Avoid: S. Culture (1255)
15 September 2019
Sensible investors should avoid shares of S. Culture International Holdings Ltd (SC, 1255). At the closing price of $10.56 on Friday (13-Sep-2019), the market capitalisation is HK$2,260m, but based on the interim results at 30-Jun-2019, it had net tangible assets of only $174.4m, or $0.815 per share. So it is trading on about 13.0x NTA. The firm, which retails shoes amongst other things, had revenue of of $358.0m in 2018 and booked a loss attributable to shareholders of $1.7m. It last made a profit in 2014.
Chairman Yang Jun holds 149,993,617 shares (70.09%), having acquired control in a takeover in 2017 at $4 per share. That valued the shell at HK$616m above its then book value of $184m ($0.92 per share). He borrowed $330m to do that, pledging the shares to a money-lender. On 7-Feb-2018, that pledge was released and he repledged 119,993,617 shares (then 60%) to China Great Wall Asset Management Co Ltd, presumably for another loan. We don't know how large his current loan is, or what loan-to-value ratio he is allowed by the lender. A best-efforts placing of new shares completed on 1-Mar-2018 with an issue of 14m shares (6.54% of enlarged) at $3.98 per share. That diluted the pledged stake to 56.07%.
In the latest CCASS snapshot, we see that the pledged shares are in the custody of ABCI Securities Co Ltd. 85.89% of the stock is in CCASS. We suspect that Mr Yang's remaining shares are not. Of the shares in CCASS, our concentration analysis shows that 90.18% are in the top 10 CCASS participants (banks and brokers).
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