In recent times, many stocks with major shareholders who have made privatization suggestions have appeared, including Oriental Overseas (316.HK), Xincheng Development Holdings (1030.HK), New World Department Store (825.HK), etc.
Although it is a pleasure to have its own stock privatized by the major shareholder, the stock price can often rise by dozens of percentage points in a short period of time. However, it is not easy to select privatized stocks from nearly 2,000 listed companies in Hong Kong stocks. Lucky components are more important than analytical capabilities.
This time, the investment education is not about teaching everyone how to choose stocks that have the opportunity to be privatized, but about looking for investment opportunities from stocks that have already announced a privatization plan but may fail.
Diligent investors read so many investment bank reports every day, just to find the value of their shares from the massive reports, so as to obtain a reasonable market price. But in fact, the one who knows the value of the company best must be the major shareholder himself. Therefore, when the major shareholder proposes a privatization plan, the price he gives is equivalent to telling you that the company's value is at least above this price.
Many times, when public shareholders reject the privatization proposal, based on disappointment, the stock price will be abandoned and fall in the short term. But as long as the company's value is, the stock price will eventually be far beyond the price recommended by privatization.
I think this principle is obvious. Does that mean that any failure of privatization and that shares whose stock price falls below the privatization price have an opportunity to invest?
I am about to tell you that the capital market is not that simple!
1. Privatization failure concept stocks how to play
From many privatization failure cases in the past, I divided the operations into two categories from the failure cases of (1136.HK) in 2014 and Xingfa Aluminum (98.HK) in 2017. One is torture the small shareholder type, and the other is to treat small shareholder type well.
is the ugly saying, let’s introduce the torture of small shareholders.
torture small shareholders
On April 21, 2014, the major shareholder of Taiwan clay proposed a premium of HK$43.9 for privatization, but the second shareholder Jiaxin Cement failed to reject privatization.
At that time, Tai Ni's largest shareholder began a long privatization plan. When the cement industry was declining, Tai Ni did not forget to use the trick of powering up and deliberately hide profits, but also forced retail investors to use the trick of stock rights. One year after the privatization of
failed, Taiwan Mi announced a discount of 25% at the market price at that time, RMB 2.2, and 2 shares were offered for 1 share. By the lowest stock price in 2016, only HK$1.03 remained, which was a drop of more than 70% from HK$3.9. The turning point of
Taipei Mud should have occurred in September 2016. The company suddenly announced that its major shareholder TCCI acquired 303 million shares of the company from its second shareholder Jiaxin Cement, with a total cost of 666 million yuan, equivalent to 2.2 yuan per share, a premium of 46.67% compared with the closing date of the previous trading day (5). After the completion of
, TCCI's shareholding in the company will increase from 56.92% to 63.05%; Jiaxin Cement's shareholding will drop by at least 10%, and will no longer be a core connected person in the company.
Just said that the key to the failure of privatization in 2014 was the second shareholder Jiaxin Cement vetoed the plan. Jiaxin Cement suddenly reduced its holdings and no longer became a core connected person in the company, which was obviously for the purpose of privatization in the future. In April this year, Taiwan Ni International was once again offered a privatization price of HK$3.6, and the offer price was HK$0.3 lower than the first offer price.
Suppose you bought Taiwan clay at a privatization price of 3.9 yuan in 2014, and then you follow the company to provide 1 share for 2.2 yuan, and your cost price will drop to 3.3 yuan per share. That is to say, as long as you wait until the second privatization is passed, you don’t have to lose money on your investment.
But the problem is that the middle process is frightened, and investors put it in a passive position. To put it bluntly, the returns you make on this stock may not even be enough money to use them to see you being scared to death, so I suggest discovering the following gameplay.
treats small shareholders well
Xingfa aluminum has little reputation. The company's stock trading is low and its valuation is low. Therefore, in September last year, its major shareholders had no choice but to make a privatization decision.
On September 23, 2016, Xingfa Aluminum issued an announcement that the joint offerors (i.e. Guangxin Aluminum, Luo Su, Luo Riming, Liao Yuqing, Luo Yongguan and Lin Yuying) suggested that the company be privatized through an agreement arrangement, with the cancellation price per share of HK$3.70 in cash, and the price will not be raised.The privatization bid for
is a 24.58% premium compared to the quotation of 2.97 yuan before the suspension. This has finally attracted the market to feast on the market. The stock price opened 21% higher on the day of resuming trading on September 28. However, even so, the company's value is still underestimated by the market, otherwise the major shareholders would not propose privatization.
However, the market is not about coming whenever you want, and leaving whenever you want. Especially after the Alibaba privatization case in 2012, when it is listed on the market, someone will object to it, and the privatization plan of each company is becoming increasingly difficult to succeed.
Even if the major shareholder of Xingfa Aluminum proposed a premium of about 25%, the small shareholder still felt betrayal from the major shareholder. So this time they attacked them in groups and opposed the privatization of major shareholders. On May 17, 2017, the company announced that Xingfa Aluminum was rejected by more than 10% of all shares held by all independent shareholders, and the privatization plan failed to obtain the majority of the required approvals at the court meeting.
fell by nearly 17% after failing to privatize. But a month later, the major shareholder Luo Su began to increase his holdings of the company's shares on the market, increasing his holdings by 400,000 shares for the first time, and then increasing his holdings by 550,000 shares. Shortly after Luo Su increased his holdings, Xingfa Aluminum became the leader in the sector this time, setting a record high of HK$5.89, far exceeding the privatization price of major shareholders.
Even in cases of treating small shareholders well, it is not necessarily that the company's stock price can return to its true value so quickly after every privatization is rejected. But taking Xingfa Aluminum as an example, the major shareholder immediately chose to increase his holdings in the market one month after the failure of privatization. At least it can be seen that the major shareholder must have no intention of tortureing the small shareholders in the stock price in the short term.
If you cooperate with your short-term accurate judgment of the company's fundamentals, then you will have a great chance of winning by following the major shareholder to buy stocks!
2. Next opportunity
. Currently preparing for privatization are Huaxi Biotechnology (0963.HK), Xincheng Development Holdings (1030.HK) and Taini International Group.
I think Taiwan Ni International's privatization plan has a great chance to pass. The reason is that after the privatization failed in 2014, the stock price plummeted. If it is less than a year later, the stock rights will ask you for money. After that, as the performance and stock price plummeted, investors who have basically experienced the first privatization sell what should be sold and what should be gone.
Nowadays, the cost price of many shareholders may be below 3.6 yuan. In addition, with the experience of failure for the first time, it is very likely that this group of investors will vote in favor.
On the contrary, because Huaxi and Xincheng are in a hurry to prepare, there is still a premium that is not as good as Taiwan mud, if the price is not raised, they are very likely to fail to privatize.
For example, on Snowball Network, we saw that Huaxi Biotechnology’s small and medium-sized shareholders are publicly challenging the major shareholders.
Whether they can copy the Xingfa aluminum market is still unknown, but we should emphasize to investors again that the price proposed by the major shareholder must be profitable!
Assuming that Huaxi Bio and Xincheng Development failed in the end, what we need to do is to pay attention to whether the major shareholders will increase their holdings in the short term.
If the holdings are not increased in the short term, even if the stock price has fallen for a while compared to the privatization price, I still advise everyone to hold back first. Maybe they have the chance to become the next example of torture of small shareholders after the successor to Taiwan.
If Huaxi and Xincheng's major shareholders really come out to increase their holdings conscientiously in a short period of time, then congratulations, you may have found a good investment opportunity. At that time, we will step up our research on the industry backgrounds of these two companies and verify whether there is an opportunity for explosive growth in the industry in the short term.
They may be the next Xingfa aluminum!
In addition, in addition to the proposed privatization of listed companies, in addition to reflecting that their stock price is significantly undervalued, when looking at it a little higher, it often reflects that the valuation of peers in the same market is also significantly undervalued. The best example is the boom in privatization of Internet stocks in China in 2015. Although not all stocks that proposed privatization could be completed in the end due to the policy of returning to the A-share market, this to a certain extent showed the overall undervaluation of Chinese stocks at that time.
3. Summary:
failed to privatize, and the company's stock price plummeted. From the perspective of static value investment, it is definitely a good investment opportunity to fall from the sky.
But the problem is that there are many ways to play in Hong Kong stocks. This investment teaching is to teach everyone how to put the scripts arranged by major shareholders into your stock selection ideas, and how to judge whether the major shareholders will play a role in whether the major shareholders will complain or be happy after the failure of privatization.
