You mentioned that the management at Cinderella Media are great capital allocators as they aggressively allocate capital for PPE during crisis time. Now there a a few things going on in Cinderella Media. Chairman has stepped down, replaced by new chairman who actually previously was the chairman of the company in earlier years. Also, they deconsolidated 1010 printing group which caused them to have substantial drop in results for 2014 due to the deconsolidation. So, do this actions signify the management are still trying to allocate capital properly? Their main driver, inflight advertising are also greatly hit which is also one of the reason for the drop in profits.
Cinderella spun off 1010 Printing and distributed the shares by capital reduction to the respective Cinderella shareholders. In other words, Cinderella stroked off a subsidiary which used to contribute close to 70% of sales in 2013, that caused the company to issue an ‘expected’ profit warning (substantial drop in earnings) recently. The losses were compensated by new shares of 1010 Printing (every 1000 shares is entitled to 1380 shares in 1010 Printing) given by Cinderella to her shareholders.
On the surface, it seems like Cinderella has gone down in share price (HK$1.70 to HK$1.25) when the capital reduction took place. But her shareholders now hold an equivalent value of shares around HK$1.38 (1.38 x HK$1 price as of May 2014) in 1010 Printing. If you add them up together, assuming there is no capital reduction, Cinderella Marketing’s share price is now worth HK$2.74 (1.38 x 1010 Printing HK$1.04 + Cinderella HK$1.31) for the same equal amount of value.
We were quite impressed again this time around by the management’s efforts to unlock more value for shareholders. Not only have the shareholders made money from the spin-off, they also have the option to choose which business (in-flight or printing, or both) they want to own. So if they do not like in-flight business (we weren’t very comfortable due to the extreme volatility in the aviation industry), they could sell the shares and simply hold on to 1010 Printing’s shares.
On his departure, I am sure he will be missed by Cinderella’s shareholders.