Tuesday, November 23, 2010

Xingquan: Growth Or Dividends And Some Unbalanced View

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?


KLSE investor said...

Guys & Gals,

Confirm with their IR guys, read their announcement in B1, they still have a subsidiary call Addnice China which has tax saving up to 31 Dec 2012 and apparently the new factory is park under this Company, which means, Addnice Sports business with be transferred to Addnice China. No bad leh, China Ah Pek also know how to do tax planning.

Their Q2 & Q3 result is always better as shown above by Moolah simply because Q2 & Q3 is Autumn/Winter season when they sell Jackets, sweaters and leather shoe. This was mentioned in their previous analyst briefing.

Issue on interest rate, why generating so low interest
- ask them during AGM - go grill them.....

Moolah said...

Klse investor: "Issue on interest rate, why generating so low interest
- ask them during AGM - go grill them....."

Yes, asking them during AGM would be a logical thing to do.

On the other hand, what's the other option? One could vote with their feet yes?

And also, if one does not have the stock, why bother?

Regarding the Q2 and Q3. Err.. we only have 5 quarterly datas. Isn't it too early to declare that Q2 and Q3 is ALWAYS better?

snowball said...

Hi KLSE Investor,

Yes. If the factory is park there, it is a good thing, cause I am always wondering why the heck there have this addnice China that has a tax exemption status but is doing nothing.

But, I am not too sure about the transfer of Addnice Sports business , it is even legal? I mean, if that's the case, every company in China just need to set up new company every time their tax exemption expire. China government don't need to collect tax already. Might as well announce the tax rate in China as 12.5% instead. But, I am not educated in Chinese tax law, so, my concern may not be valid.

On the cash and interest rate matter, take a look at tklaw explanation in one of the xinquan post here, I think his observation is a very good one on the interest issue.

kerry lee said...

Dear all,

I have gone through the Xingquan annual report and noticed that Koon Yew Yin and relatives hold some 9.48% in the company. Those shares were held through himself, wife and in-laws.

Moolah said...

ch: So at the end of the day, your point is because Mr. Koon is an investor, one should also be an investor of Xingquan?

kerry lee said...


That so much I didn't say but I think one should emulate one who has or had make it big time in stocks. I sincerely think Mr. Koon has carried out sufficient homework before he load Xingquan up as he did on other counters which yielded him millions.