Stock Gumshoe

This one didn’t come in on an email ad, but it’s a teaser for a couple companies nonetheless … and you know how your friendly neighborhood Stock Gumshoe just looooves a teaser!

Tony Sagami runs a newsletter called Asia Stock Alert for Martin Weiss at Money and Markets, and we’ve looked at him before — unfortunately for him, it was when he was teasing Garmin as the #1 best tech stock to own now back in June, 2007.

I suppose it was one of the best ones to own for a little while there, for about four or five months — it was around $65 when he teased it, and it did shoot up over the winter to over $120. Now? It’s back under $50. So perhaps he had a trailing stop and still got a gain for his subscribers in that one, I don’t know.

Like Robert Hsu, Sagami claims that his advantage in choosing Asian stocks, and in particular Chinese stocks, is that he visits the places that no one else wants to visit, and he does his own “boots on the ground” research. I don’t know if there’s any truth to their claims that all other analysts spend their time at Shanghai nightclubs while these intrepid souls sneak around warehouses with cameras, but we’ll let them have their glamorous Gumshoe image. Read the rest of this entry »

This is a teaser that came in from Ian Cooper’s Early Alert Trader, which has sent us some Macau teasers before. This is for an $18 RFID company that makes the chips and table systems that enable more secure tracking of table games, with a big potential Macau business, but if you actually go back and read the teasers about 75% of this teaser is an exact copy of the last Ian Cooper teaser, for PacificNet a few months ago. Lots of talk about Macau’s general fabulousness as an investment mecca, portraits of Steve Wynn and Sheldon Adelson as the favored poster boy gazillionaires for this sector, etc. etc.

PacificNet, for those who don’t remember, is a company with technology for the one-armed bandits of Macau, and Ian thought it was going from $7 to $50 (so far, it’s making what I can only assume Ian believes is a brief stop down at $5 first). So, not necessarily any rush here.

But still, let’s figure this one out.

The main clue is that this company makes RFID-enabled chips and tables, and that they’ve so far signed a deal (”this year”) with Wynn Macau. Ian says that the “major players are lining up at this company’s door.”

He says that the estimated cost of an RFID-equipped table is $8,000, and that there will be 4,600 tables in Macau casinos by the end of next year. You can do that math and be impressed on your own time (though there’s no promise, of course, that prices will remain that high or that all tables will be RFID-equipped).

There have been other buyers, too: “Macau Galaxy Group, a conglomerate of casinos in Macau, forked over a huge check to this company for an order of 285,000 RFID-embedded chips to be used in its flagship casino, the StarWorld.”

And as to the stock price: “It was trading up around $20 as recently as October but as I’m writing to you it’s selling for around $18.”

And, as I always love to see, he has a very specific prediction: you’re going to bank 425% on this one.

Which means that it’s time to start feeling sorry for our friend Mr. Cooper, because although this ad is still up online it’s clearly several months old … the shares of this one, just like the shares of PACT a while back, have tumbled significantly and if you thought $18 was a bargain back on April 30 — as this tease implies — then today’s price of $13.50 will probably have you running to sell your house to pick up shares.

Please don’t. Seriously. Not on my account, at least.

This company may be fine, but recent months have not been particularly generous to the shares — and here I am, neglecting to even tell you what company we’re talking about.

This teaser is for Gaming Partners International Corp (GPIC).

Then again, if we were looking at 425% gains from $18, that would have been (and perhaps may eventually be) a share price of $76.50. And if we’re going to $76.50 from the current $13.50, then that’s a tasty return of more like 565%. Even better!

PACT, if you recall, took a tumble when they were delinquent in their filings, and what do you know, GPIC did essentially the same thing — they fell when they got a delisting warning for delinquency, then fell further when they reported worse than expected earnings (dipping down to $10 or so for a little while, even) and finally stabilized (if you can call it that) in the neighborhood of $14 over the last couple weeks.

The company has been announcing orders with the big Macau casinos, including Sands, and it does have a big share of the standard table game business as well as this RFID stuff. I have no idea if the accounting problems are behind them, as the company seems to believe, but it is certainly a real business, and they even have an eensy teensy dividend.

So … an interesting little tease, made more so by the fact that it’s almost identical to another Macau tease from the same guy, and by the fact that both companies got hit for almost the same reason in roughly the same timeframe. One might charitably conclude that accounting is more difficult for the gaming equipment companies.

If you’ve any experience with GPIC, feel free to share it with us. The earnings are, to give some credit, expected to increase pretty dramatically as current orders hit the bottom line, and the two analysts who cover this one see them earning close to a dollar in 2008. Maybe they’re right, maybe not, but at least you know where to start your research … and it didn’t cost you $995 (which is, by the way, the discounted price for Early Alert Trader).

A few of you have called my attention to a teaser that’s been making the rounds recently, from Steve Sjuggerud, for the Sjuggerud Confidential newsletter ($1,000).

He’s saying that he has found a penny stock that is safe enough for him to recommend, and it’s a Macau property play.

Unfortunately, the clues given are extraordinarily limited … so I might not be able to give a definite answer, but essentially the argument is that while the casinos get all the attention, the real winning investments in Macau may be the property developers who are building apartments for workers and visitors as Macau’s population booms.

So, I guess that makes some sense. The only financial clues we get about this investment are that it is a penny stock, which he calls anything “under $5,” and that the market cap is under $250 million, which is why it’s too small to be recommended in his main newsletter.

Other than that, we have only the following for clues:

“For example, the company is working on an incredible luxury waterfront residential development. The development is part of a six tower project with residential apartments, serviced apartments, car parks, and retail space. Located in the northern Macau peninsula, the complex will be near a proposed bridge linking Macau and Hong Kong.

“This is truly prime, grade A property… The company also plans to develop ‘downtown’ luxury apartments in the central peninsula… fix up an existing residential complex by turning it into ‘grade A’ apartments and offices… convert under-utilized office space into residential buildings… and develop a three tower apartment complex on Macau’s exclusive Taipa Island. With soaring demand for property and billions of dollars pouring into Macau’s economy from the casinos, it’s easy to see why the tiny Macau penny stock is one of the best investment stories I’ve ever come across.”

So what on earth are we talking about here? This is complicated significantly by the confusing interrelationships among companies in Hong Kong and Macau, as well as the fact that the property clues above are not all that specific — there is so much building going on in Macau right now that it’s very hard to tell one six-tower development from another.

I don’t want to be at all definitive, but I think I’ve found two good candidates … and perhaps a little more sniffing by the Gumshoe community will turn up a preference for one or the other, or yet a third candidate.

Both of these investments are AIM-traded (London) property investment funds that were launched within the past year to buy and sell and/or develop residential property in Macau:

Macau Property Opportunities Fund (MPO in London, I can’t find a pink sheet listing so that makes me suspect this might not be our guy)

and

Speymill Macau Property (MCAU in London, SPYUF.PK on the pink sheets), which is a little bit smaller.

So … since both match the financial clues (and almost all the other developers I’ve been able to track down do not, most of them are much bigger HK-traded companies, or divisions of the big US and HK real estate and financial firms), how do they measure up on the properties?

This is a bit of a stretch, partly because I don’t know enough about Macau to tell exactly what those things mean

Both are under $250 million, both trade well under $5. Both have properties that might conceivably match those clues.

Here’s what Speymill has, according to their releases:

“On November 29th, Speymill Macau exercised its option to purchase 243 residential units and parking spaces in Lot U from Gold Cove Property Development Company Limited for HK$906,508,929 (US$116.5mln). The high-end, seven tower development in Northeast Macau, near the proposed bridge linking Hong Kong, Macau and Mainland China, will be one of the first Hong Kong-style residential developments in Macau and will offer one of the highest quality finishes in the area. It will also boast a large club house totalling approx. 47,000sf. The units purchased, ranging in size from 1198 to 2226sf will help to raise the standard of living in Macau. The manager believes that the units will likely start pre-selling in the fall of 2007 and the investment should achieve attractive returns to shareholders.”

So … should we worry that it’s actually seven towers? Well, the initial press release from the company, which didn’t include all the info above about the location, called it a six tower development, as quoted here:

“The Company has purchased 243 residential units, ranging in size from 1,198 to 2,226 square feet, and 243 car parking spaces, in three towers of a luxury waterfront development. The development is part of a six tower project which comprises residential apartments, serviced apartments, car parks and a retail podium. While the number of units purchased remains as previously disclosed in the Company’s admission document, the Company has made the decision to swap the top 4 floors and bottom 4 floors in Tower 3 for equal number of middle floors in Towers 2 and 5 at equivalent prices per square foot. The investment manager believes that this change is beneficial to the Company. The apartments were purchased from San You Development, one of the leading residential developers in Macau.”

I don’t know why the number changed along the way, or if it was just a mistake. That’s the one that comes closest to matching the first clue, above.

And the other current holding of the Speymill Macau fund:

[announced in March] “The Company has purchased 24 residential units ranging in size between approximately 2,600 and 3,200 square feet, plus 10 car parking spaces, in a recently completed one tower residential development in what the Company’s manager considers to be a prime location on the Nam Van Peninsula. Neighbouring developments include Hong Kong Land’s “One Central”, Wynn Macau, the recently opened Grand Lisboa and MGM, which is expected to be opened later this year. Being large units suitable for business executives, the Company plans to spend approximately HK$15m refurbishing the units to a very high standard.”

So, that could potentially be the “downtown luxury apartments on the Macau peninsula.” The company also says they have lots of other plans and negotiations, but I don’t think any of their other stuff rises to the level of being a “development” yet.

All of that, combined with the fact that you can buy this one on the pink sheets, leads me to think that Speymill is the likely pick here. It’s managed by Speymill, a big property development firm in the UK, and they actually publish a pretty informative monthly newsletter about Macau property trends if you’re interested — you can find the issues here.

Macau Property Opportunity Fund, which seems a slightly less likely match for this teaser (though not necessarily a worse investment) has three properties in some stage of development — this text is from a company report on MPO’s website:

“The 3 properties”

“Property 1 was acquired by the Company in October 2006 and is a 100% interest
in a prime residential redevelopment project, located in a very well established
and popular residential neighbourhood. The site is currently unoccupied and
is ideally suited for a mid-rise residential development targeted towards local
residents seeking to upgrade the quality of their existing accommodation and
facilities. The initial architectural design and planning processes for this site are
curently underway and, subject to planning approval, construction is planned
to commence in 2008. It is the Company’s current intention to sell all of the
residential units in this project either on a pre-sale basis or on completion.

“Property 2 was acquired by the Company in November 2006 and comprises an
entire luxury residential tower (Tower 6), forming part of a high-end mixed-use
waterfront project, ‘One Central’ currently under construction in the heart of
Macau (on-site work is currently underway on the foundations). This prestigious
project is being jointly developed by two of the region’s top developers; Hongkong
Land and Shun Tak Holdings and includes a 400,000 square foot premier shopping
complex, a 210 room 6-star Mandarin Oriental Hotel and a 50,000 square foot
club house and infinity pool for the exclusive use of residents.
The residential portion of the project, ‘One Central Residences’ comprises seven
residential towers, two of which have been sold en-bloc by the developer and the
remainder released and reportedly sold out to the public. Due for completion in
2009, One Central is a development of unprecedented quality and positioning
for Macau, which gives the Company immediate participation in one of its core
target segments, the premium luxury residential market. It is the Company’s current
intention to retain ownership of Tower 6 until completion of the project.

“Property 3 was acquired by the Company in November 2006 and is a 100%
interest in a redevelopment site located in an up-and-coming area for entry‑level
buyers situated close to the China border in the northern part of Macau.
The surrounding area is now undergoing widespread regeneration and urban
renewal as demand for entry-level residential property increases and as available
land in established areas becomes increasingly scarce. The Company intends
to develop the site into a multi-storey residential project designed to cater for
this rapidly growing market segment for entry level purchasers. The Company is
currently in active negotiations to acquire additional parcels of land in the area
to consolidate its holding in this promising location, after which planning and
architectural design processes will be initiated.”

So, dammit if they don’t have a six tower development in the works, too. The fact that the Speymill one is near the potential bridge, according to the company, makes it a better match in my opinion.

Macau Property Opportunities, unlike Speymill, actually has a decent website if you want to check it out yourself: http://mpofund.com/. Speymill Macau’s info seems to all be hosted (and hidden, to some degree), throughout the Speymill Group site.

I do find both of these to be actually a little interesting for an investment, but I do keep in the back of my mind that essentially what these guys are doing is the same thing that the condo flippers in the hot US property markets have been doing for the last few years, buying up predevelopment luxury condos and selling them when the buildings are complete. It came to a bad end for many of them, but my guess is that the huge population growth in Macau is going to be good for that market in general, though I don’t know to what degree there’s a Macau property bubble at the moment.

And of course, whether Speymill Macau, which I’d agree sounds a little more compelling, can hit it’s goal of 20% annual returns … that I don’t know.

So, two interesting small cap Macau residential property plays, one of which you can buy on the pink sheets. Speymill Macau is my best guess for the latest Sjuggerud teaser so far, but I’m afraid that without stronger clues I’m unable to be 100% certain — I haven’t see info on either one of these having an official plan to develop a “Three tower apartment complex in Taipan”, for example. Please feel free to share your opinions on this here or in the forum, maybe we can reach certainty (or find a better candidate) together.

UPDATE: for those not accustomed to reading the comments, note that two Sjuggerud subscribers have confirmed that this pick is Speymill, and inlcuded a little excerpt of Sjuggerud’s commentary. Still doesn’t mean it’s necessarily a great investment, but at least this bolsters the Gumshoe’s surmise that SPYUF.PK is the stock being touted here.