It might be a little too early to think about Christmas, but it could be time to wonder what is going on at artificial Christmas-tree maker Boto International Holdings. Boto's story has been an enviable one with strong fundamentals, a dominant position in a small but rapidly growing market - retail sales of artificial trees hit HK$800 million last year - and a round of applause from analysts and shareholders on its March 1997 listing and beyond. David Webb, editor of webb-site.com and campaigner for minority shareholder rights, made the company his stocking-filler for 1999 on the basis of the soundly run, profitable business. In fact, but for the potential fly in the ointment, this Christmas tale would have a happy ending. The fly comes in the shape of Robotica, Dr Festive and the Dream Helmet, the characters lying at the heart of Boto's technology investments: the Drfestive.com Web site and Imagi, a production company which produces the Robotica television series. In making his recommendation in 1999, Mr Webb said 'the company has not indulged in property or stock market speculation, nor has it tried to dot-com itself'. Today, Mr Webb is less confident about Boto's direction. 'They've gone slightly off target,' said Mr Webb, who prefers artificial trees. 'They're less hassle - they don't drop their needles and you don't have to go out and buy them every year. You just take them out of the cupboard and put them up,' he said. Returning to the problem, he said: 'People would put a higher rating on the stock if they got rid of the technology investment because investors will discount a stock for unpredictability.' The stock - which was split five for one in April last year - closed down 1.75 per cent at 28 cents on Friday. Colourful and entertaining though the DrFestive Web site is, analysts say there is a tenuous synergy between plastic Christmas trees and garden furniture and a site devoted to the futuristic experiences of Dr Future and the Dream Helmet, a generator of virtual ecosystems. Nonsense, says Boto deputy managing director Philip Lam Pak-kin who is, unsurprisingly, an advocate of artificial trees. He says Drfestive.com is an entertainment portal which provides an important channel for customer-feedback and for brand-building. 'The Internet strategy wasn't a [move towards] a technology direction but is like companies in the past which worked without personal computers and are now using them to facilitate their business operations,' Mr Lam said. If DrFestive can be explained away by the company, Robotica serves a little more of a problem. The cartoon series was created by Imagi, a computer production company which Boto became acquainted with during the design of the DrFestive site. An initial 65 per cent stake was raised to 82.5 per cent last year. Mr Lam defended the company's $8.2 million investment as a drop in the ocean given Boto's $803.2 million sales last year. 'It's like buying some lollies after a big meal,' Mr Lam said. 'The big meal is the core business, so losing a lolly doesn't really create a problem for our shareholders but we have given our shareholders the potential of getting a big return without incurring a big risk.' The anxiety is understandable. Headed up by Francis Kao Wai-ho, the 24-year-old son of chairman Michael Kao Cheung-chong, Boto's technology ventures smack of the beginnings of the oft-repeated sagas of the younger generation of hares seizing hold of the elder tortoise's company and running it into the ground. 'We're not losing sight of our core business,' Mr Lam said. 'We control the younger generation. We don't give them open skies and money and are not ignorant of what they are doing.' The market thus far has not slammed Boto for its first, few steps up the technological path. In fact, analysts say the price has been hampered by a perception Boto's business is a dull one. 'Investors don't like the kind of company which makes artificial trees but if it was involved in something like nuclear power, they would be very excited because investors like new things, not traditional, boring companies,' said real Christmas tree fan Ricky Tam Siu-hing, vice-president of Asia Financial Securities. 'But boring companies earn money.' Graphic: boto10gbz
