It's gut-check time: Are you a value investor? Are you also completely f*cking nuts? If the answer to both questions is, “Yes”, then tossing some APWC into your personal account at around current prices is worth considering.
Asia Pacific Wire & Cable is a holding company that partially or fully controls operating companies that generally speaking have something to do with the manufacture or installation of, you guessed it, wire and cable in the Pacific.The company is hairier than a tribble1, but the investment case is straightfoward.
From their most recent annual, we see that,
“As of December 31, 2013, the Company effectively owned 50.93% of the issued and outstanding shares of Charoong Thai Wire and Cable Public Company Limited (“Charoong Thai” or “CTW”), “
Charoong Thai is listed on The Stock Exchange of Thailand. Here's the a current quote:
It's trading at 14x depressed earnings, 6.9% yield, and 0.92x book, metrics that don't scream “overvalued” to me. Using 10.2 baht/share and 32.35 baht/dollar, CTW has a market cap of $125MM. APWC's stake is worth $4.62/share, which compares favorably to its current stock price of $2.61.
In addition, after deducting the equity attributable to CTW, APWC has $85MM invested elsewhere. This isn't terribly productive at the moment. After backing out $2.1MM in corporate overhead (“compensation paid by the Company to all of the Company’s directors and executive officers [...] during 2013 was approximately $2.1 million.”) and $1MM in audit fees, it would seem that these assets generated net income of ~$4.3MM. Value them as you'd like, since you're paying less than nothing for them.
The holdco and it's subsidiaries are well-to-over capitalized and should be around for a while. And this is not permanently dead money; APWC is capable of having good years, and the stock will respond accordingly. Here, courtesy of MSN Money and company filings, are 10 year EPS, book and 52 week high numbers (note that before 2011, the stock traded on the pink sheets and the OTCBB; it's currently on the NASDAQ Global Market):
Why So Cheap?
Here's a partial list of what you have to be comfortable with to invest here:
Related Party Transactions
Related Party Bankrupt Controlling Shareholder
Extremely Complex Corporate Structure And Financials
There's no way anyone can get comfortable with all that. I'm not comfortable. If I were comfortable, I'd be filing a 13D; instead, this is a 2% position. If the stock hangs around here, I'll probably add more, and would welcome the opportunity to average down, but I'm just not going to make this an outsized position.
Let's step through some of the hair.
Emerging Markets: The company's ultimately run out of Taiwan. Operations are conducted in Thailand, Singapore, Australia and the People's Republic of China. Financial exposure to the PRC is minimal; I think Singapore and Australia are fine; the bulk of the value is in Thailand, which can get rocky from time to time, like, for instance, now.
Commodity Risk: These guys make wire. Wire is made out of copper. I can't track this down at the moment, but I think copper is something like 80% of their cost-of-goods. In the 2013 20F, they state that:
“the Company is of the opinion that the falling copper prices have negatively affected the Company’s operations and cash flow. The Company believes that any efforts to forecast likely future performance with any degree of specificity would be fraught with uncertainty. Accordingly, the Company cautions against placing reliance on any efforts to identify trends for the foreseeable future.”
The big loss in 2008 was caused by collapsing copper prices. (The 2011 loss is partly attributable to the flooding in Thailand, and partly to a goodwill write-down). In general, declining or even just highly volatile copper prices will hurt short-term results.
Currency Risk: They sell to/buy from a bunch of different countries. That creates risks, exacerbated by reporting earnings in USD.
Illiquidity:Trading volume is low. Part of this is due to valuation, but it's also structural. There are ~14MM shares outstanding. PEWC (Pacific Electric Wire & Cable, the parent company) owns 65%, and Michael Dell's hedge fund owns another 10%, so the float is only about 3.5MM shares.
I'm going to collapse these into one. The company is controlled by, managed by, and does business with, PEWC, a Taiwanese wire & cable company that is still recovering from having been looted earlier in the century. As can be seen from CTW's dividend policy, PEWC doesn't have a universal hostility to minority shareholders, but boosting the share price of APWC probably isn't a priority. To the extent that APWC's business dealings are on terms favorable to PEWC, that's already in the earnings figures. Because of the history, I think the chances of outright fraud are lower than normal, and there are (as far as I know) no individuals who would directly benefit from cramming down/squeezing out US investors. There's some small comfort in having Dell's fund along for the ride; they probably figure their holding are worth $10MM or so, which is worth paying some lawyers to fight over, should things come to that.
The reports are long and complicated, the corporate structure confusing and arcane. The filing-length-to-market-cap ratio is out of this world, like an insolvent mortgage REIT. There's plenty of room for analytic errors, and I think the risk of financial misstatements is higher than usual.
I'd sum all these issues up like this: The APWC corporate structure chart shows a direct 51% ownership in Charoong Thai. Charoong Thai's chart, on the other hand, depicts the ownership/control relationship as exercised through a labyrinth of often cross-holding entities. Does this difference bother me? Yeah, darned right it bothers me, but I just kind of shrug.
The Speculative Case
All of these companies have been in business for a long time and don't seem like they'll be going away soon. One could regard APWC as a semi-permanent option on:
1: Having another good year (probably due to favorable copper price trends), which I think would lead to a double or triple, or even stringing two good years together in a row, which might lead the stock to trade (probably undeservedly so) up to book, or
2: Some corporate action. They've bought miniscule amounts of stock back in past. They could institute a dividend. It would probably make sense for PEWC to take out the US shareholders at something approaching book, or
3: Somebody touting the stock on an investment website.
I'm sure everyone will hate this idea and give it terrible ratings, but that's fine by me, because I'm a value investor. And I'm completely f*cking nuts.
1You've got to love Wikipedia; the “Tribble” and “Benjamin Graham” entries are almost exactly the same length.
I do not hold a position of employment, directorship, or consultancy with the issuer. I and/or others I advise hold a material investment in the issuer's securities.