Wednesday, May 18, 2011

A Quick Look At Xingquan's Earnings

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:


gwynwelsh said...

Thank you for your update on this counter.

I am however taken aback with its performance thus far. Keep reporting good earnings but no dividends. This sounds to be fishy. It is like am making tonnes of money but can't pay faithful investors due to my expansion programmes. One hell of a roadmap by these Chinaman.

The other thing which I am quite curious was the apparent silent on its listing in Taiwan. The CEO mentioned in the last AGM that announcement would be made in just a few weeks. But it is now a few months old.

Nakata said...

It definitely not a good sign as Account receivable remain in high side,and Revenue slide down 6% but fair to XQ, it does improve it fundamental compare to Q2.

- Net profit growth 33%
- Expenses have been cut down to 34%
- Operating profit increase 14%
- Profit margin growth 42%
- Operating margin increase 22%
- EPS increase 28%

My humble opinion, the management did well in cost control even in high cost trend that hit by every industrial at the moment.

I might be too optimistic,this quarter is not in peak season period,the sales was slow down is somehow expecting(not too bad with just 6% down by the way), the figure told us that new factory does reduced cost and generated better profit and margin.

Above just my observation, I open to hear if any gap between my observation.

Moolah said...

gwynwelsh" In regards to dividends.

From CIMB report dated 7 Mar 2011:

On dividends. Management indicated that it intends to keep its net dividend payout at 10-20% of net profit. The company needs the cash to set up new outlets and also to fund its working capital needs which include upfront payments to suppliers to lock in raw material prices.

Moolah said...

Nakata: There's no doubt on a q-q basis there's improvement. Much improvement.

However try compare this quarter (11 Q3) numbers with last year same period (10 Q3)

Refer this table:

Look at the revenue and the profits. Did it improve? My answer is no.

Now, normally this is not bad but then, we have to take into consideration the casj issue.

Last year same quarter, Xingquan had 286.810 million cash. This quarter, Xingquan cash had depleted to a shocking 168.850 million.

Where did all the cash go?


Fine... let's give it a benefit of a doubt....but ... look at the results.

And the receivables?

ronnie said...

It will be foolish to list in Taiwan at this juncture when the sportswear industry in China is going through a tough time. It will mean issuing new shares at a cheap price.

Moolah said...

ronnie: Very true but perhaps it's best you tell that directly to Xingquan since its management is rather determined to proceed with its TDR.

Yeah more shares... with a 'decline' in ytd earnings... not a good receipe eh?

Moolah said...

Nakata: I guess what i wrote it's a bit unclear. (as usual. :P)

Take last fiscal year Q3, Xingquan had 286.810 million cash. This quarter, Xingquan cash had depleted to a shocking 168.850 million.

Which meant some 117.960 million cash had been 'used'.

And in Xingquan's books, it 'states' that most of cash went into capex etc ect.

So as a shareholder of any company, if the company says it had spend some over 117 million, surely you want to see much improvement yes?

And that improvement had to be seen on a year-to-year comparison.

Last year 3 quarters, Xingquan had sales revenue of 450.979 million and a net profit of 81.296 million.

So how has Xingquan fared this current fiscal year 3 quarters?

Well Xingquan sales revenue increased tremedously. Sales revenue is now some 527.665 million. But the bottom line? Net profit is now only 75.888 million.

And in the midst of all this... suddendly... Xingquan's receivables soared from 75 million to an insane 188 million.

If I am a shareholder... my flawed opinion is that I would be utterly disappointed at what's happening.

gwynwelsh said...

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

Moolah said...

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

==> As mentioned in the earlier postings, I found it rather baffling. It's a new stock and it doesn't have sufficient data to prove to the investing public its quality as a company.

And yet.. we hear many calling it a buy.

And what's the basis of the buy?

Does it have growth? As per current data, it doesn't appear so.

Does it have a good balance sheet? Well from initial listing data, it appeared to be a cash cow but as we all see today, cash had depleted significantly. The company has no intention to reward its shareholders decently. Paying 10-20% of its net profit back to shareholders is really not meaningful at all. And what did the company do with the cash? They did a lot of capex (where's the result?) and yes.. the incredible mind boggling re-branding exercise. And of course the sudden increase in rceivables is a massive red flag.

Apparently the company is selling cheaply based on PER/ two issuses.

With the potential TDR, a decline in earnings + dilution = much less future eps!!!!

And oh yeah... all other Chinese stocks listed outside China, they all trade in low PE. So why should Xingquan be any different?


For me, no growth, potential future dilution in eps, questionable balance sheet all accounts for why the stock is selling at where it is now. And if earnings do not improve in the future, it could well be a penny stock soon!

Moolah said...

From CIMB:

• Maintain OUTPERFORM despite poor 9MFY11 results. Xingquan’s 9MFY6/11 core net profit was below expectations, coming in at 65% of our forecast on an annualised basis. This was mainly due to higher-than-expected selling and distribution costs at both its old and new outlets. No interim dividend was declared, which was within our expectations. We are cutting our FY11 EPS and DPS forecasts by 10% to reflect higher distribution costs coming from its rebranding exercise which began at the end of last year. However, we retain our FY12-13 numbers as these costs should normalise next year. Our target price remains at RM2.05, based on a 70% discount to our target P/E for its large-cap peers. At less than 3x CY12 P/E, ratings are very cheap. This underpins our OUTPERFORM call. Another factor that could spark a re-rating is a sharp decline in raw material prices.

• Margin squeeze. Although 9MFY11 revenue rose 17% yoy, EBITDA margin slipped 3.5% pts yoy to 19.4%, mainly because of a 55% surge in selling and distribution expenses to RM60.4m due to higher renovation and network expansion costs. Profit margin was also affected by higher prices for raw materials, particularly rubber and cotton.

• Higher shoe prices. Xingquan continued to focus on outdoor casual wear where competition is less intense. ASP for its shoes rose 6% to Rmb111/pair in 9MFY11 while ASP for accessories jumped 38% yoy at Rmb102. The apparel division remained the revenue driver as sales from this division climbed up 24% yoy to Rmb421m in 9MFY11 compared to only 13% revenue growth for the shoe and sole division. However, because it outsources the manufacture of its apparel, pretax margin for this business averaged 13% compared to 23% for shoes and soles.

• 2,300 target for retail outlets by Jun 11. Xingquan’s network of retail outlets stood at 2,100 at end-2010 and is expected to reach 2,300 by Jun 11. In the last few quarters, management capped its network expansion until the new factory was ready for commercial production.

• New factory completed in 1Q11. The new factory was completed in Feb and started commercial production in March. Labour is not a concern as the group has already sourced most of its workers for the new factory. The plant will boost Xingquan’s annual production capacity from 6m to 10m pairs of shoes and from 14m to 28m pairs of soles. The new machinery or lines will be added in stages over the next few quarters.

Moolah said...

Yeah target price is rm 2.05.

But what is it basing that target price upon?

Quote: Our target price remains at RM2.05, based on a 70% discount to our target P/E for its large-cap peers. At less than 3x CY12 P/E, ratings are very cheap.

But note that CIMB 2012's fy 2012 earnings estimates for Xingquan is at 135.4 million!!!

We are now at fy 2011 Q3 and currently Xingquan's net profit is now only 75.888 million. Which works to an average of 25.2 million per quarter.

CIMB's 2012 estimate is 135.4 million, which works out to 33.85 million per quarter.

Which means CIMB is saying that Xingquan earnings per quarter should see a growth of around 34% next fiscal year!!!!!!

Tell me... if that's too ... err... optmistic or what.

Nakata said...

Thanks Moolah for enlighten, you have bring up some good points, just one question, XQ total EPS now is 25 cents, it seem nowadays the market hard to find a stock selling in such low price?

I also wish to get some clue from you about the stocks potentially good to keep an eyes :)

Moolah said...

Nakata: The problem is that some stocks are deemed to be trading at a fair value based on certain PE. ( This is not my rule but it's just there. )

For example in the posting you would note that Taisan, a Chinese stock, listed on Spore traded around a pe of 4.5 only.

Is the stock a buy?

Some bought last Sep 2010 at a price of 24 sen. Today Taisan is trading at 14 sen.

And that's how it is.

Chinese stocks listed outside China is simply ignored and they trade all over the world at super duper low PE. And yet as seen in the Taisan example, the stock price can fall a lot despite the low PE syndrome.

And last but least, do remember that if XQ does execute the TDR, then expect the EPS to be diluted by 15%.