2nd position (small in relativity)
GIGM owns FunTown, an entertainment platform that licenses and develops PC/Mobile games and serves as a social network as well in Taiwan and Hong Kong. People use their platform and communicate with their friends and play together. But I am not here for the operating company, I am here for the assets they own. The best kind of asset. CASH. They are trading disgustingly cheap and I think it is because first, they are a foreign company and US investors do not like to invest in foreign companies because they don’t trust the numbers. But they don’t have to be scared, the company changed their auditors into an international, well respected, and huge firm, KPMG to audit them in order to give confidence to US investors which I think is a great move to spark some trust. Second, they are burning cash. They are unprofitable and they won’t be profitable anytime soon in my opinion unless they start to cut costs aggressively or just grow revenues. Cash burn is a real problem. You have time working against you. The faster you burn cash, the more likely you are to get into trouble. If your cash burn is slow then you can get to think on how to solve the problem or how to enhance shareholder value. Third, they have an investment into a robotics company of $10,000,000. I believe it to be a gamble because they probably don’t have revenues generated yet and are still in the R&D stage. If this investment proves to be unsuccessful, we have $10,000,000 going down the drain.
GigaMedia is selling well below net cash and are also taking steps to gain trust from US investors by making them feel comfortable. They incorporated a US based auditing firm to audit their financials. “The change of auditors to KPMG is part of new management’s initiatives to enhance shareholder value. KPMG is registered with the PCAOB and is subject to periodic inspections by the PCAOB. Our annual audit is performed in compliance with the rules and regulations of the PCAOB, and we have cooperated fully with normal periodic information requests from the U.S. Securities and Exchange Commission (SEC) regarding our SEC filings.”They got rid of VIE’s because of the doubts people had about foreign companies and their accounting practices using the VIE’s which was one of the problems with the Enron scandal. And lastly, in the general meeting, it was voted in favor to allow the company to initiate stock repurchases.
Gigamedia is a dirt cheap company selling for below net cash value and the market should recognize how cheap it is. The company will probably authorize a buyback program since they need to substantially increase the stock price in order for them to not become a Passive Foreign Investment Company (PFIC) which is penalized by paying extra taxes in their country of incorporation, Singapore. If not by share buyback, the market should recognize how disgustingly cheap the company is and realize that they have a lot of years left until they run out of cash. Management is taking the right steps to enhance shareholder value which is rare in a foreign company nowadays.
