HK 第32部分; One Day Stocks
Some stocks gradually compound away, year after year. Others return years of performance in a brief period of time...
This post is a follow-up on the 150% dividend yield stock I discovered in News & Insights #37. It includes an excel sheet to check the fair value impact in various scenarios.
Mexan Limited
Ticker: $22.hk
Alternative names: 茂盛控股有限公司, Maosheng Holdings, Mason Holdings
IR website: mexan.todayir.com/
This write-up is me just trying to figure out a special situation in two brief stints of a number of hours in the weekend… leaving no time whatsoever to do thorough fact- and error-checking. So, be extra careful. This post may contain even more errors than my usual posts.
Table of contents
Conclusions
Special situation
Company description
History
Financials
Learnings
Jaminvest resources
Disclaimer
Footnotes
1. Conclusions
Diving a bit deeper into Mexan Limited, this looks like a very interesting special situation.
1.a. The special sit » 2x HKD 0.06 divie
Mexan intends to do two large transactions; a real estate disposal (the VSD), and a real estate acquisition (the VSA). If the first deal closes, then Mexan intends to distribute a special dividend of HKD 0.06 per share. The second transaction is dependent on completion of the first one. If the second transaction closes as well, then Mexan intends to pay another special dividend of HKD 0.06 per share.
There are quite a number of conditions - particularly on the first deal - that need to be fulfilled in order to complete the transaction. For the first transaction the dates to watch are the planned completion date of 2025/04/02 and the “Long Stop Date” of 2025/10/25. Without closing of this first deal within the timelines » very likely » no deal and no divies. The counterparty of the first deal is HKIA Accommodation Limited, a wholly-owned subsidiary of a Hong Kong statutory body. So, I would suspect that should grease up the progress with the Hong Kong authorities.
1.b. What else?
1.b.i Divies: HKD 0.12 gross per share
My focus is predominantly on the two divies of HKD 0.12 per share in total. Each HKD 0.06 special divie is dependent on one deal closing. HKD 0.12 in divies is 150% of Friday’s HKD 0.08 closing price. This is the main prize imo… but it is not guaranteed that the two transactions close, and therefore that the divies will be distributed. And, we’ll see how the stock opens on Monday.
1.b.ii Worst-case: No deal » HKD 0.06 p/s
Forgetting the dividends for a second… there is financial assets value in the shape of property assets. Worst case, I’d say that’s worth HKD 0.06 per share, equal to the ‘undisturbed share price’, and implying an 85% discount to ‘fair’ financial assets value (FAV) if no deal happens.
I do list the 51%-owned building materials and stuff company, Winland Firmstone, but I do not attribute value to it in any scenario. Perhaps something good will come out of it. Personally, I am rather skeptical.
1.b.iii Base-case: Both deals complete » HKD 0.133 p/s
If the first deal completes, then I do not see a reason for the second deal to fail. After all the second deal is with Mexan’s own controlling shareholder, Mr Lun. So, assuming both transactions complete, assuming the same 85% disount to FAV on the property assets, and assuming a 30% tax rate on the dividends » I arrive at HKD 0.133 per share in fair value. That can be broken down in HKD 0.049 per share in FAV for the continuing Mexan business, and HKD 0.084 per share in after-tax dividends.
1.b.iv Fairytail: Both deals complete » HKD 0.481 p/s
Let’s also include a fairytale scenario, assuming both deals complete, assuming Mr. Market values all the property assets at 100% of the fair market value, and there is no taxation on the special dividends. In that highly-unlikely scenario, I arrive at HKD 0.481 per share in fair value. This fair value would breakdown in HKD 0.361 in FAV/share and HKD 0.12 in total dividends/share. Now, who does not love a fairytale with a happy ending? … still… let’s not count on that.
If you like to run your own assumptions, you can download my Excel template here…
I post more of these type of financial modeling exercises in the Founders’ section.
1.c. What else, what else, what else, what else?
Mexan is not a great company, whether it closes the transactions or not. The valuation, however, does look very interesting to me… especially when the value unlocking event materializes… as it seems to be doing. Without cash returns to shareholders it’s difficult to see this ‘story’ working.
This Mexan special situation does highlight that there is a possibility for big value-unlocking events… even in Hong Kong stocks. Definitely an encouragement for me to try and find more absurd-cheap Hong Kong stocks!
2. Special situation
On 2025/02/07, Mexan announced two intended transactions and two special dividends. The special dividends are each HKD 0.06/share and each depend on completion of one of the transactions.
VSD / Very Substantial Disposal: Sale of Winland 800 hotel
Planned completion date: 2025/04/02
Long Stop Date: 2025/10/25
Additional conditions:
Mexan has undertaken to submit (and has submitted) an application for renewal of hotel licence in respect of the Hotel (which will expire on March 5, 2025) for one year before its expiry according to the applicable regulations and to arrange transfer of the existing hotel license in respect of the Hotel to NewCo on or before the VSD Completion Date.
Termination fee: Mexan can be liable for up to HKD 20m in termination fees
Purchaser: HKIA Accommodation Limited, a wholly-owned subsidiary of a Hong Kong statutory body.
VSA / Very Substantial Acquisition: Shopping Mall and 305 car parks1
Planned completion date: to be determined
Selected financial data:
Gross rental income was HKD 21.3m and HKD 22.2 for FY2023 and FY2024, respectively, representing gross rental yields of 4.17% and 5.13%.
Conflict of interest: The seller is Solar Trend Limited a company which is ultimately owned by Mexan’s ultimate controlling shareholder, Mr. Lun.
My understanding is that the VSA will be completed on a debt-free basis and that the seller (Solar Trend / Mr. Lun) will terminate all borrowings and guarantees on the properties before completion of the VSA… but some of the language in the corporate filing is a bit difficult to understand. I can always be wrong.
NB
The VSD Completion is not conditional on the VSA Completion but the VSA Completion is conditional on the VSD Completion. Since VSD Special Dividend is subject to the VSD Completion and VSA Special Dividend is subject to the VSA Completion, they may or may not be declared. Shareholders and potential investors should therefore exercise caution when dealing in the securities of the Company.
Table of intended applications of VSD proceeds in footnote2.
3. Company description
In 2007, Winland Wealth - then, wholly-owned by Mr. LUN Chi Yim - acquired the 73.58% controlling interest in Mexan Limited from Mexan Group. Nowadays, Mr. LUN Yiu Kay Edwin is the Chairman of Mexan and its joint controlling shareholder (along with his immediate family member… I haven’t checked who) via Winland Wealth’s 69.06% interest.
Mexan operates two highly cyclical businesses;
a hotel (100%-owned), dependent on tourism, and
a building materials & construction fit-out business (51%-owned), dependent on residential construction activity.
addendum: Mexan gained full control in 2024
Risks for the latter business is further increased by high customer concentration.
3.a. Winland 800 Hotel
An 800-room hotel located at Tsing Yi, New Territories, Hong Kong.
Judging from the ancient website and customer reviews (6.1 score out of 10 on Booking, 3 out of 5 on TripAdvisor), there is some room for improvement… and judged by the photos some refurbishment activity would not be a bad idea if Winland 800 continues to be used as a hotel property…
…particularly to improve the guest experience, and, with it, average room rates. Occupance has been very strong lately, with a notable c98%(!) last year. Room rates on the contrary seem very low.
3.b. Winland Firmstone Limited
In April 2022, Mexan acquired 51% ownership in Winland Firmstone for HKD 6.6m. However, HKD 3m of the consideration was agreed as an earnout-payment, due on 2025/03/31. That contingent consideration was written down to HKD 0m as of 2024/03/31.
Winland Firstone operates in the trading of building materials and fit-out construction projects. The core business of Winland Firmstone includes supply of imported European high-end kitchen cabinet, furniture and decorative lighting, supply of a wide range of building materials including ceramic tiles, mosaics, carpet and fabrics etc; supply of high quality natural stones and provision of design and construction service for fit-out projects.
Some major customers of Winland Firmstone include leading property developers in Hong Kong.
3.c. Key financial assets
As of 2024/03/31, Mexan had …
Hotel property with carrying amount of HK$356 million (or HKD 714m at cost)
Investment properties with carrying amount of HK$91 million, which comprise an
Commercial property in Hong Kong with the carrying amount of HK$84 million (HKD 169m at cost, HKD 85m at assessed fair value » HK$42,836 to HK$49,478 per sq. feet), and
Leasehold (agricultural) land with carrying amount of HK$7 million (HKD 12m at cost, HKD 25m at assessed fair value).
All property was recorded at cost less accumulated depreciation and impairment.
HKD 92m in net debt. Net debt was a bit lower on 2024/09/30.
4. History
Mexan Limited’s (Mexan) history as a listed company began when Mexan Group Limited (Mexan Group) issued a cash offer to acquire property developer and investor Asean Resources in 2003 for HKD 0.8784 per share.
At the time, Mexan Group was wholly-owned by Mr. LAU Kan Shan, and Asean was 74.3% owned by United Goal Development. In turn, United Goal was equally-owned by Mr. Peter CHAN (CHAN Boon Ho, Peter) and Chow Tai Fook Enterprises.
The complete deal arrangement was quite complex. Before completion of the takeover, a reorganization of Asean saw many of its assets move to Besteam.
Structure after reorganization
In a twist of events, Mexan Group did not privatize and de-list Asean. Instead, Mexan Group placed 104.1m of the acquired Asean shares - at the same HKD 0.8784 share price - to ‘independent third parties’. On 2003/07/22, Mexan Group owned 87.36% of Asean. Finally, on 2003/09/25, the Special General Meeting adopted Asean’s name change, and that was the start of the Mexan Limited’s (Mexan) stock listing.
Some other interesting developments in Mexan Limited’s listed history include;
2004/03/31 - Mexan had investment properties with a assessed market value of HKD 1.6bn and HKD 0.5bn in net debt.
2005/02/xx - Completion of the acquisition of a 44.9% interest in toll road operator Ningbo Beilun Port Expressway for HKD 270m.
2005/11/15 - Announced acquisition of 55.1% interest in Ningbo Beilun Port Expressway for HKD 530m. Mr Lau - Mexan’s Chairman and 73.58%-owner - was one of the owners of the 55.1% interest in Ningbo.
2007/04/16 - Winland Wealth - wholly-owned by Mr. Lun Chi Yim - launches a mandatory takeover offer for Mexan at HKD 0.1067 per share, after it acquired an 73.58% interest in Mexan from Mexan Group.
Following a reorganisation of Mexan, its remaining principal business was hotel investment and operations.
The Independent Board Committee of Mexan recommended to NOT acept the offer, as it was of the opinion hte offer price was not fair.
5. Financials
Segment disclosures FY2024-03
In FY2025H1, the hotel operations turned profitable, while the trading operations sank further into losses3.
6. Learnings
Learning is perhaps a bit of a strong word… but this special situation (once again) emphasizes a couple of things with absurd-cheap Hong Kong stocks.
Governance is usually crap (pardon my French). With Mexan I noticed that the controlling interest has been swapped several times over the course of Mexan’s and its predecessor’s life as a listed company… and still it’s listed… and minority shareholder probably never received a fair takeover offer. Interestingly, an independent boad committee once even votes AGAINST a takeover offer. How often do you see that?
Conflicts of interest are rive; Yes, sure I should put this under the bad governance topic… but I still think that Hong Kong governance is so crappy that it needs to be mentioned at least twice.
I have just seen countless inter-dealings in controlled companies listed in HK. Mexan is not an exception. We just saw that with the intention to buy a shopping mall from the controlling shareholder. Now, Mr Lun will still own 69% of the shopping mall via Mexan, instead of 100% directly… but yeah appearances. And besides, I believe that pretty much all minority shareholders would vote in favor of selling the Hotel and vote against buying the shopping mall.
Capital allocation is extremely important.
Mexan has not been active at all in capital returns to shareholders. The two special dividends of HKD 0.06 announced with the hotel sale and shopping mall acquisition transactions are the first dividends since financial years 2006 and 2007. I believe that was a critical factor for why the stock was trading at a c85% discount just to FAV alone.
Selecting HK stocks with consistent cash distributions to shareholders can make a huge difference in stock returns.
Obviously all shapes and forms of capital allocation are very important. In this regard, Mexan is also a bad case example of what not to do. Buying low return on capital assets/activities, 100% financed with equity. That’s a sure way of depressing Returns on Invested Capital and destroying shareholder value.
Accounting always has its funnies. In Mexan’s case its funny that the annual reports mention the ‘independently’ assessed fair market value of the investment properties… but not of the PP&E… and the hotel property (PP&E) was reflected in the balance sheet at (HKD 356m) ‘cost minus accumulated depreciation and impairments’ » which amounted to what?… roughly half of the cost price (HKD 714m) and intended sale price (HKD 765).
That’s something I need to pay more attention to, when I turn over the rocks.
7. Jaminvest resources
Some useful links to key resources on Jaminvest.
🏷️ - Financial models/templates/et cetera (f🔐)
🏷️ - Hong Kong (sub-)portfolio posts
🏷️ - Portfolio posts (f🔐)
» » - Stock/Company list, alphabetical lists of many of the stocks mentioned
🏷️ - Tutorials including Excel sheets
8. Disclaimer
This is neither a recommendation to purchase or sell any of the shares, securities or other instruments mentioned in this document or referred to; nor can this presentation be treated as professional advice to buy, sell or take a position in any shares, securities or other instruments. The information contained herein is based on the study and research of Jam_invest and are merely the written opinions and ideas of the author, and is as such strictly for educational purposes and/or for study or research only. This information should not and cannot be construed as or relied on and (for all intents and purposes) does not constitute financial, investment or any other form of advice. Any investment involves the taking of substantial risks, including (but not limited to) complete loss of capital. Every investor has different strategies, risk tolerances and time frames. You are advised to perform your own independent checks, research or study; and you should contact a licensed professional before making any investment decisions. The author makes it unequivocally clear that there are no warranties, express or implies, as to the accuracy, completeness, or results obtained from any statement, information and/or data set forth herein. The author, shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.
9. Footnotes
VSA properties
Intended applications for VSD proceeds
2025H1 segment disclosures
Unfortunately, there were too many people with broker access and the stock price did not offer a substantial discount to my ‘base-case’ estimate of HKD 0.13 p/s.
I still like TJ development 882 HK . Positive carry, no net debt, huge discount to Nav, hidden good business (Otis). Those are a lot better than these HK property sh*tcos