Saturday, May 04, 2013

So What's The Probelm With China Based Companies?

I was reading the following article:

In light of the recent posting, Do You Want More China Based Companies To Be Listed Here?, the first few passages caught my attention...

  • THERE are currently nine China-based companies listed in Malaysia and you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.

    Of course, some did trade above their IPO price soon after they were listed but none proved sustainable.

    It's somewhat perplexing that they are not. These companies are cash-rich, have profits that grow year-on-year and almost, if not, all are trading at huge discounts to their net cash per share.

    Sure, not all of their businesses are terribly sexy. Most are shoe manufacturers but given the growing population and income levels the world over, there remains growth potential.

    So, what is the problem?
Yeah what's their problem?

First thing first.

"you'll be hard pressed to find one that is trading above their initial public offering (IPO) price.".. When I posted Do You Want More China Based Companies To Be Listed Here?, on the average, these China based companies were starring at 63% losses since their IPO listing. And the losses increased since ALL of these China based stocks declined further since then.

Two of the big losers were HB Global and CSL, with HB Global plummeting some 24% yesterday when it announced it's delaying its audited accounts! ( )!!!!

CSL closed at 26 sen yesterday. (IPO Price 95 sen!!!!! )

The Star Business article talked about these stocks trading at huge discounts to their net cash per share.

Let's look at CSL quarterly earnings report: Quarterly rpt on consolidated results for the financial period ended 31/12/2012 

Have a look at the pdf file attached to that Bursa webpage.

From the balance sheet, we can see that CSL is cash rich!

 CSL says it has some 894.674 million in its piggy bank!

That's a lot of cash!

Super cash rich since CSL does not have any borrowings.

But the market is selling CSL at 26 sen only!!!!

26 sen... which means CSL market capital is worth 323.117 million!

Holy cow!

I'm sure you will ask is the market out of whack selling CSL at 26 sen!!!!!

With a market capital of 323.117 million, it means the market is valuing CSL way below its 894.674 million.

With 1,242.760 million shares, CSL's cash per stated in its Feb quarterly earnings is 72 sen!

Yes, you heard me, cash per share is worth some 72 sen.
Market valuing the shares at only 26 sen.

How can the share be worth so little compared to the company's cash????

Won't the owners be better off taking the company private?


If the cash per share is REALLY worth 72 sen and the share is trading at 26 sen, surely the owners would buy these shares like crazy, yes?

But this did not happen!!!

Instead on 23 March, less than one month after this earnings report was released, one of the directors, Chan Fung @ Kwan Wing Yin, decided to dispose shares at 60 sen!!!!!


Yes sir!

Company's cash per share were worth 72 sen.
Company's director disposes shares at 60 sen!!!


Makes sense?

Time to look at the cash flow.

Looking at the cash flow statement is useful because the interest income is stated there.

Think about it. For a company like CSL, it says it has 894 million in its piggy bank. A lot of money, yes? Surely the company would deposit a bulk of the money to earn some interest right?

CSL's interest received showed only 3.416 million.


So low?

CSL has 894.674 million cash and CSL only receives 3.416 million in interests!!!!


What is CSL doing with its 894.674 million????

(ps: How about CSL allow me to manage their 894.674 million cash and I pay them 6 million in interest!! )

Why is CSL getting so little in interest???

 Well, what's the possible answers?

Is CSL putting any of the money into fixed deposits account?
If no, why?
If no, what is CSL doing with all these money?
If yes, why so little in interest?

How? What's the problem with these China based companies?

Would you trust the NET CASH PER SHARE of this China based company? ( Feel free to do a similar research on other China based companies.)

How now?

They say share cheap because share is trading below net cash per share. But company director is selling their share below the net cash per share. Company earns extremely low interest.

DARE you invest in such company???

 ps: When CSL was newly listed it was a darling stock. With an IPO of 95 sen, CSL managed to fly to a high of 1.93 sen within one month from its listing! See chart below.

 Here's the chart almost a year later.



Unknown said...

Plain poor quality of company listed... the Chinese ones especially.. Nicely written post cutting through the skin.

solomon said...

What is your suggestion? Clear them from shelf or take cane and cane them•••••

solomon said...

What is your suggestion? Take them off or cane them?

Yan Cheng Cheok said...

Nice post moo moo. You have a sharp eye on this kind of stuff. This makes me always invest based on company market reputation and branding. Their accounting figures come 2nd.