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?