawsuit is resolved and core operations continue to grow, this can still work out. I still hold a tiny position of 0.13%. Common stock has become a long term option at this point and could very well be a zero if they cannot get back to growth.

Petrobras A shares (PBR-A), written up almost exactly a year ago has worked out very well. Total return so far is 98% and it has paid out a third of its market cap in withholding tax free dividends. It was trading at an insane <3x PE when I wrote it up, so not hard to see how it did well. It has outperformed the index and most other oil stocks despite oil being flat. I have personally sold my shares, but keeping it in active ideas since it will probably keep outperforming.

The only dark cloud on the horizon that I can see is renewable investments. While not minding them personally, from an investing standpoint these will be giving low utility-like returns unlike their low cost oil drilling operations. FCF next year will be $16-17 billion and dividend payout has been reduced somewhat this year. It will still probably yield ~10%, but it is not nearly as attractive anymore as it was at <$10.

Greentree hospitality (GHG), written up earlier this year actually did perform well this year with a 60% pop, before falling back to my write-up price. I should probably make a small correction to that write-up as the number of hotels in operation has declined somewhat since 2021 to 4185 with a pipeline of new hotels of 979. Based on their latest quarterly results I think the shares trade at about 6-7x earnings here. With little net debt.

The company has had a history of paying dividends and I think odds of a management buyout at some point are probably larger than your average stock. So I have recently been adding to my position.

Hollysys (HOLI) has been a hard one to hold. Mentioned first last year with a full write up in the middle of this year. I started off with a very outsized 15% position, and have had two moments where I sold a majority of my position and then regretted it and bought back most of my shares. Currently it is a 10% position and there have been some very positive developments recently.

The predicted management bid has not been made yet. There was a bid made by 2 COO’s, which I (wrongly) assumed included the CEO. But upon closer inspection I think it is just the 2 COO’s, which is rather strange. This was followed by a $26 bid from Ascendant who has taken a 13.7% stake in the company. And Recco with a $26.5 bid is still trying to schedule the special shareholder meeting. And are now accusing management of trying to steal the company.

HOLI issued a statement a few days ago that they basically intend to finish the sale process by mid December:

“...the Special Committee is hopeful that the Company will be in a position to execute a merger agreement by mid-December and will provide timely updates to the market and shareholders.”

My best guess here is that the CEO will come in with a $28-29 offer to clinch the deal. And he will do it at the last moment, so nobody can overbid him. The fact that their Q1 results were pretty good + the amount of bidders here has made me comfortable that a buyout will happen one way or another. The CEO is on a time limit here since he will lose control of the company and sale process if the shareholder group votes in new directors next year. He cannot postpone that vote forever.

There have been some developments on NVC International (2222). A special situation with potentially several 100% upside written up here. Elec-Tech, a 14.6% holder demanded removal of mr. Wang as chairman of the company:

“Regarding the Resolution 1, ETI alleged that Mr. WANG shall be removed from his positions as the chairman of the Board and an executive director of the Company since he does not have the character and integrity to be a director of a listed company as a result of the Investigation and high consumption restriction orders imposed by a PRC court on Mr. WANG.”

Which was then voted down in October by 81% of shareholders who voted. But strangely the company still seemed open to issue Elec-Tech new shares of about HK$15 million worth. Or about 3.5% of total shares outstanding. So they clearly have no love for the chairman, but still want to have new shares issued to them cheaply?

I continue to hold this stock, it is probably my favourite special situation right now. Trading <50% of net cash with a minority stake in NVC China run by KKR worth multiples of its current market cap with a potential catalyst in sight.

I mentioned IMAB here, a Chinese biotech trading below net cash. An interesting speculative special situation. It popped to $1.8 quickly after and I sold all my shares for $1.75 or so. I cannot refuse a quick ~50% gain in a speculative stock like this. I will probably get back in if it dips below $1.4. Catalysts are hitting milestone payments, approval or a potential sale of the company or part of its assets. Keeping it active though.

I still hold Haier Smart Home (690D) D shares. What can I say about this one? It is still cheap as ever, trading at a nearly 60% discount to H shares, a nearly 10% dividend in 2024. A blue chip at 4.5x earnings and a sizable net cash position. Plenty of room for them to raise their dividend too. And if D shares can ever be converted into H shares an insta 100%+ gain. There are half a dozen write-ups floating around on substack and VIC so I won’t waste anymore words.

I sold my stake in Currency exchange (CURN/CXI) but keeping it in active ideas as I will probably buy it back if my special sits work out. Net cash is a sizable portion of the market cap and they still appear to be growing. Shares trade at about 7-8x my estimated 2024 earnings. Announcement of a dividend or a well made acquisition could send this higher. There are several VIC write-ups on this stock for who wants to know more.

I am kind of annoyed that I did not get a large position in JNBY (3306) at $9 after they announced amazing earnings back in September. I was too busy with other things, but that was a no-brainer buy at HK$9 the first trading day after their pretty amazing FY report came out. Stock is still trading only at about 6-7x earnings with a 70-80% payout ratio and a ROIC of about 40%. A more detailed write-up can be found here. I last mentioned the stock here (a link to a deep dive report can be found there as well). When my special situations play out this will probably be a full position for me if I can get it below HK$10. A 6.5x PE and a >10% dividend yield seems too low for a quality company like this.

Asia commercial (104) is playing out nicely. Last mention here. Beware, this is a very illiquid stock. It has a bunch of luxury watch stores in China and some real estate in Hong Kong and Europe that it collects rent on. Trades at a 3x PE with an unlevered balance sheet and pays out most of its earnings. Since buying it about 1.5 years ago for HK$0.21 I have already received ~HK$0.1 in dividends. Continue to hold a small position.

First pacific (0142) I sold my stake for a 50% gain as it seemed like a catalyst wasn’t in sight. If it dips below $3 again I will probably get back in. It has a PE of 3x and a dividend yield of 9%. The tl;dr on this one is: family controlled foodstuffs, telecom and toll roads in SE Asia. And anyone who has read Asian Godfathers will understand why this will always trade at a discount. Although the current 3x PE seems too cheap.

I briefly mentioned Goldlion (0533) earlier this year. A property developer/lessor, clothing brand and cash box all in one. They pay out a nice dividend and have 700 RMB of property under development held for sale in their current assets. Given that their market cap is 1bn HKD that could be a sizable catalyst. I sold my shares earlier this year at cost, but keeping this one open. If their clothing sales recover and those properties are turned into cash they could pay out a sizable dividend. This is a stock that has paid out HK$0.2+ of annual dividends before Covid while their current share price is HK$1.

I continue to be positive on 111 inc (YI). Still my largest position. There will be a major move from hospital to pharmacy drug sales to separate the subscription and sale process of meds. There are still very strong incentives to take this private or merge it with a competitor. I think the delay is caused by negotiations with the last minority investors to not redeem their stake. Earnings report will be out in a few days.

Halyk Bank (HSBK) is another stock that I happily keep in my portfolio. I added significantly to it when it traded back into the $12 range. A >15% dividend yield, a <3x PE ratio while facing little competition more than helps me not feel anxious owning an emerging market bank. As they keep earning and paying dividends and Kazakhstan keeps moving in the right direction politically I think the market will slowly re rate this higher in the coming years.

Grupo Catalana (GCO) is another one of those boring stocks. A boring Spanish (but increasingly global) family controlled insurance company. Since buying it earlier this year the stock has given me a boring 14% return and 4% outperformance vs the S&P 500. This recent VIC write-up (viewable with a free account) had an interesting take that I agree with:

“Not coincidentally there are examples of spectacularly successful insurance companies that rely heavily on acquiring entire businesses and while I will not argue that GCO is the next Berkshire or Markel it does not have to be to achieve very attractive returns. You can get mid double digit returns on equity by combining high single digit investment returns with a 90% combined ratio underwriting operation. Granted that assumes you are doing two things well that are both intrinsically hard, but I think they have the right culture (incremental investments rather than big bets, strong focus on costs, staying close to industries they know well) and incentives (family ownership) to be successful.”

The stock is only trading at a 6.6x and 5% NTM PE and dividend yield while in the past decade it averaged closer to 11x and 3% respectively. I remember that the bear thesis on this stock in 2019 was that higher rates would reduce earnings. That has now played out, while earnings are 40% higher than in 2019. And now the fear is that lower interest rates will reduce margins! A catalyst will simply be continuing strong earnings. The only significant risks for a company like this are hyper inflation and negative interest rates. Neither one of which is very likely in the medium term.

As this is getting way too long, I will finish off with Genomma lab (LABB). I mentioned the stock here this year and so far it has underperformed. I sold my shares earlier this year to free up cash, but am looking to get back in. A significant drag on their operations has been Argentina. Now with Milei winning the elections, it seems likely he will dollarize the economy. Reportedly there is already several $100 billion in USD currency floating around in Argentina, so that won’t be too difficult and will greatly help stem their 100%+ inflation problem.

If their cost savings plan works out and if those inflation charges are reduced this could be a very cheap stock. So far this year earnings have been a bit disappointing and the stock trades at a ~10x PE. But there are multiple ways earnings could double in the next few years with only minimal revenue growth.

Readers of this post should do their own due diligence before buying or selling anything, since I have been wrong before and cannot guarantee all information in this write-up is 100% factual. And I may buy or sell the above mentioned stocks at any time.

Turtles all the way down!

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