- a substantial dilution in the share base through a combination of non-prorata new issues;
- one off expenses of HKD34 million for one-off fair value loss on deferred consideration shares and share-based payment expenses
- an explosion in selling and marketing expenses to HKD249.7 million (from HKD73.2 million)
It was not surprising that the shares fell sharply on opening - a continuation of a downward trend which has seen the share lose about 55% of their value since my purchase at HKD2.36 in September 2010. VODone is currently the worst performing investment in the portfolio.
However, the gross profit more than doubled on the back of a significant jump in revenue and the balance sheet remains clean with no borrowings and modest cash balance of HKD342 million.
IMHO, the second half profit has potential to be significantly better than the first half. The non-repitition of the one off items alone would produce a material lift in EPS (although not one that I can precisely quantify because of the effect of minority interests). More importantly, if there was a combination of further growth in revenue and a reduction in the selling and marketing expenses, then the bottom line profit could increase significantly.
Accordingly, I added to my position this morning paying HK$1.05 per share.