Saturday, November 12, 2011

Letter On XingQuan Again

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?

17 comments:

gwynwelsh said...

Dear Moolah,

I stayed on course (Xingquan) due to my loss of 45% and I have since kept it and waiting for miracles to happen. Again, as I have it before and now, I don't quite understand how and why notable investors got sucked into this Chinese "farce" or is it really a winner. Judging from your comments, I concluded that you have little or no hope for Xingquan. But then again, KYY might have got his reputation as the super investor of Malaysia dented. Regards, Gwyn

Moolah said...

gwynwelsh: " I concluded that you have little or no hope for Xingquan."

--> err... i think it's much better to say that there are several issues within XQ that I truly cannot understand. And from an investing perspective, I do not like to risk my money in things I do not understand.

Stock markets are strange. I will never ever dare say that such and such a stock has got virtually no hope. Why? Look at current penny stocks incredible bullish run and you will understand what I am saying.

Err... regarding KYY yet again.

Have you heard of the legendary investor Bill Miller?

He was known for beating S&P 15 years in a row.

An investing legend. Many investors wannable looked up on him.

But sadly...http://cgmalaysia.blogspot.com/2011/08/bill-millers-inglorious-demise_13.html

Do read about his sad exit......

For me, in investing, anyone can and will make a mistake.

There's no escaping this fact.

How one realises one is wrong is most important.

And for me, the only one thing to do when one is wrong is to stop being wrong.

M.A. Wind said...

Hi,

Just to chip in, I know nothing about this particular company, just be very, very careful in general about these Chinese stocks. If you are interested in low PE Chinese stocks, we got loads of them here in Singapore, PE's of 3, 2 or even lower .....

"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."

I routinely deal in preferential shares and the devil is in the details. Some are ok for normal shareholders, some are horrific with whole lists of extra rights attached to the prefs. So even if this deal with MBMR goes through, better first do your homework, it might not exactly be the rescue that you hoped for.

kine said...

Well known guru also cannot escape from the market cycle, during their peaks everybody try to imitate their style of investing because they have
that aura of invincibility of
do nothing wrong & keep to win all the times. When they r very popular &
everybody r following this only sure
style of investing, then u might use
them as a contrarian indicator because in investing a herd mentality
does not pay !!

Nakata said...

Hi Moola,

Just a quick check on Cash for 11Q3, is it suppose RM164,594,000? mind to share the formula to count cash?

Moolah said...

The 11 Q3 figures? I got it from the pdf file attached to XQ earnings.

http://announcements.bursamalaysia.com/EDMS/edmswebh.nsf/all/482576120041BDAA482578940034E201/$File/3Q2011%20results(announcement).pdf

refer page 3.

Formula to count cash? huh?

Nakata said...

Sorry Moolah, i confuse on Cash and Cash equivalents at end of financial period.

Moolah said...

@nakata: no problem at all. Glad you got that cleared.

@kine: Interesting.

Here's another food for thought. If i think .... err.... say KYY is good... why don't I just give him my money and ask him to invest for me?

Yeah... this would be my preference.

It's like if I think TTB is good and can be trusted, I would just give him my money to invest, rather than invest in his funds.

Err... it's not quite the same in my opinion.

Nakata said...

Moolah,
Any recommendation on good stock ?

bonny b said...

Dear All,
On the subject of KYY and his super-investor tips, one should really read up more to analyze whatever this person recommends. Eg, he recently touted RSawit as one of his great 'finds'. A quick look at its business and recent share issues will certainly be informative.
Also, on Xingquan, anyone has any idea whether the super-investor holds anymore shares??...whoa...

mosea said...

We can write or say whatever we want, but the truth is KYY and those investors mentioned by Gwyn Welsh are the ones came out with hard cash and invested into Xingquan. For example, KYY would have dumped RM55 million if he had bought this counter at RM1.60 for his 34.5 million shares. EPF is among those investors who probably couldn't read accounts. Madam Lai (top shareholders in IOI) had several millions to give away to Xingquan like it was the collector for a quake in China. In short, investors came out with hard cash and they are sitting tight on Xingquan or will they soon join the chorus as good arm chair critic?

Moolah said...

mosea: Just curious. May I know what's more important?

Our own reasoning to invest or not to invest in a stock OR should we just invest in a stock just because someone like KYY had purchased a stake in the stock?

Anyway.. "KYY would have dumped RM55 million if he had bought this counter at RM1.60 for his 34.5 million shares."

I know and I realise that one should have a long term approach in investing but what would you say to someone who points out the current price of XQ versus KYY purchase price and ask what if KYY made an investment mistake?

Are we going to say that KYY would never make a mistake?


ps: I do certainly hope EVERYONE can write or say whatever we want. Cheers!

gwynwelsh said...

Dear Mosea,

Let us get on the right foot on this subject. Yes, KYY and those others had invested millions into Xingquan. However, are they jubilating or regretting now as a result of their earlier investment decisions? I have invested into Xingquan too, and I am flabergasted with its dismal performance. It had not delivered what it promised to. For example, they have promised to deliver 15 to 20% of its profit to investors which they have reneged this year. They have good sets of results to show but are they real as Moolah had correctly hinted. I am not in any position to say whether those reports are real or fake but the onus should be on Foo, Koon and Thornton, the certified auditor. With the benefit of the doubt to FKT, let us say they are real. The issue here is why re-branding from Addnice to Gertop after achieving success with Addnice? Why the little interests on the cash? There are so many whys to be answered and until and unless we get satisfactory answers from Xingquan, I am keeping my fingers crossed!

Moolah said...

aw ................. :P

limko said...

Technical junkies would probably say everything is reflected in the price and read what the price is telling you.

Moolah said...

aw ...... LOL!

Yeah... is ok with me. :)

Salvatore_Dali said...

I should be doing a posting on Xinquan and other listed Chinese firms in Malaysia.... there appears to be NONE that are showing a good shred of decency in running a company.

I put it to you, you post good profits and cash flow... but all do not want to declare good dividends or do share buybacks or do anything that would put the share price higher ... while many would spend days and nights defending on plausible reasons... at the end of the day ... its Orcam's Razor... when things are so convoluted, the simplest answer is staring at you and is probably the closest approximation to the truth ... they are LYING.

Are we to think that any of Chinese companies listing in Malaysia any different to the ones listed in US (except for a few biggies like Baidu)... most hav been censured or found to be fiddling with their books.

If the profits are even 50% true... how would they get any of them? The answer is simple, by spending more to expand, build factories, etc... by doing iy, they can siphone funds back... e.g. a factor may incur RM50m but actual cost may be closer to RM30m... etc... there are many ways to skin a cat.

I would advise all, the same advice I gave to Mr. Koon, cut your losses.