Regarding Xingquan And Taisan

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

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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