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SCMP Reporter

Some things in life just cannot be relied on. Not the weather, not Derby County Football Club and most certainly not Hong Kong-listed companies.

Consider artificial Christmas tree manufacturer Boto International Holdings.

Not satisfied with steady profits, a rising stock price and a recommendation by corporate governance advocate David Webb, the company is selling off its main business to focus on Imagi, the company's peripheral 3D-animation division which is run by Francis Kao Wai-ho, son of chairman Michael Kao Cheung-chong.

Boto's name will also be consigned to history, replaced by Imagi.

By selling off the core business and some Boto-related properties in Chai Wan, the company hopes to raise about HK$1 billion, of which no less than $200 million will be retained and the rest reinvested or hived off as a special dividend to shareholders.

Who?

You remember, those poor suckers who decided that the company's solid sales, earnings growth and 7.5 per cent dividend were worth something.

The decision to suddenly sell off Boto's perfectly respectable core business and focus instead on a risky venture in a risky business with a thus far unproven team has, unsurprisingly, raised eyebrows.

Deputy managing director Philip Lam Pak-kin said the decision was based on the future of the artificial Christmas tree industry.

'We strongly believe that the growth potential of the artificial Christmas tree business will be steady in the years to come but its growth potential itself will be quite moderate . . . we strongly believe that the business should be sold so that there is a value for the company and an exit opportunity for shareholders.'

Once all the dust has settled it will announce a special cash dividend for shareholders.

However, it was only in September last year that Mr Lam explained away Boto's new media investments.

'We're not losing sight of our core business . . . it's like buying some lollies after a big meal,' he said at the time.

'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.'

Investors certainly are not convinced by Boto's decision. In between selling down the stock by 10.29 per cent yesterday, rumours began popping up about Boto's real motive for selling off the crown jewels.

Some analysts speculated Boto could be lining itself up to be acquired by a mainland investor after a backdoor listing.

Asia Financial Securities vice-president Ricky Tam Siu-hing said: 'The management is quite traditional and it didn't build this kind of hi-tech thing and so . . . it could be cleaning out the company to make it easier to sell.'  Boto denied the rumours.

Mr Lam said: 'This is absolutely not applicable to our case. We have not been approached by any Chinese parties nor do we have any intention of trying to procure such parties into Boto.

'We solely intend to use Boto for the Imagi business and make it as successful as Boto has been for the past 18 years.'

Although Boto is supplying shareholders with an exit strategy and may pay a fat dividend, the fact remains it has certainly caught them on the hop.

'Past performance should not be taken as an indication or guarantee of future performance,' reads the small print.

Those investors who have been holding Boto as part of a long-term strategy or even to line a nest egg learned that lesson yesterday.

For those who feel they cannot make it through Christmas without an artificial tree maker in their portfolio, there is always Perfectech International Holdings, once Boto's only SAR competitor.



Boto chopping down profit tree