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Canadian Value
Canadian Value
Articles (4624) 

Francis Chou Semi-Annual 2013 Report

August 30, 2013 | About:

Francis Chou 2013 Semi-Annual Report

About the author:

Canadian Value

Rating: 5.0/5 (6 votes)


Vgm - 3 years ago    Report SPAM
Excellent read. His commentary on OSTK was illuminating and strikingly honest.

Chou and Watsa continue to hold significant positions in RFP which is down significantly from purchase at least in Chou's case.

Thanks for posting.
Batbeer2 premium member - 3 years ago
Hi vgm,

I think Hanfeng Evergreen is worth a look as well.

Chou owned it in 2006/2007 and it seems he's now back for more.

It currently trades around net cash.

@ Canadian Value


Also for the transcript of the Sequoia investor day.

Vgm - 3 years ago    Report SPAM
Hi Batbeer,

Thanks for the headsup on Hanfeng. I'll take a look.

I've begun to look at Heracles Cement. It's a tiny company, though part of Lafarge, and a very small position for Chou, but looks like he paid around 3x the current price. Investors are beginning to dip their toes back into Greece, including Prem Watsa recently taking a large position (percentage-wise at least) in Greek commercial real estate company EUPRO.AT
Vgm - 3 years ago    Report SPAM
Hi again Batbeer,

At first glance, it seems Hanfeng was looking to be bought out, but had some bad news on that front in the past few days and the stock is down another 30+%.


Any thoughts?
Batbeer2 premium member - 3 years ago
>> Any thoughts?

Off the top of my head so if the numbers are off then it's because my memory fails me.....

The management buyout fell through at $2.25. The CEO failed to get the the funding. The stock dropped like a stone on that news so now we are looking at a profitable company trading at $70m with:

- $80 of cash on the balance sheet,

- a ton of fully opertional fixed assets (fertilizer plant) you get paid to own and

- no debt worth mentioning.

The business is very seasonal. Through the seasons the cash level fluctuates but does not drop below 40m so I figure that 40m is excess cash.

Year-end cash should be slightly over $80m. Inventory converts to cash in the 4th financial quarter. For Hanfeng, financial year-end means september. They should be reporting in a few weeks.

So.... I figure they can use the excess cash to buy-back shares. The CEO now owns 20% so, if they buy back enough shares he has control. In any case, it's hugely accretive to him and minority shareholders to buy back shares now.

They've written down the PP&E to 0 but it's is a fully functional fertiliser plant that has consistently genareted profits throughout the last cycle. I need to look into that some more to get a feeling for the sustainability of profitability going forward. They have been spending quite some money on Capex so they obviously think they'll be operating that facility going forward. Else, they wouldn't be investing. Again, I need to do some more research on that to get comfortable.

I beleive the write-offs were in preparation for the (now failed) acquisition.

It's been a long time since I saw a profitable company trading this cheap. This one happens to be owned by a guru who runs a fairly concentrated portfolio. I know Chou owned this one in 2006 and made off with a huge gain. If memory serves, he bagged 7 times his investment. Now that the stock has been crushed, he's back. First time round, it got away from me. It ran up and I lost interest. Thanks to this thread it's back on my radar.

If I find the time, I may submit this one for the contest.

Just some thoughts.

FWIW, here's what I was discussing with DanielW about HF a few years back: http://www.gurufocus.com/forum/read.php?2,28188,28677#msg-28677
Vgm - 3 years ago    Report SPAM
Interesting Batbeer. Thanks.

Is DanielW still around on GF?
Batbeer2 premium member - 3 years ago
If so, he's totally silent.

Swnyc2 - 3 years ago    Report SPAM
Dear Batbeer2,

FYI, I think as of March 31, 2013, cash is $40M and debt is $17M, according to their financial statement which can be found here.

Batbeer2 premium member - 3 years ago
Yes, in March cash and receivables are at their lowest point for the year. Hanfeng builds up inventory (fertiliser) which stood at 60m. I expect the yearend numbers (todays reality) to be different. Inventory should be down and cash+receivables should be up.

I was looking at long-term debt which is negligible. You are right though, short-term debt hovers around 15m.
Batbeer2 premium member - 3 years ago
For anyone interested in Hanfeng, it's probably worthwhile to read this article:


and maybe this thread for some background on the now-failed management buyout:


It seems the company is being held hostage by a key customer. That's not good.

Then again, at net-cash this is absurdly cheap.
Vgm - 3 years ago    Report SPAM
Thanks for following up Batbeer.

I think it'll go in my too-difficult pile...
Batbeer2 premium member - 2 years ago


Fireworks at Hanfeng.

CEO fired by the board (seems to me he was trying to take it under)

.... but he refuses to leave.

At least this board is putting up a fight. Dell's board just let it slide. Shame on them.


Batbeer2 premium member - 2 years ago


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