Cinema-Blend-whereiszemoola

Got this new set of comments from gwynwelsh.

• Dear Investors,
  
  Please excuse me for heading towards a different subject i.e. on Xingquan. I have just received the annual report and I have also went through analysing the top thirty largest shareholders of this company. I have been a shareholder of Xingquan for more than a year now and I must admit to all of you that my investment had been dismal. My investment shrunk more than 45% as of the time of this note. This is also why I pay particular attention on Xingquan and would very much glad to hear from fellow investors on this counter. The annual reports reveals that Koon Yew Yin, dubbed to be the Warren Buffet of Malaysia has holdings more than 11.12% in Xingquan. His holdings were held through his wife, family and himself. 11.12% means more than 34 million shares. The other notable shareholder of Xingquan is Dato Koh Kin Lip, through Rickoh Corp and himself. Dato Koh has 2.52% or more than 4.7 million shares. Malaysian government backed retirement funds were recorded to have some 6.15% holdings as well. Foreign banks have some 4.65% holdings. A major shareholder of IOI Corp, Madam Lai owns 0.26% in Xingquan too. From the report, we can safely say that all major shareholders apart from the Chinese themselves, are smart and perhaps long term investors. Xingquan is currently muddled in the ruts and its share price fell like a stone. Multiple issues were raised on this counter from non-payment of dividends to allegedly producing dubious accounting. These are detrimental news and until or unless views from Malaysian investors change, Xingquan would just continue to be in the rut. However, it was recently reported in the Taikors and Taikons under its private eye column that MBMR is planning a loan of RM50 million to Xingquan. The deal was purportedly to be announced this Nov 15 with MBMR holding Xingquan's preferential shares and a commitment that 35% of all future profits of Xingquan be declared as dividends. My fervent hope is that the deal as reported by Taikors and Taikons is true and the perception of Malaysian investors on this counter change thereafter. `

Hello there gwynwelsh.

It's not a problem that you have posted your opinions and views on this stock.

Hmm... Koon Yew Yin investment in XQ again? Well, here's food for thought. Even the man himself, Warren Buffett has acknowledged he has many a mistakes before. From this perspective, I am just wondering what's the chances of Koon Yew Yin (KYY) not making a mistake? KYY bought his initial 5.5% stake on 27/09/2010. Has his investment in the stock performed or has it under perform?

Why am I saying this?

Sorry but I get this feeling that you appear to me that you are anchoring your investment decision to STAY in this stock simply because Koon Yew Yin is a shareholder. Yes, I could be WRONG but I feel that you are still invested in this stock simply because of KYY.

Is that wise? But what if KYY is wrong? Have you thught about it from this perspective?

And I am aware you have posted several comments on XQ on this site before. Many thanks for sharing your views. And here's one from the posting: http://whereiszemoola.blogspot.com/2011/05/quick-look-at-xingquans-earnings.html

Quote: I have a feeling that Xingquan is reporting a pack of lies like any other Chinese based companies. It is definitely doesn't make sense to suddenly switch product brand and go through the re-branding exercise after establishing the old brand name. I think it is a way to siphon out money in the form or name of re-branding exercise. I have also found out that the real owner of XQ is the brother-in-law of the CEO who is not in the board. This Chinaman is the actual person running the show behind those iron curtains.


I have invested into XQ and I regretted of my mistake. I thought it was good to invest in such a low PE share but it turned out to be a farce.


I have also the feeling that the IR chap, Ooi Guan Hoe is posting his comments in this blog as well. I have screwed him up and he didn't reply any of my emails to him.


If XQ is good then why it is trading below IPO price and keep falling like a stone? F XQ

--------------------
How? You felt you had made a mistake back then and some of the reasoning does support that decision but yet you have decided to stay invested in this stock. Is this because of the KYY factor?

Anyway did you consider some of the points mentioned in the last posting http://whereiszemoola.blogspot.com/2011/05/chat-on-koon-yew-yins-investment-in.html

ps: Market sentiments towards penny stocks are extremely strong. Anything could happen, yeah? So let me say again, I have no idea and I certainly have no interest on how XQ the stock will fare in the future. ;)

ps: for investors perception to change.... hmmmm.... I think balance sheet improvement is one major factor. I am really sceptical to see companies saying they have tons of money in their balance sheet but yet they seem to get 'value' or interest income from their vast pot of money. Why? Is the money real or not? And worse still, despite all these cash, these chinese companies still wants to raise money via share placement sale and TDR. Why? Got tons of money mah... but still want to raise more? Errrr.... and then some of the capex made by these Chinese companies seems rather exuberant. In XQ's case, the rebranding exercise simply blew my mind. In short, it's simple. For the perception to change, investors do not want to see questionable issues in the company they are investing in. And sadly for the Chinese stocks listed here, these questionable issues are the very same issue raised in Chinese stcoks charged with fraud.

ps: XQ balance sheet issue. Ok, sales and improved a lot the last quarter but sadly, I would ask the same old question, so what? My last posting on XQ, Chat On Koon Yew Yin's Investment In Xingquan Again
 , I wrote

• Balance sheet cash. Cash is shrinking but most important thing is interest received. As mentioned several times by blogger snowball, why is the interest so low? Why is Xingquan getting so low value for its money? From the table above, we know that at the end of 4th Q FY2010, Xingquan had some 280 million cash. Nine months later, cash left is only RM 168.850 million. 168 million is a lot of money, yes? But from the cash flow, Xingquan said it's only getting some 563 thousand in interest. Err.. why so little value for their money?

Ok... cash as per their quarterly earnings report in Aug 2011. Cash did improve back to RM214.484 million. Lot's of cash right? Why still want the TDR? And what will it do with the money they get? What if they do another crazy rebranding stunt once more?

But the main issue... interest paid and interest received column in their cash flow.

Now as you are aware, XQ has 'very little borrowings' compared with its huge cash pile.

As per its quarterly earnings, XQ said it has some RM27.083 million in borrowings. Their cash pile totals some RM214.484 million.

Now surely, one would expect XQ to be getting more interest than paying yes?

Any well managed and prudent company would easily manage such a cash balance, yes?

But ... if you look at the cash flow statement....


Interest paid is rm1.839 million.
Interest received is 810k.

Ahem... for a company holding some 214 million cash and some 27 million loans, why so low value for its money????

And for me... I can't really understand this. I am sceptical. I am forced to ask two questions. (1) Why such a poor management of the company's cash? (2) Is the cash even real?

I dunno and I dun have any answer.

ps: The receivables.... 18 May 2011, this was posted A Quick Look At Xingquan's Earnings.The one statement from Jupiter Research stood out.

• Higher receivables of RMB261.3m in 1HFY11 were due to higher sales in November and December and was within the 2-months credit period. Xingquan explained that the total amount has since been collected

Let me highlight my old table on XQ once more.


Now as you can see before 2011 Q1, receivables were less than 100 million.

But for 2011 Q2, receivables 'suddenly' rocketed by more than 100 million to 180+ million.

This made investors very sceptical.

Won't you?

But in May 2011, XQ TOLD Jupiter Research that the total amount has been collected.

But if you look at their Aug quarterly earnings, receivables stood rm167.352 million.

Errr....... how??????

So....... are these issues 'negative perceptions' or are they really questionable issues within the company itself?

Posted yesterday evening: Update On Koon Yew Yin's Investment In Xingquan

I received one great set of comments from xinzhang.

• You can check for yourself with Koon Yew Yin if he is still holding Xingquan at yewyin@gmail.com I have been informed that he transferred those shares to his daughter. This is an information which I got from himself. He is also holding Xingquan through his wife and other close relatives. The total holdings might be more than the 5.5% quoted. The point of him dumping Xingquan does not arise. However, the apparent dismal price movement of this counter had many riled up in anger.
  
  I have read the comment posted by Gwyn Welsh on Xingquan in your blog recently. He had pointed out pertinent points which are of course facts. The management of Xingquan has to increase dividends to its shareholders in order to instil confidence among shareholders and potential investors. The confidence among investors now on Chinese stocks are very low.
  
  Xingquan has to show that they are above the rest.

xinzhang: Hello again.

Now sending an email to Mr. Koon is probably a very good suggestion for those interested in FOLLOWING Mr.Koon Yew Yin's investment in Xingquan.

Point that I wanted to make is a rather simple fact that Mr.Koon by himself, his name, he is NO longer a substantial shareholder because he no longer holds the minimum amount required to be classified as a substantial shareholder.

Which means, he can either buy or sell his stake without the need to informing Bursa Malaysia.

Which puts investors who had adapted the follow Mr. Koon investing strategy in a dark.

Now the irony of Mr. Koon's transfer of shares is that Xingquan shares had declined rather sharply since then.

So how? Is Mr.Koon still holding these shares in Xingquan? Did he buy more for his family members? Or has he reduced his shareholdings?

And yes, I guess sending him an email might help.

Anyway, back in Nov 2010: on the posting More Balanced View On Xingquan, I highlight now again parts of your comments.

• ..... Xingquan is lacking on dividend as correctly pointed out by Mosea. Yes, for any investor, dividend is something that they are looking up to apart from price appreciation. But Xingquan has caveat this by presenting to all and sundery that they are paying from 10% to 20% of its PAT.
  
  Xingquan should be paying up for the expansion completed recently. And the issue is how much business have they managed to get for this new plant.
  
  And my last advise is will there be more funds interested in this counter apart from Mr. Koon Yew Yin. Having Koon Yew Yin on board is a good thing boosting investors' confidence.

Firstly the last statement. Sorry but not to be rude or arrogant but it's now May 2011. Despite the known fact that Mr. Koon is an investor of Xingquan, Xingquan shares have not fared well. So how?

On the issue of dividends again. You said today "The management of Xingquan has to increase dividends to its shareholders in order to instil confidence among shareholders and potential investors. "

On March 2011, CIMB had a report titled "Xingqian: Looking to plant a bigger footprint."

Here's a screen shot.



Apparently Xingquan is still holding very firm on its dividend payout at 10-20% of net profit, a point which you had already highlighted back in Nov 2010.

Now let's consider the updated tables again, from the posting recently, A Quick Look At Xingquan's Earnings



Now with profits not booming (compared on a yearly basis) and as mentioned in CIMB's latest reports, Xingquan, is hit by high material costs. One has to question where's the growth? Now the growth issue for Xingquan is extremely important because Xingquan had insisted it still wants to carry on with its TDR. Without growth and a future dilution of earnings caused by the issue of shares in the TDR programe, future eps will shrink.

Balance sheet cash. Cash is shrinking but most important thing is interest received. As mentioned several times by blogger snowball, why is the interest so low? Why is Xingquan getting so low value for its money? From the table above, we know that at the end of 4th Q FY2010, Xingquan had some 280 million cash. Nine months later, cash left is only RM 168.850 million. 168 million is a lot of money, yes? But from the cash flow, Xingquan said it's only getting some 563 thousand in interest. Err.. why so little value for their money?

And with cash depleting and the management hell bent on expanding and even rebranding everything, how to expect more dividends?

Having said that, yes, I really agree with you. If the management would show the investors the moolah, this stock could generate some investing interests!

Just my flawed opinions.

It's so understandable that many likes to follow the investing moves of their stock market heroes. If the stock guru buys, then they will buy.

That's how it is.

Now I am not here to argue whether this is correct or wrong but let's reconsider one popular example again.

Back in April 2011, I posted the following posting: Koon Yew Yin's Investment In Xingquan.

Why Xingquan again? Well Xingquan is one of them many Chinese listed stock selling at a cheap valuation and Koon Yew Yin is a famed local investor.

Now Koon Yew Yin's investment in Xingquan was first mentioned in the posting Regarding Xingquan's Cash And Dividends

• ch said...
  Dear All,Yes, the issues brought up by Moolah, Mosea and Snowball are primary concern(s) if one is invested into Xingquan. The dynamics of Chinese stocks and business community are always tinged with mysterious circumstances. Be that as it may, the Chinese are rapidly becoming the world economic superpower. One thing I know about Xingquan is that a shrewd investor by the name of Koon Yew Yin is a minor majority shareholder. Please refer to Bursa Malaysia under change in shareholdings column. This is the same man who has years of experience in stock investing and the same person who pledged to donate RM30 million to UTAR (but was turned down by MCA for reason(s) best known to them. He is a smart share investor and invested a sizeable amount in Xingquan. Guess he should know something about Xingquan that we do

Now if one surfs the Bursa website for more information, they would find the following announcement: Notice of Interest Sub. S-hldr (29A) - KOON YEW YIN

Date interest acquired : 27/09/2010
No of securities : 15,422,100

After the acquisition, KYY has

Direct (units) : 16,901,000
Direct (%) : 5.5

But there is no price stated. Shares were said to be purchased on Sep but the announcement was made on 19th Nov 2010.

From Star biz website: http://biz.thestar.com.my/marketwatch/charts/BizHistory.asp?submit=1&scode=5155, all we one can do is to make a guestimate of the acquired stock price. And if one use the average from Sep 15 to Sep 25, perhaps the average price is around 1.60.

Perhaps.

Is this correct? Or is this wrong? I do not know exactly but I would be flawed to use a guesstimate price of around 1.60+



Posted the next day on 20 Nov 2010: More Balanced View On Xingquan

And I mentioned ....

So much interest.

Well... for the record...



ps: how many quarterly earnings has Xingquan reported since listing?
ps/ps: how has Xingquan reallly fared?
ps/ps/ps: has Xingquan's perfomance so far being up to par? Has it beat 'expectations'? or has it grossly perform below expectations.

How? I just raised some simple questions.

On Jan 2011: Notice of Person Ceasing (29C) - Koon Yew Yin

Mr. Koon Yew Yin did a share transfer of 4,000,000 shares and with this share transfer he is no longer consider a substantial shareholder.

Which means he does not have to report to Bursa Malaysia anymore in regards to his shareholding in Xingquan. Has he sold some? Does anyone know? Or who has he transfer his shares to? Or did he top up more shares in this other account?

So how? If you are following KYY, how now?

And as everyone knows, Xingquan had fared rather poorly since Nov 2010.



So how?

Some even dare insinuate KYY called a buy call at 1.10. Rather dubious because since Nov 2010, the lowest Xingquan traded was 1.12.

ps: Do refer last month's posting: Koon Yew Yin's Investment In Xingquan.

Xingquan reported its earnings. Here's the updated numbers.



Its explanation of the extreme high receivables.



What was interesting was that I remembered reading Jupiter Research comments.



Let me highlight:

• Higher receivables of RMB261.3m in 1HFY11 were due to higher sales in November and December and was within the 2-months credit period. Xingquan explained that the total amount has since been collected.

Hmmm.... how?

Past postings:

• 5 Apr 2011: Koon Yew Yin's Investment In Xingquan.
  


• 23 Mar 2011: Regarding Xingquan And Taisan


• 18 Mar 2011: View From The 'Buy Side' Analyst On Xingquan


• 18 Feb 2011: Review Of Xingquan's Earnings


• 23 Nov 2010: Xingquan: Growth Or Dividends And Some Unbalanced View


• 20 Nov 2010: More Balanced View On Xingquan


• 19 Nov 2010: Regarding Xingquan's Cash And Dividends


• 18 Nov 2010: Regarding Xingquan's Cash And Dividends


• 19 Oct 2010: Xingquan's TDR


• 10 Aug 2010: Regarding Xingquan


• 16 Aug 2010: Quick Review Of Xingquan's Earnings

Got an off topic comment from the posting "Why Perisai Is Rated So High By The Local Analysts?"

• gwynwelsh said... Sorry out of topic. But I could not help to point out to all and sundry that Coastal went so high from the low of RM2.25. It was strongly suggested by Koon Yew Yin, the same person who holds 32 million Xingquan shares. If he is right on Coastal, I believe he will to on Xingquan.

Xingquan had been blogged many times before too. Take your pick of posting for your reading pleasure. :)

• 23 Mar 2011: Regarding Xingquan And Taisan


• 18 Mar 2011: View From The 'Buy Side' Analyst On Xingquan


• 18 Feb 2011: Review Of Xingquan's Earnings


• 23 Nov 2010: Xingquan: Growth Or Dividends And Some Unbalanced View


• 20 Nov 2010: More Balanced View On Xingquan


• 19 Nov 2010: Regarding Xingquan's Cash And Dividends


• 19 Oct 2010: Xingquan's TDR


• 16 Aug 2010: Quick Review Of Xingquan's Earnings


• 10 Aug 2010: Regarding Xingquan

Hmmm... I actually undertstand very well your thinking. It's normal and it's common.

Many do like to look for their stock market hero and they reckon it's a safe bet to follow their stock selections.

And I have seen some who are rewarded with such a strategy.

And I have seen some who crashed and burned badly.

Yes, we are all aware of Koon Yew Yin INVESTMENT in Xingquan.

And for the record, in Nov 2010's posting More Balanced View On Xingquan.

Do read the number of comments stating the fact that Koon Yew Yin had invested in Xingquan. Xingquan then was around 1.60+.

Personally? I gave the following remarks back in Nov 2010.

• ps: how many quarterly earnings has Xingquan reported since listing?


• ps/ps: how has Xingquan reallly fared?


• ps/ps/ps: has Xingquan's performance so far being up to par? Has it beat 'expectations'? or has it grossly perform below expectations.

Fast forward to Xingquan's latest review posting Review Of Xingquan's Earnings on Feb 2011.

The questions raised then:

1. Yeah, there's visible growth in sales revenue....


2. but where's the profit???


3. Cash... yeah... capex.... but... it shrank so much????


4. And then.... the ..... increase in receivables .... is simply .... crazy!!!

Of course some did not agree. See postings subsequently.

• View From The 'Buy Side' Analyst On Xingquan


• Regarding Xingquan And Taisan

And so here we are. Yet another comment stating Koon Yew Yin's investment in Xingquan.

Now.. I am not here to judge Koon Yew Yin investment. Please get this issue correct first.

And if any reader wants to adopt the follow their stock market hero strategy, please do so by all means. Yes, please remember I am not your friendly investment advisor. :)

However, what these series of postings merely offers a second opinion on the justification if one were to invest in Xingquan based on one's own logical reasoning.

Yes, let's put our brain cells to work and think the justification behind an investment in Xingquan itself. Yes, let's take the Koon Yew Yin equation out of the picture and ask ourself a simple question: Is there really a justification to invest in Xingquan?

1. The stock is trading at a cheap PE multiple.

A. Correct or wrong, all Chinese stocks listed abroad are all traded at a low pe multiple. Take the example of Taisan which is listed on the SGX ( see Regarding Xingquan And Taisan ) and as one can seen in the example of Xingquan and Taisan, low PE stocks can still sink quite a bit!

B. Now, if and when Xingquan's TDR is listed, Xingquan's share will increase from 307,330,000 to 353,429,500 once the TDR is issued. Xingquan's EPS WILL be diluted from the TDR.

2. Is there growth in earnings?

Yes, when can buy value and if there is value, perhaps growth in earnings is not important. Very true.

But because there is possible future dilution in earnings per share once Xingquan completes its TDR, this growth in earnings becomes important!

Think about it for a moment.

Say the eps is 10 sen and there is no growth. Flat earnings.

Now if the numbers of shares increase by 15%, the eps will shrink by about 15%.

And if the EPS shrinks by that much, the stock would be valued lower, sometimes much lower since the company would be deemed unattractive due to lack of earnings.

So does Xingquan have earnings growth so far? Is there any indication? My answer based on Feb 2011 posting, Review Of Xingquan's Earnings, is no. 3. Is there balance sheet weakness?

Again, my answer based on Feb 2011 posting, Review Of Xingquan's Earnings, is no.

4. Are there issues with the company?

Company had tons of money but as pointed by snowball, the company is earnings very low interest for their money. Why? This is an important issue to address.

Company had lots of money but most of the money had been used in their store expansion and more incredibly they did a whole brand makeover. And they want to raise more money using TDR.

And if one is a minority shareholder, won't one be left wondering what is happening?

And what about the dividends?

How?

Does Xingquan looks like a top notch investment idea?

Think about it....

Ah.. Some would argue that perhaps all these reasonings are not important. A waste of time. Most important is that one follows the stock market hero.

Well... all I can say is.... good luck.

Received one set of comment from the posting View From The 'Buy Side' Analyst On Xingquan

• 廖福深 said...
  I like to point out Xingquan TDR is not even submitted to Taiwan authorities for approval so it is incorrect to state that its TDR has been approved. Recent TDR in Taiwan is more for very big cap company. Nevertheless, if Polaris is handling its TDR program then it should be fine as it is the most successful TDR "chonker". But TDR and ordinary shares are not fungible. Even if the TDR price goes up, its Malaysian price does not have to follow. I think Taiwan investors want companies not found in their market like oil & gas and maybe plantation counters. These are the type of TDR that can do well. Technic oil from Spore TDR (first TDR on OTC) went a few times limit up in its debut because it is the only oil and gas counter in Taiwan. An Ace company with Malaysian flavour will soon try its luck on Gretai (OTC) TDR. That will do better than Xingquan.

Hmm... firstly the inaccuracy of the approval status.

On the posting , View From The 'Buy Side' Analyst On Xingquan, let me repost once more, my exact words.

• Some would argue that the cash would improve back since Xingquan's TDR program has been approved. (The TDR should bring in some 76 million to its coffers).
  
  But...the lack of earnings is now a worry, since the TDR will cause a dilution of EPS by 15%!

From Xingquan's announcement posted on Bursa website: XINGQUAN INTERNATIONAL SPORTS HOLDINGS LIMITED (“XINGQUAN” OR THE “COMPANY”) (I) PROPOSED SPONSORSHIP OF A TAIWAN DEPOSITARY RECEIPTS (“TDR”) PROGRAMME IN TAIWAN BY XINGQUAN (“PROPOSED TDR PROGRAMME”); AND (II) PROPOSED ISSUE AND ALLOTMENT OF UP TO 46,099,500 NEW ORDINARY SHARES OF UNITED STATES DOLLAR (“USD”) 0.10 EACH IN XINGQUAN (“XINGQUAN SHARES”), AT AN ISSUE PRICE TO BE DETERMINED LATER, THAT REPRESENT THE UNDERLYING SHARES (“UNDERLYING SHARES”) FOR THE TDR TO BE ISSUED AND ALLOTTED IN TAIWAN IN CONNECTION WITH THE PROPOSED TDR PROGRAMME (“PROPOSED ISSUANCE”) (COLLECTIVELY, (I) AND (II) ARE REFERRED TO AS THE “PROPOSALS”)

• On behalf of Xingquan, CIMB Investment Bank Berhad wishes to announce that the Controller of Foreign Exchange (via Bank Negara Malaysia) has, vide its letter dated 29 December 2010, which was received on 3 January 2011, approved the Proposals subject to Xingquan obtaining the approval and adhering to the conditions imposed by the relevant authorities in Malaysia.

Controller of Foreign Exchange (via Bank Negara Malaysia) had approved the proposals and I used that as my reference.

On 5th March, from Star Business article, Xingquan sees higher demand on China's rise in spending

• On the proposed Taiwan Depositary Receipts listing in Taiwan Stock Exchange, Wu said the company was still in the discussion with bankers and would announce the latest development in a few weeks.

Well my interpretation is that Xingquan WANTS this TDR. Of course, it would still need the approaval from Taiwan authorities and you are certainly more than correct to say that my statement is probably not accurate.

However, since Xingquan WANTS the TDR and has shown no indication that it will abort the TDR and if one is an investor, how does one want to gauge the impact of the TDR?

The impact as stated in last year's posting, Xingquan's TDR, is Xingquan's share will increase from 307,330,000 to 353,429,500 once the TDR is issued.

That was Xingquan's proposal. Of course, there's a chance they could still changed it but as an investor, from an investing perspective, that's a possible 15% dilution of earnings per share ( Sorry, in case you do not realise it, I really do not like to indulge in share prices moving up or down, so I certainly have no idea in regards to the corelation between share price and the TDR price - however, having said this, I will try to share something later in this posting..) and I was more than puzzled with the TDR. From the posting Xingquan's TDR again:

• Company will rake in 76 million from this exercise.
  I am puzzled as usual. :P
  It's a fund raising exercise which will dilute current shareholder's earnings by 15%. ( To be more exact and precise, the TDR will list end fy 11, which means the dilution of earnings will only be felt in 2012. )
  In the posting, Regarding Xingquan , there's still plenty of money raised during Xingquan's IPO which had not been utlised. ( see table here ) and as highlighted in that posting, Xingquan also wants to expand and expand. So despite the huge cash left ( see posting Quick Review Of Xingquan's Earnings ), apparently the cash is not enough.
  Hence this TDR.

So with Xingquan, planning to list end fy 2011, should I not take the TDR into full consideration? Should I assume that it will happen?

Of I could be wrong but I would.

And then the issue of the TDR itself. Why the need to raise this RM 76 million?

From the posting made last month: Review Of Xingquan's Earnings

As per Xingquan latestet earnings, Xingquan still has 176 million cash and some 36 million in borrowings. Very cash rich but it still wants to do the TDR.

( In regards to the plenty of cash, blogger snowball is puzzled with the extreme low interest received from Xingquan's cash. Why is Xingquan getting so little returns from all the cash it has? Anything amiss here? )

It does make me wonder too.

Now back to TDR thingy.

Do indulge with me for a couple of minutes and let's take a look at a SGX listed stock.

Does anyone follow Taisan or CTSAN?

http://investing.businessweek.com/businessweek/research/stocks/charts/charts.asp?ticker=CTSAN:SP

Ok, from the link, one can click on its financials ( use this link ) and see that Taisan had a 'bad' year in 2009 (didn't most company had a bad year too in 2009?). It recovered in 2010.

Anyway, Taisan TDR was listed on 6 Oct 2010. (refer announcement here: http://chinataisan.listedcompany.com/newsroom.... )

Now on 12 Jan 2011: CHINA TAISAN: On track for a strong rebound in 2010 profit

THERE ARE A few key financial points worth keeping in view following a presentation by Patrick Kan, the CFO of China Taisan, at CIMB during lunch yesterday.

1. The 4Q is typically the strongest quarter for the business.

Any investor can then surmise that if this also holds true for 4Q10, then China Taisan’s net profit would be in excess of RMB170.1 million (first 9 months’ earnings) + RMB 60.7 million (assuming 4Q is equal 3Q earnings).

In other words, in excess of RMB230.8 million.

That would be about 4 Singapore cents in earnings per share, taking into account the 125 m shares issued for its TDR in 4Q. ( Me: To put into perspective, Taisan have 984.6m shares in SGX, 125m TDR shares )

With that, it looks like Taisan (yesterday's closing price of 18.5 cents) is trading at a PE of about 4.6X last year’s estimated earnings.

Compared to its Net Asset Value, Taisan stock trades at slightly below its Net Asset Value of 99.96 RMB cents, or about 19.6 Singapore cents.

2. Taisan will propose a dividend next month along with its full-year results.

For FY08 and FY09, subsequent to its IPO in 2008, Taisan had paid out 30% of its net profit as dividend, becoming a rarity of sorts among S-chips which tend not to declare dividends. Taisan paid out 3.45 RMB cents and 8.15 RMB cents for FY 08 and FY 09, respectively.

Whether Taisan will maintain the 30% payout for FY10 is unclear since the company needs to fund its expansion plan. If the dividend is unchanged in absolute terms from last year's, that would translate into a yield of about 3.7%.

Taisan has said it would spend RMB211 m in the 1H of this year to expand the production capacity of its existing factory. It is utilizing its TDR proceeds to build a new factory which is targeted for completion in 2012 and could cost around RMB350 m.

3. The RMB200 m capacity expansion in 1H this year is in response to urgent demand.

Throughout 2010, the factory utilization rate has been above 80%, said Patrick.

“It’s not for nothing that we want to expand capacity now,” he said. “Our order book is very good. There is a need for us to quickly ramp up our capacity. The feedback from customers is very good and they want us to supply to them.”

4. Taisan has lots of cash – and the business had positive operating cashflow.

As at end-Sept 2010, it had RMB476.4 million (S$93.4 million) net cash. Its TDR listing raised another S$31.9 million in gross proceeds.

Its operating cashflow for 9M10 was RMB109.8 million

----------------

A good example perhaps?

LOTS of cash, positive operating cash flow, low PE, dividends too.....

Stock was trading at 18.5 sen on 11 Jan 2010. Yesterday it closed at 13.5 sen.

Ah... perhaps the market in SGX has got it all wrong. Perhaps SGX market players don't know a good 'value' company.... but for whatever the reason, again we have a China company listed overseas, which has LOTS of cash, positive operating cash flow, low PE, dividends too..... and a TDR program.... but look at where the share price is heading???

** Left this out: here's the link to Taisan's latest earnings report: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_B0966FDEF0138D12482578450035940A/$file/ChinaTaisan-4Q10.pdf?openelement

Ah..... so where are we now?

Oh back to Xingquan. Seriously I have NO idea how Xingquan will trade in the future. For me, any given share can and will go up on any given day or down too and since I had posted my fair share of comments on Xingquan, so I guess I should not add much to it except highlight links to my older postings.

• 18 Feb 2011: Review Of Xingquan's Earnings
• 23 Nov 2010: Xingquan: Growth Or Dividends And Some Unbalanced View
• 20 Nov 2010: More Balanced View On Xingquan
• 19 Nov 2010: Regarding Xingquan's Cash And Dividends
• 19 Oct 2010: Xingquan's TDR
• 16 Aug 2010: Quick Review Of Xingquan's Earnings
• 10 Aug 2010: Regarding Xingquan
  

Received the following set of comments from the posting Review Of Xingquan's Earnings

Now I have posted my fair share of comments on Xingquan, so I guess I should not add much to it except highlight links to my older postings.

• 18 Feb 2011: Review Of Xingquan's Earnings
• 23 Nov 2010: Xingquan: Growth Or Dividends And Some Unbalanced View
• 20 Nov 2010: More Balanced View On Xingquan
• 19 Nov 2010: Regarding Xingquan's Cash And Dividends
• 19 Oct 2010: Xingquan's TDR
• 16 Aug 2010: Quick Review Of Xingquan's Earnings
• 10 Aug 2010: Regarding Xingquan

Yes, I do understand that the comments comes from someone who has just joined blogspot but I will just let the comments speak for itself.

• Kopi Sim said...
  
  Hi Guys,
  
  I am a buy side analyst and have been attending XQ's results presentation.
  
  In their slides, XQ has informed that all outstanding debt have been collected. Their normal collection period is ard 45-60 days and they will not release the new stocks unless the distributors pay the old debt.
  
  From my observation in China shoe and apparel companies, the bigger boys (those with >4,000 stores like Lining, Anta, Xtep, 361, Peak, Hongxing Erke, Dongxiang Kappa) are facing issues like high inventory simply because they have 2-4 shops selling the same brand in a 200-300 meter shopping street. So, sure have inventory issues and then receivables like Hongxing Erke.
  
  As for their new factory, they just started with their new factory, i estimate they will take 3 months to get back to where they are first and then the next 3-6 months to increase further. If they tell us they can increase immediately, then it is illogical. Moving to a new factory and to restart takes some time to adjust. So the additional figures should only come 2H this year.
  
  As for their drop in cash, the management has mention this since August 2010. The new factory, rebranding exercise, purchasing part of the old factory - all will take up at least RMB400-500 million. So the drop is expected.
  
  The only suprise is the change in tax rule in relation to provision of deferred tax - in accordance to IFRS. They have to make provision of up to 10% of their profit but will adjust back at the end of the year. So, come year end, the profit will shoot up again.
  
  Also, XQ is not a sports wear company. They are now an outdoor wear company and their nearest competitors or their neighbours in department stores are mainly Jeep and Camel. Basically, this is rather a new market/concept/design in China (3-4 years i think). So XQ basically has first mover advantage. Imagine, 15-20 years ago in Malaysia when we start to wear Timberland shoes.
  
  So, XQ should not be compare to sportwear companies like Lining, Anta, Xtep, Nike, Addidas and etc. Personally, i think sports wear industry in China is to crowded, simply because a same brand will have 2-4 shops in a street or shopping mall. If you take the annual /research report of the top 10 China brands and you add Nike, Addidas and Puma, you easily can get more than 50,000 outlets. So, isn't it too crowded for sportwear industry and that is why most are going to have a single digit growth in the future. Some may even go into what XQ is doing.

Kopi Sim explains why Xingquan's outstanding debt soared and depleting cash issue. These were the two issues highlighted in the posting Review Of Xingquan's Earnings where I had made the following set of comments.

• Yeah, the sudden drastic increase is a serious concern and the gratest worry is when the receivables cannot be collected and had to be reclassified as doubftful debts (which ultimately leads to losses!).
  
  Receivables increased by 94.7 million for the quarter! This works out to an increase of over 108%!!!!!!!!!!
  
  And cash balances went from 291.104 million to 176.513 million.
  
  Some would argue that the cash would improve back since Xingquan's TDR program has been approved. (The TDR should bring in some 76 million to its coffers).
  
  But...
  
  the lack of earnings is now a worry, since the TDR will cause a dilution of EPS by 15%!
  
  No earnings gorwth, earnings in fact decline and when one factors in the future dilution of earnings by 15%........ ouch!

Xingquan's performance since thst posting...

----------------------------------
Some comments received...

• snowball said...
  
  @Kopi Sim,
  
  I am surprised to see a reply on such a old topic. Just shows you the attraction of Xinquan. I know Koon Yew Yin is a major shareholder, but, no matter how good an investors is, the strike rate of the best is probably 9/10. You never know this is Koon Yew Yin's 1/10 investment...
  
  Since you are an analyst, you should have better resources at your disposal. Hope you can ask for clarification from the management on the low interest that are being received by them. Please check on how they are spending money on the plant expansion, whether the land being acquired is at fair value. Who own that piece of land previously? Normal retailers like us have no resource at our disposal to do such extensive due diligence.
  
  The fact remains now that receivables has jumped, it has spiked at a much faster rate than sales. Yes, management may be telling us that they release inventory only when the customer pay them back. But, the current quarterly number do not seems to suggest so. The slow payback also suggest inventory problem since they do not do consignment sales, so, the first indicator of problem is in the receivables. It may be seasonal, we will never know, but with your resource, I think you can ask the management and get back to us.
  
  Try do a baidu search on what the Chinese perceived Addnice as a brand. The last time I search, the feedback is not that positive. I am not sure whether it is still the same. Perhaps, views has changed, but, the last time, they are perceived as an imitator of adidas due to the similarity in chinese character between the two. It is like Nike and Niki, what do you think of Niki as a brand? Prestigious or Copy cat?
  
  Yes, the management are saying they are an outdoor sportswear company. But, does it really matter what the management says about their product when their customer perceived them as just another sports company? I personally treat things Nike shirts and Camel shirts as similar.
  
  Plus, what is the management plan in tackling wage increase. Victor Li of Li and Fung (probably the most authoritative figure to talk about Chinese supply chain) said that industry people (i.e. not analyst) thinks that wages will grow double digit per annum on the next five years. How did XQ plan to tackle these?
  
  In view of the recent increase in frauds in Chinese small caps around the world, I think more due diligence is needed. We could not possibly know which one is honest which one is not.
  

Blogged several times before:

• 23 Nov 2010: Xingquan: Growth Or Dividends And Some Unbalanced View
• 20 Nov 2010: More Balanced View On Xingquan
• 19 Nov 2010: Regarding Xingquan's Cash And Dividends
• 18 Nov 2010: Regarding Xingquan's Cash And Dividends
• 10 Aug 2010: Regarding Xingquan
• 16 Aug 2010: Quick Review Of Xingquan's Earnings
• 19 Oct 2010: Xingquan's TDR

Xingquan announced its earnings.

Here's the updated numbers.

1. Yeah, there's visible growth in sales revenue....
2. but where's the profit???
3. Cash... yeah... capex.... but... it shrank so much????
4. And then.... the ..... increase in receivables .... is simply .... crazy!!!

What's up?????

Here's how Xingquan the stock is performing...

So much supporters for Xingquan under the posting: More Balanced View On Xingquan

The latest one: Growth OR Dividends

• KLSE investor said...
  
  Labour only constitute around 8-9% of their cost. Their staff salary has already incorporate the hike since beginning this year. Average salary is around RMB2.0-2.5. So assuming they hv 3,000 worker, it only work out to RMB6-7.5 million per month only.
  
  Xingquan are one of the few lucky one that have manage to switch from Sports Wear to Outdoor Casual Wear, probably these Chinese Ah Pek went to Blue Ocean Strategy classes. Small players are starting to feel the competition from the BIG local and foreign brand starting from Lining, Anta, Xtep, 361, Peak (these 5 have more than 6,000 shops EACH) follow by Qiaodan, Hongxing Erke, Dongxiang Kappa, Deerway (these 4 brands have 3,000 to 4,000 shops) and the foreign boys like Nike, Adidas, Reebok, Asic, New Balance. Smaller brand will suffer within the next 1-2 years as this 15 brands march into smaller cities. I believe smaller sport brands will likely move into what Addnice is doing or probably do Casual wear, Leather wear & etc.
  
  If you walk into any departmental stores in big cities in China, u will have all the 10-15 Sports brands in there and smaller local China brands will not be able to enter as it is too crowded, where as there is only a few Outdoor Causal Wear companies like Camel, Jeep and Addnice. So, that is why Addnice can expand fast in departmental stores in highly populated cities in China, and according to their IR Guy, they are given priority to enter compare to Sport brands because there is few brand in this categories.
  
  Notice their cost is close to RMB290 million for the 3 months (July to September) and they have the balance of the new factory cost to pay (RMB150 million), expansion of sales of network & marketing (easily RMB80-100 million), buying part of their existing plant (RMB60 million) - announcement made today, rebranding exercise (due to the change from Sports to Outdoor Casual Wear) (easily another RMB50-RMB100 million), shoe sole machinery (RMB40-50 million). Guess they have a lot of expenses and that is why they need to raise funds next year to fuel their growth or they will be left behind when our smaller brands join them in Outdoor Casual Wear.
  
  Guess they question we have to ask ourself is whether you want to take this ride which has full of expansion and expansion and the benefit is we can ride along the China Growth Story and hopefully Renmimbi will appreciate too. Guess this stock is not a dividend play stock like Nestle.
  
  Your choice, guys - Growth or Dividend

Here's the unbalanced view, if you do not mind. :=)

Many thanks for you detailed view. You have made an justification to why Xingquan need the massive capital requirement. I am not here to argue if your justification is right or wrong.

I raised the following questions in the posting More Balanced View On Xingquan

ps: how many quarterly earnings has Xingquan reported since listing?
ps/ps: how has Xingquan reallly fared?
ps/ps/ps: has Xingquan's perfomance so far being up to par? Has it beat 'expectations'? or has it grossly perform below expectations.

The updated numbers again.

Seriously? There's only 5 quarters of earnings. Now I will be flawed and I will not use any pre-listing numbers from Xingquan. That's history. If I were forced to judge Xingquan, I would judge it based on its performance as a listed entity. And with 5 quarters of earnings, seriously? I rather NOT make any conclusive decisions on whether Xingquan is a good or a bad company.

But there's so many opinions on this stock, let's look at the bare facts.

Xingquan's audited earnings for fy 2010 is some 105 million.

Now since the audited numbers are not reflected in its quarterly earnings, I will just use the un-audited numbers for simple comparison sake.

Xingquan's fy 2010 unaudited earnings is 108.256 million.
Xingquan's current unaudited earnings for ONE quarter is only some 25.556 million.
Xingquan's annualised earnings should be 102.224 million.
Xingquan's unaudited trailing earnings (last 12 months) is 110.401 million.

Does this suggest to me that I am seeing earnings growth?

And folks from CIMB was expecting earnings of some 150 million for fy 2011. Well with a 1Q earnings of 25.556 million, the earnings is well below their forecast. CIMB had this to say.

• Maintain OUTPERFORM despite 1Q misstep. Xingquan’s 1QFY6/11 results were out of step with our expectations (consensus numbers not available) as annualised core net profit was only 68% of our forecast mainly due to profit margin erosion.

Only 68% of its forecast. CIMB of course, quickly lowered their numbers.

• "We are scaling back our FY11-13 EPS forecasts by 8-13% to reflect a margin squeeze from the sharp rise in raw material prices."

Fy 2011 forecast is lowered from 150.7 million to 137.7 million.
FY 2012 forecast is lowered from 170.4 million to 149.4 million.

Their valuation.

• Keeping our 6x CY12 P/E target basis, we arrive at a lower target price of RM3.04 (RM3.49 previously).

Oh yes, the stock is valued based on fy 2012 numbers.

Which means Xingquan is valued so highly based on the expectations if should earn some 149.4 million.

And I guess this is the expected earnings growth from Xingquan.

And the current numbers? Does it suggest Xingquan can produce such explosive growth? Here's Xingquan's unaudited quarterly earnings since listing again:

• 10 Q1: 23.411 million
• 10 Q2: 30.611 million
• 10 Q3: 32.743 million
• 10 Q4: 21.491 million
• 11 Q1: 25.556 million

Does it suggest to me that Xingquan have the explosive growth?

Sorry, I just don't see it based on current data.

Ah.. I am well aware that anything can happen. Perhaps the numbers could start rolling in and that the explosive growth is possible.

But at this moment, I wouldn't dare make such assumption.

And in the meanwhile, despite the huge cash in the bank, Xingquan did no dividends, and it wants to engage in the TDR to raise even more money. And oh yeah... the 12% earnings dilution that comes with the TDR.

Would it be wrong to say 'so much money used but at this moment the result does not justify the spending?' Would it be wrong?

And not forgetting that snowball mentioned

• "Second, their tax exemption on a major entity, addnice sports which produces 80% of its revenue will ends on 1 Jan 2011, so, on the 2HFY2011, Xinquan need to make 10% (80%*12.5%) just to make up the lose ground"

And last but not least...

• Your choice, guys - Growth or Dividend

Err... what about gals? Gals have no choice?

Hmm... growth or dividend?

Well...... what about the other alternative? ie... why insist on this stock? Are the choices so limited in the stock market?

From the posting: Regarding Xingquan's Cash And Dividends

• ch said...
  Dear All,Yes, the issues brought up by Moolah, Mosea and Snowball are primary concern(s) if one is invested into Xingquan. The dynamics of Chinese stocks and business community are always tinged with mysterious circumstances. Be that as it may, the Chinese are rapidly becoming the world economic superpower. One thing I know about Xingquan is that a shrewd investor by the name of Koon Yew Yin is a minor majority shareholder. Please refer to Bursa Malaysia under change in shareholdings column. This is the same man who has years of experience in stock investing and the same person who pledged to donate RM30 million to UTAR (but was turned down by MCA for reason(s) best known to them. He is a smart share investor and invested a sizeable amount in Xingquan. Guess he should know something about Xingquan that we don't.
  
  You have hit the right note i.e. we should not follow the herd mentality but then again, this news which was fished out from the Bursa website goes to show that a multi-millionaire has invested into Xingquan. He is rich for his smartness in stock-investing or other reason(s) but one thing placed right in front of us is that he has sizeable amount of money in Xingquan. As I have said earlier, is it that he knows something about Xingquan which we don't? I am not saying that your observations and of those of Mosea and Snowball's on Xingquan were wrong nor neither I am trying to convince others to buy Xingquan but the emergence of Mr. Koon as a major minority shareholder is something we should try to understand. Surely, he is not considering to donate the RM30 million turned down by MCA to Xingquan. Or is he? And I believe philanthropist like him has some reputation to live up to. It is like Francis Yeoh is now into the Wimax biz which might be foreign to him 10 years ago but surely he is not investing in the biz just to keep him busy. It is all for making money. Similarly, I believe this is true to Koon Yew Yin too on his foray into Xingquan.

• xinzhang said...
  
  I guess we should look into Xingquan in a more perspective manner. Snowball was right that the interest rate regime in China is low and it is something which no one could argue or debate. So, in other words, the Chinese is encouraging people to take money out and invest and spur the economy.
  
  The apparent higher receivables reported by Xingquan is definitely a cause of concern but not to an extent where we should just ignore the prospect of investing into this company. Question like is the receivables are within its credit term? I have no idea as to its ageing list but surely they are not selling on cash basis. Do they have any bad debts? If no, then the high receivables are not a concern as you will have higher receivables as business grow. The important thing is to check if they are within credit limit and term.
  
  Xingquan is lacking on dividend as correctly pointed out by Mosea. Yes, for any investor, dividend is something that they are looking up to apart from price appreciation. But Xingquan has caveat this by presenting to all and sundery that they are paying from 10% to 20% of its PAT.
  
  Xingquan should be paying up for the expansion completed recently. And the issue is how much business have they managed to get for this new plant.
  
  And my last advise is will there be more funds interested in this counter apart from Mr. Koon Yew Yin. Having Koon Yew Yin on board is a good thing boosting investors' confidence.
  
  

more...

• panaceaasia said...
  Dear Moola,Thank you for your excellent blog. I too note that Mr Koon has a substantial stake in Xingquan. Mr Koon is Malaysia's Warren Buffett. He invested in Supermax about 2 years ago at rock bottom prices before analysts went mad on the rubber gloves sector. It appears Mr Koon has made millions investing in shares. My money is with Mr Koon. You can spend your time arguing about the low returns on cash, which I applaud as higher than market returns would indictae a higher level of risk. Xingquan offers an undervalued exposure into the second largest economy in the world. I followed Mr Koon by buying Supermax and am now buying Xingquan. I bought a new BMW 523 with half of my Supermax profit. It's lovely, indeed the Ultimate Driving Machine.

*** these are comments received and they are highlighted for the BALANCED view only since I had already made some comments in earlier postings***

*** I know nothing what will happen the stock or the markets. ***

21/11/10

Past postings:

• 19 Nov 2010: Regarding Xingquan's Cash And Dividends
• 18 Nov 2010: Quick Review On Xingquan's Earnings
• 19 Oct 2010: Xingquan's TDR
• 16 Aug 2010: Quick Review Of Xingquan's Earnings
• 10 Aug 2010: Regarding Xingquan

22/11/10

And from the other side...

• snowball said... .
  Dear all,
  
  Yes. Mr. Koon may be a savvy investor, but, Mr. Buffett can make mistake, too. Some say TTB is also the "Warren Buffett of Malaysia", but to those who follow him into Meico, you will probably be still losing your money. Unless you are a good friend of Mr. Koon and he can tell you what is inside his portfolio, you could not replicate his above average return.
  
  The cash is not just earning a low rate, which I would not bother as it is the Chinese company way of doing things, regardless whether we like it or not. It is earning a suspiciously low rate, that's the concern.
  
  Mr.Koon would have probably been there or at least sent someone there to check out the place and found the place is in proper order. But, the shoe business in China, is still extremely competitive. If I were an investor, I would probably study the competitve dynamics of the Chinese shoe market and how their addnice brand stack up against others.
  Shoe is a very labour intensive business. Xinquan as well as other shoe makers are churning out very decent margins. But, investor always need to consider the labour cost. I think it forms at least 20% of Xinquan cost structure. Whether a Chinese wage increase will hurt their margins, I think investors should find out. There are a lot of pressure on lifting the minimum wage in China. Based on analyst report, the wage that Xinquan workers is earning, I feel is not out of line with the general numbers in China, which means, a revision is likely. But, with such a competitive sector, can they pass on the increase? Some may argue that the increase would likely to bring about increase in demand, but, I would add that you need to build a new plant to support such demand increase,so, more money there.
  
  Xinquan is pursuing some massive distribution channel expansion, whenever there is something new going on, investor should be wary about their expansion plans and see how it goes. Even starbucks got it wrong with their expansion. There are very little information out there on how the rate of expansion is going and etc, whether the incremental investment actually brings about good returns. If this company is based in Malaysia, we would probably be able to figure out whether the expansion works or not, but, it is too far away, so, there is much more problem when it comes to lack of information.
  
  There are a lot of good story out there about the integrity of this company owners, but, story is story. A good manager can bring you so far, you still need to study the industry dynamics. You need to know how addnice stack up against more established names like Li Ning, anta and hongxing etc Plus, all the things that we hear about this company is all hearsay, we do not know the person.

So much interest.

Well... for the record...

ps: how many quarterly earnings has Xingquan reported since listing?
ps/ps: how has Xingquan reallly fared?
ps/ps/ps: has Xingquan's perfomance so far being up to par? Has it beat 'expectations'? or has it grossly perform below expectations.

From the posting: Quick Review On Xingquan's Earnings

• mosea said...
  The bad thing is that they have yet to be able to deliver dividend which is a dampener.




• snowball said...
  
  First, the receivables is up almost twice as much than the sales, which is worrying if it becomes a trend.
  
  Second, their tax exemption on a major entity, addnice sports which produces 80% of its revenue will ends on 1 Jan 2011, so, on the 2HFY2011, Xinquan need to make 10% (80%*12.5%) just to make up the lose ground.
  
  Third, they have some advances from directors, which I am not sure whether it is needed since they have so much cash which prompt me to look at their cash and interest income. They earn an annualize interest rate of just 0.33% [(498*4)/((587000+631000)/2)], which is suspiciously lower than that of the current interest rate of China banks-0.36%. Here's the interest rate from ICBC :http://bit.ly/9hF5xN . I have check my computation a few times as it is really too low. It means that they are keeping a lot of money in their office to earn such a low rate. But, if so much of their money is in their office, do they need any advances from director? So, I can't resolve this inconsistencies. But, the advance from director is very low- RMB172k only. However, the interest they earn is surprisingly low, which is a bit worrying. If the money is kept as strategic cash hoard, I think, as a successful businessman like Xinquan owners are, they should be logical enough to put into higher yielding account. But, the current rate is even lower than that of the lowest savings account rate.

Snowball: Great point about the tax exemption and yes, I would fully agree with you that this could be a massive burden. And again, one might have to consider the 15% dilution (sorry mistake!) 12% impact caused by the TDR.

And the cash and dividend issue, which goes back to my first posting: Regarding Xingquan

Let me reproduce the following part..........

Some thoughts regarding its 'cash richness'.

Xingquan raised some 159.682 million from its IPO listing. From its last reported earnings in May 2010.

From the above table, apparently there's plenty of cash raised from the IPO still hasn't been utilised and then Xingquan had stated in the press about its capex plans.

And as per the latest earnings pdf file ( page 11 ), Xingquan reported that currently it had used only 111.058 million. So there's 'plenty of money' not used YET.

Yet, Xingquan had insisted it wants to do the TDR to raise another 76 million.

And naturally the 'confusing' part is that as per current earnings, Xingquan has some 291 million cash (and some 29 million in borrowings).

Ok, snowball has stated before that..

• Small and medium Chinese company in general like to hoard a significant amount of cash. This is my general observation of S-chips, Red Chips etc. The cash hoard is for strategic reason because of the limited access to credit facilities in China.So, in Xinquan case, the management may want to keep some of the cash for strategic reason either to react to competitor actions or to face possible uncertain regulatory environment. That's why we are seeing chinese companies listed abroad raising doing so many rights issues despite being on net cash.

But the cash as stated by snowball are earning peanuts.

And then the lack of dividends mentioned by mosea.

And if one takes the company's plans into consideration as stated at the end of the posting Regarding Xingquan , then wouldn't it not suggest that the company's main focus is to expand, expand and expand.

Of course a company's plans to expand is not bad but then as a shareholder, one has to wonder 'apa macam ni'? Dividends mana? Somemore got future dilutiions in earnings caused by the TDR. Well, it's certainly not really attractive, yes?

And also, I have no idea in regards to the apparel footware industry in China but I would still question why such an industry requires such massive capital? Shoes woh. Needs millions and millions meh?

(The TDR progam had stated “The proceeds will be used for the expansion of sales and distribution network (RM44.55mil), point-of-sales makeover as part of the rebranding exercise (RM26.51mil) )

Here's Xingquan's updated numbers.

1. Much improvement from it's Q4 numbers.
2. Receivables. Increased a lot yes?

And that's about I can say.

Could I dare suggest Xingquan is lousy? Nope.

Could I dare suggest Xingquan is great? Can I?

Previous postings:

1. 10 Aug 2010: Regarding Xingquan
2. 16 Aug 2010: Quick Review Of Xingquan's Earnings
3. 19 Oct 2010: Xingquan's TDR

The Oct posting has an interesting issue.

CIMB's earnings forecast.


Ahem... 2010, Xingquan is projected to earn some 150.7 million. In 2012, Xingquan is EXPECTED to earn some 170.4 million!

And Xingquan only earned some 25.556 million for 11 Q1.

Not very encouraging yes?

And then there is the potential 12% dilution from the proposed TDR......

• mosea said...
  You have mentioned about Xingquan in the past. What or how do you see its recent ambitious foray by listing in Taiwan through TDR?

The past postings on Xingquan:

• Regarding Xingquan
• Quick Review Of Xingquan's Earnings

On Star Business: Xingquan plans to sponsor issuance of Taiwan depository receipts programme

• Xingquan said the proposed programme would involve the issuance of TDR to investors in Taiwan that represented up to 46.099 million new ordinary shares of 10 US cents each in Xingquan, representing 15% of the existing issued and paid-up share capital of Xingquan.
• The proposed TDR programme was expected to rake in about RM76.06mil based on the indicative issue price of RM1.65 for each underlying share, it said.
• “The proceeds will be used for the expansion of sales and distribution network (RM44.55mil), point-of-sales makeover as part of the rebranding exercise (RM26.51mil) and the balance as expenses for the proposed TDR programme (RM5mil),” it said.

Pricing is 1.65.

Shares will be diluted by 15%. ( Xingquan's share will increase from 307,330,000 to 353,429,500 )

Company will rake in 76 million from this exercise.

I am puzzled as usual. :P

It's a fund raising exercise which will dilute current shareholder's earnings by 15%. ( To be more exact and precise, the TDR will list end fy 11, which means the dilution of earnings will only be felt in 2012. )

In the posting, Regarding Xingquan , there's still plenty of money raised during Xingquan's IPO which had not been utlised. ( see table here ) and as highlighted in that posting, Xingquan also wants to expand and expand. So despite the huge cash left ( see posting Quick Review Of Xingquan's Earnings ), apparently the cash is not enough.

Hence this TDR.

And apparently, CIMB is very positive on this news!

So positive that Xingquan's share price target is raised from 3.12 to rm 3.49. :P

Here's the screen shot.



Now I am puzzled... yet once more.

CIMB acknowledged the fact the earnings per share will be diluted come 2012.

Now check out the earnings forecast. Xingquan is projected to see its net profit grow from 105.2 million in fy 2010 to 150.7 million in fy 2011. That's a 43.2% growth.

:P

But the valuation is not based on this super growth!

:P

It's based on 2012 earnings.

Which means Xingquan's earnings will grow by another 13.1% to 170.4 million!

Yes!

CIMB is saying Xingquan is worth so much because it's earnings will grow from 105.2 million to 170.4 million!

This is what CIMB is basing its valuation of Xingquan upon. ( Err.. come 2 years... will anyone remember this at all? :P )

Anyway... check the eps row. Apparently CIMB have not considered the 15% dilution of eps. How? Would you consider the dilution of eps now? Or wait till 2012? :P

Well if I take 170.4 million to be the holy grail and use 353 million as the share base, Xingquan's diluted eps should be 48.3 sen. And a 6x earnings multiple = ...... ?

Xingquan last traded 1.64.