Here is an activist situation in play that could be interesting to follow:
Ming Fai is a HK-listed company that both manufactures and supplies amenity products to the hotel, hospitality and travel industries. The core business contributes the majority of the group’s revenue and has been profitable over time. In 2015, for example, the segment generated ~HK$1,678m in revenue and ~HK$136m in pre-tax profit.
Since 2010, however, the company has made a number of investments which have destroyed shareholder value. Examples of these unsuccessful ventures include a cosmetics retailing business and a laundry plant in China (the latter was terminated in 2014).
In August 2016, the company announced its intention to dispose of its main investment property through open tender. The total consideration for the disposal is expected to be ~HK$263m in cash. At an EGM earlier this month, shareholders voted overwhelmingly in favour of the sale.
In light of these events, the investor David Webb (who owns ~10% of the company) published an open letter to the company. He commended the company on its decision to dispose of the investment property and called for the directors to pay out a special dividend of at least HK$0.352 per share to distribute the proceeds. He argues that the company is “already overcapitalised, bloated with net cash far in excess of what is needed for the core business.”
He also warned the company against using the proceeds to invest in businesses that are beyond management’s area of expertise, especially given Ming Fai’s “proven track record of losing money in new non-core businesses.” If the company’s directors don’t declare a special dividend, Webb has indicated that he will nominate new (independent) directors who will.
Ming Fai’s shares are currently trading at ~HK$1.20, up by nearly 50% this calendar year. For readers who are interested, Webb’s full analysis can be found in his letter.