Friday, 9 September 2016

Xingquan: heavy losses (3)

Bursa was aparently not too happy about the explanation given by Xingquan and queried the company again, quite rare that something like that happened.

The company responded with an announcement.

It continues to be a strange case that an alleged batch of 3.6 million (!) custom made shoes did not meet the requirements. Common sense would dictate to have samples send to the customer, and subsequently the shoes in batches, with each quantity to be confirmed in writing by the customer having received them in good order.

But then again, Chinese companies listed on Bursa (or other foreign bourses) often seem to defy logic.

Mercury Securities issues research reports regarding Xingquan (a rather unenviable task, but then again, they do it voluntarily and even get some financial compensation for it), and decided to switch to a "Sell" recommendation, after having recommended to "Buy" the stock since its listing. In its very first report it came up with a target price of RM 1.96, a far cry of the current price of RM 0.105.

Mercury notes:

"Based on our forecast of Xingquan’s FY17 EPS and an estimated P/E of 1.5 times, we set a FY17-end Target Price (TP) of RM0.13. This TP is 3 sen lower than the market price at the start of the date of this report. Our TP for Xingquan reflects a P/BV of 0.07 times over its FY17E BV/share."

A bit peculiar, if I may add, either one trusts the numbers of Xingquan, and then a P/E of 1.5 and P/BV would mean a screaming "Buy".

Or one does not trust the numbers, and any valuation would be too much.

I don't own any share in Xingquan (or any other China listed company listed on Bursa), so the reader can guess in which camp I belong. On a side note, I do own some shares of Chinese companies, but large ones, with a much better CG track record, listed in Hong Kong.

The report continues:

"Unfortunately, we note that the investing public’s perception of PRC (People’s Republic of China)i.e. China-based companies that are listed outside China/Hong Kong, may not be entirely favourable."

And that may be the understatement of the year.

"PRC companies listed in Malaysia and Singapore are normally not especially large-cap, and as such may not be very liquid."

Liquidity has nothing to do with it, I think, I would be more than happy to own illiquid shares with  a P/E of 1.5, that is, if I trusted the numbers.

Nevertheless, we opine that with concerted efforts from various parties, the investing public’s perception on PRC companies listed here can be improved. This would include efforts such as – hiring top PR/IR agencies, arranging site visits and conducting investor road-shows.

"Hiring top PR/IR agencies" ...... I think that is about the last thing that is needed, more spin stories.

What the China listed companies should do is:

  • Markedly improve their corporate governance practices, especially in the transparency department
  • Share the company wealth with the minority investors, for instance by issuing meaningful dividends, embark on share buyback programs, etc (this can only be done if the alleged reported cash amount is indeed available of course, something I have my doubts about)
  • Have a neutral party with relevant expertise (a forensic auditor for instance) confirm the bank balances of the companies

Unfortunately, I have not yet seen that happen with any of these companies.

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