I have a small investment in Second Chance. Local Singaporeans will know Second Chance as a retailer in Joo Chiat or Geylang retailing Malay Apparels.
I used to live in that area when I was small so I am familiar with them.
Since then, they have moved on to join in the property rental business. In the GFC, their CEO purchase many free hold shops which is earning good rentals now.
The interesting thing is that as a stock, it has been steadily climbing. So has the dividends. My average cost is around 35 cents and the dividend then was 3 cents making the yield around 8.5%.
Since my purchase they have issued a 1 for 1 warrant with a strike price of 40 cents. I have since sold off the warrants for a good profits.
All in this has been a good investment. And I am sure its even better for the folks who have it at 20 cents.
Second Chance just announced their full year 2012 results. You can view it here and here.
The net profits are almost the same, but they are bumping up the dividends by raising normal dividends to 3.3 cents and paying out a special dividend of 0.5 cents. This brings my yield on cost to 10.6%
The unique thing about Second Chance is that the owner Mr Mohamed Salleh owns 81% of the company. Mr Salleh have been very very shareholder friendly.
There was a time when I sent in my questions to investor relations and was surprise that Mr Salleh answered them himself!
Second Chance have a scrip dividend scheme and because they own so much shares, 81% of the shareholders choose scrip versus cash.
What this means is that if you are like me, who bought with Standard Chartered Bank Trading and choose not to take scrip, you get diluted.
The warrants issued with a strike price of 40 cents serves to increase capital for the company but I wonder if this is some form of financial engineering where they pay an attractive dividends but keeps asking you to increase their capital. Basically one hand pay the other hand ask for your money.
Nevertheless, they really have some interesting transparency. I will leave this from their recent announcement where Mr Salleh answers shareholders questions directly:
Q. I feel that your remuneration is quite high. Can we understand how is it fixed?
A. The company strongly believes that the CEO’s bonus should be totally pegged to
performance. At present, his bonus is 4% of the Group’s profit before tax for the year
with a cap of $1 million and excludes items such as fair valuation and realized gains or
losses on investment properties and shares.
Unlike many companies where CEOs continue to collect huge bonuses even in loss
making years, the CEO of this company will not be entitled to any bonus, if there are
no operating profits.
The CEO’s present salary of $13,000 per month is way below the market standards.
The CEO himself had turned down past attempts by the Remuneration Committee to
increase his salary. In fact, he voluntarily lowered his bonus from 5% to the current 4%.
A general comparison of his total remuneration with that of his peers in similar sized
companies and profitability will show that he is not that highly paid.
Q. Indonesia has a large Muslim population. Shouldn’t First Lady expand into this
A. Indeed Indonesia has the largest Muslim population in the world. However, we
have not expanded there as yet because of the country’s protectionist measures against
Recently they have allowed big retailers such as supermarkets and departmental stores
to operate. Franchises have also been allowed particularly in the Food & Beverage
business with one of the conditions that local ownership has to be 100% Indonesian.
New regulations have now been introduced to further protect small retailers especially
those in traditional businesses. The numbers of outlets of franchises are now restricted
and as much as 80% of their inventory must be locally made products.
It seems that we will have to wait until such time that the ASEAN Free Trade Area is
Q. The Company has been buying back its shares at prices above the Net Asset Value (NAV), that is, at a premium. Shouldn’t the Company be buying back its shares at below NAV?
There is a combination of factors contributing to the Company buying 20.572 million
shares at an average price of 38.65 cents.
As you are all aware the value of a Company is based not only on the NAV, but also on
intangibles such as goodwill, branding, reputation etc., which can be even more
valuable than the tangible assets.
1. In case of our Company we are of the opinion that –
a) Our gold and apparel businesses are well established. We enjoy market
leadership, a track record of high profits, brand reputation, goodwill etc all of
which will definitely be valued much higher than their NAV.
b) The fair valuation of our properties as at 31 August 2012 and the recent past
months is well below the amount that buyers are actually prepared to pay on a
“willing buyer willing seller” basis. This seems to be a norm now for all types
of properties. Hence again the intrinsic value of the group is much higher than
In the light of the above, we believe that the average price of our share buyback, i.e.,
38.65 cents, is still below the real value of the Company and as such a “value buy”.
2. Currently, the cost of funds used to buy back the shares is 1.2% as
compared to the cost of the share capital, which is the dividends that would be
paid out on the shares; this works out to be approximately 8%.
3. Another point in favour is that 118 million outstanding warrants are
expected to be converted which will generate $37.76 million and bring down
further our already low gearing. So we decided to invest in the Company’s own
shares but at the same time cap the share buy-back price currently at 39.5 cents.
We will be selling the shares back at 40 cents assuming the new warrants are