K1 Ventures

K1 Ventures: to sell its entire 80% stake in Long Haul Holding Corp (“Helm”), a US locomotive and railcar leasing company, to Wells Fargo Bank for aggregate cash consideration of ~US$152m ($192m). The sale is part of the group’s proactive mgt of its invmts. While mgt says the transaction is not expected to have material impact on the group’s FYJun14 financials, on completion of the sale, K1 Venture’s book value per share would jump from $0.15 to $0.18. This implies K1 shares are trading at a more attractive 1x pro-forma P/B. Market reaction may be positive when the stock releases its trading halt at 3pm, given that the Helm stake sale is priced at a ~20% premium to OSK-DMG’s estimate of Helm’s fair value of $159m (Aug ’13 report). Moreover, following the stake sale, K1 will see its cash per share balloon from 1¢ to 10¢ (55% of share price), which could inspire hopes of a generous payout. Since 2004, the group has returned some $540m to shareholders in capital distribution and dividends through profitable exits, reflecting its positive invmt track record. Meanwhile the group has a portfolio of other quality assets that offer meaningful capital upside, including: - A 12.2% stake in Knowledge Universe Holdings, a global pre-school education services provider - US$100m invmt in preferred shares of Guggenheim Capital with a 7% coupon rate and a conversion option, and - A 1.6% stake in China Grand Auto, the largest auto dealership in China. OSK-DMG’s last rating on the stock was Buy with TP $0.25 (Nov ’13 report).