Blockbuster dividend from K1 Ventures

While parent company Keppel Corp suffered from another week of attacks by short-sellers, its subsidiary K1 Ventures announced yet another blockbuster dividend of $0.09 per share to be paid out on 18 May 2016. In total, K1 Ventures has given out $0.30 per share dividends this year.

K1 Ventures is one of my favorite SGX stocks which I have been tracking for more than 10 years. It is the investment arm of Keppel Corp and its business objective is to invest in US companies with potential and hidden values. Over the years, it had made many notable exits like Helm Holding, MMR and China Auto Grand. From these divestment, K1 Ventures had rewarded shareholders with hundred of millions of dividend payouts. In fact, based on its dividend track records, K1 Ventures should be the best dividend stock in SGX.

K1 Ventures

I had made thousands of profits from investing in K1 Ventures but had recently sold off all my shares to purchase my new matrimonial home. Nonetheless, I hope readers can benefit from reading my blog and thus, is sharing my analysis on K1 Ventures (again).

Following an unsuccessful management buy-out in 2013, K1 Ventures has committed to managing its existing investments for eventual exits and returning the excess cash back to shareholders. This means that the company will not be making any new investments for the foreseeable future. Henceforth, investors should be cautious when dealing with this stock because it may not be wise to adopt a buy and hold strategy. In my point of view, K1 Ventures is more suited as one of those stocks which you apply momentum investing – that is, buy on ex-dividend and sell on good news.

The business fundamentals for K1 Ventures are still strong as usual. Cash flow remained positive in third quarter, registering $39.5 million for the operating activities. Nine months cash flow was $131.3 million. The company is currently sitting on cash pile of $58.9 million. The balance sheet is solid as well, with net current assets of $68.6 million.

Third quarter profits was $34.9 million, more than 500% increase from the previous quarter. From my point of view, one should not pay too much attention to the profit and loss statement, especially for venture capitalists (VCs). This is because the business nature of VCs is to turnaround companies and then sell them for profits a few years down the road. As a result, certain quarters can witness a dramatic increase due to the divestment of business units. This is also the case for K1 Ventures.

The net profit for this quarter was driven by investment income from Knowledge Universe Holding (KUH) pertaining to the receipt of cash distributions of approximately $144.4 million. Given that its parent company, Keppel Corp is facing headwinds due to the oil and gas downturn, K1 Ventures management will be pressured to accelerate its divestment progress and deliver more cash for Keppel Corp.

Thus, I foresee that in the following quarters, K1 Ventures may announce more dividend payouts. Nonetheless, investors wishing to enter this counter should be cautious because K1 Ventures is already in divestment mode for the past few years. So you need to have a clear strategy in mind before investing in K1 Ventures. Not vested in this counter any more.

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SG Wealth Builder


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