Two more independent directors of XingQuan resigned, "Due to time commitment issue" and somewhat more specific:
As he will not be able to discharge and perform the duties and responsibilities of an independent director due to the expiry of the employment contract of the CFO in early May 2017, the resignation of Audit Committee Chairman in end of May 2017, the recent resignation of the other independent director, and the inability of the Company to secure suitable candidates to fill the aforesaid vacancies since May 2017, he therefore tender resignation as an independent director.
That means that the audit committee is now vacant, as is the department of independent directors. Any takers? If not, who will defend the rights of the minority investors?
I have warned several times about XingQuan, the first time (XingQuan: does the company believe its own cash?) almost exactly two years ago.
So far no visible action has been taken by the authorities. Did it really have to come this far? Fast, adequate action might for instance have prevented the rights issue, pouring more good money after bad. Or may be some of the assets could have been saved and liquidated, to the advantage of the minority investors.
In a unrelated case, the Securities Commission has taken action against a father and son for submitting false or misleading information. But the punishment is a mere reprimand and permanent moratorium regarding listings in Malaysia. I guess the perpetrators will simply shrug their shoulders and move on, the world outside Malaysia is pretty large after all.
The real test will be if the Malaysian authorities will be able to fine foreigners or impose a jail sentence. So far no action of that kind has ever been taken against any of the listed Chinese companies in Malaysia. Time will tell if it ever will happen.
If it turns out to be near impossible to impose these penalties, then Bursa should never have allowed foreign companies to list in Malaysia, because of the absence of any significant deterrent.
Showing posts with label XingQuan. Show all posts
Showing posts with label XingQuan. Show all posts
Thursday, 3 August 2017
Thursday, 8 December 2016
Xingquan: heavy losses (4)
Story in The Edge: "Rejection of shoes a ‘one-off unfortunate event"
And a video can be found here:
This alleged order (I wrote before about this issue) for 3.6 Million pair of shoes must have been by far the largest order in Xingquan's existence. According to the video, it was one of the requirements of the project that inspection and all certification had to be done after the delivery of the last batch.
That doesn't make any sense whatsoever, why this strange requirement?
And why accept the huge order (if the customer really insists on this strange requirement), because the risk must be very high?
Just to put things into context:
Let's assume that the height of this wall is 20 shoeboxes, and that the length of each shoebox is 1/3 of a meter, then in one meter one can store 60 shoeboxes each containing one pair of shoes. The alleged order was 3,600,000 pair of shoes, in other words:
Xingquan should prove, beyond any reasonable doubt, checked by reliable, independent auditors:
As long as that has not happened, I just dont believe the story, it is simply too crazy and doesn't make any sense whatsoever.
"Wu said management will explore the possibility of declaring dividends as well. It is understood that this has been demanded by some shareholders. As at June 30, the company had cash and cash equivalents of 1.14 billion yuan."
First Xingquan executed a rights issue, because it claimed it needed extra money, it raised about RM 44 Million with that (I wrote about this strange issue here and here).
Then it blew RM 387 Million in a single quarter (for a good part because of the above alleged screw up), almost nine times the amount raised in the rights issue.
And now suddenly the company "will explore the possibility of declaring dividends"?
And a video can be found here:
This alleged order (I wrote before about this issue) for 3.6 Million pair of shoes must have been by far the largest order in Xingquan's existence. According to the video, it was one of the requirements of the project that inspection and all certification had to be done after the delivery of the last batch.
That doesn't make any sense whatsoever, why this strange requirement?
And why accept the huge order (if the customer really insists on this strange requirement), because the risk must be very high?
Just to put things into context:
Let's assume that the height of this wall is 20 shoeboxes, and that the length of each shoebox is 1/3 of a meter, then in one meter one can store 60 shoeboxes each containing one pair of shoes. The alleged order was 3,600,000 pair of shoes, in other words:
60 km shoeboxes (uninterrupted), the distance from Kuala Lumpur to Seremban!
Xingquan should prove, beyond any reasonable doubt, checked by reliable, independent auditors:
- that the order really existed
- who the agency was that placed the order
- that Xingquan actually made 3,600,000 pair of shoes, during which time and in which locations
- in which place(s) they stored the finished shoes
- that the agency formally rejected the shoes
- to which customer Xingquan sold the discarded shoes to
As long as that has not happened, I just dont believe the story, it is simply too crazy and doesn't make any sense whatsoever.
"Wu said management will explore the possibility of declaring dividends as well. It is understood that this has been demanded by some shareholders. As at June 30, the company had cash and cash equivalents of 1.14 billion yuan."
First Xingquan executed a rights issue, because it claimed it needed extra money, it raised about RM 44 Million with that (I wrote about this strange issue here and here).
Then it blew RM 387 Million in a single quarter (for a good part because of the above alleged screw up), almost nine times the amount raised in the rights issue.
And now suddenly the company "will explore the possibility of declaring dividends"?
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:
Unfortunately, I have not yet seen that happen with any of these companies.
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.
Monday, 5 September 2016
Xingquan: heavy losses (2)
Bursa queried the company and the company replied.
Good that Bursa took some action and indeed through its questions highlighted relevant issues.
But I think this is not enough, the only correct action is to have an investigative audit on the operations of Xingquan, similar to what happened regarding the marketing issues of Maxwell.
Only that way we can get deep insights what really happened from an objective third party with experience in handling these kind of matters.
For more background on China based companies listed on Bursa, please read the following article at the website of The Edge:
China-based firms now going cheap, any takers?
One snippet:
"When Bursa started looking beyond the shores for potential IPO candidates, its move met with scepticism about attracting the rotten apples, instead, having seen the slew of corporate scandals in Singapore. Simply put, the scepticism seems to have proven that it is not that harsh after all."
Good that Bursa took some action and indeed through its questions highlighted relevant issues.
But I think this is not enough, the only correct action is to have an investigative audit on the operations of Xingquan, similar to what happened regarding the marketing issues of Maxwell.
Only that way we can get deep insights what really happened from an objective third party with experience in handling these kind of matters.
For more background on China based companies listed on Bursa, please read the following article at the website of The Edge:
China-based firms now going cheap, any takers?
One snippet:
"When Bursa started looking beyond the shores for potential IPO candidates, its move met with scepticism about attracting the rotten apples, instead, having seen the slew of corporate scandals in Singapore. Simply put, the scepticism seems to have proven that it is not that harsh after all."
Tuesday, 30 August 2016
Xingquan: heavy losses
Xingquan, another China based counter listed on Bursa I have warned about, announced its results:
Cost of sales of RM 342 Million on Revenue of RM 83 Million, does it make any sense whatsoever?
In the past I have shown doubt about the cash in the company (why issue a rights issue when one claims to be sitting on a huge cash pile?), a few more quarter results like the above and that problem might be "solved".
Cost of sales of RM 342 Million on Revenue of RM 83 Million, does it make any sense whatsoever?
In the past I have shown doubt about the cash in the company (why issue a rights issue when one claims to be sitting on a huge cash pile?), a few more quarter results like the above and that problem might be "solved".
Monday, 5 October 2015
XingQuan: does the company believe its own cash? (2)
Bursa has queried XingQuan about its rights issue, and the company has replied:
The Company wishes to clarify that the cash balance of RM886.55 million is mainly reserved for working capital, and as explained in the announcement dated 25 September 2015, Xinquan requires sufficient cash buffer and a high level of working capital to ensure minimal disruption to its operations in the event of a liquidity crisis or a sharp economic downturn. The purpose of the Proposed Rights Issue with Warrants is to raise funds for Xinquan’s capital expenditure requirements whilst maintaining a healthy level of cash balances at all times.
In addition, the available cash balance may also be used for future business expansion into related businesses, in particular, acquisition of foreign brand(s), if and when the opportunity arises.
The Group has placed its cash balances in savings accounts with licensed banks in China which carries an interest rate of approximately 0.35% per annum. The cash is placed in savings accounts as the cash is not idle and is required to fund Xinquan’s day-to-day operations.
I find the answers completely unsatisfactory given the size of its current operations. Just looking at balance sheet items like inventory, receivables, payables etc. gives an indication roughly how much cash the company needs in case the company grows, or in case there is a calamity. The company has abundant cash for all those purposes, much more than needed.
Regarding business expansion, first of all that sounds very vague, secondly those take time, the company could still raise money when the opportunity arises.
The company claims that it can not put money (not even a few hundred million RM) in a fixed deposit since it needs the money in day-to-day operations. That sounds highly questionable. The company should be forced to proof that, by showing the minimum amount of cash throughout the year in all saving accounts.
Chinese listed companies have a really bad reputation for its cash management. There have been fraud cases where the promised money was simply not there. Others have embarked on acquisitions (sometimes in related party transactions) that have destroyed value. They hardly pay out a decent dividend or embark on a share buyback program. In the contrary, they rather use private placements at share valuation below the amount of cash per share.
It doesn't make sense at all, and if that is the case, then in my experience most likely something else is going on, something more sinister.
There is still my suggestion in the previous posting.
More than four years ago I warned already about Chinese listed companies with cash levels that can not be trusted. Free advice for Bursa, it can't get much better than that, can it?
The Company wishes to clarify that the cash balance of RM886.55 million is mainly reserved for working capital, and as explained in the announcement dated 25 September 2015, Xinquan requires sufficient cash buffer and a high level of working capital to ensure minimal disruption to its operations in the event of a liquidity crisis or a sharp economic downturn. The purpose of the Proposed Rights Issue with Warrants is to raise funds for Xinquan’s capital expenditure requirements whilst maintaining a healthy level of cash balances at all times.
In addition, the available cash balance may also be used for future business expansion into related businesses, in particular, acquisition of foreign brand(s), if and when the opportunity arises.
The Group has placed its cash balances in savings accounts with licensed banks in China which carries an interest rate of approximately 0.35% per annum. The cash is placed in savings accounts as the cash is not idle and is required to fund Xinquan’s day-to-day operations.
I find the answers completely unsatisfactory given the size of its current operations. Just looking at balance sheet items like inventory, receivables, payables etc. gives an indication roughly how much cash the company needs in case the company grows, or in case there is a calamity. The company has abundant cash for all those purposes, much more than needed.
Regarding business expansion, first of all that sounds very vague, secondly those take time, the company could still raise money when the opportunity arises.
The company claims that it can not put money (not even a few hundred million RM) in a fixed deposit since it needs the money in day-to-day operations. That sounds highly questionable. The company should be forced to proof that, by showing the minimum amount of cash throughout the year in all saving accounts.
Chinese listed companies have a really bad reputation for its cash management. There have been fraud cases where the promised money was simply not there. Others have embarked on acquisitions (sometimes in related party transactions) that have destroyed value. They hardly pay out a decent dividend or embark on a share buyback program. In the contrary, they rather use private placements at share valuation below the amount of cash per share.
It doesn't make sense at all, and if that is the case, then in my experience most likely something else is going on, something more sinister.
There is still my suggestion in the previous posting.
More than four years ago I warned already about Chinese listed companies with cash levels that can not be trusted. Free advice for Bursa, it can't get much better than that, can it?
Sunday, 27 September 2015
XingQuan: does the company believe its own cash?
On September 25, 2015, XingQuan International Sprts Holdings Ltd (XingQuan) announced its audited accounts.
Remarkable is the enormous amount of cash, RMB 1,456,947,000, about RM 1 Billion:
Something else remarkable is the tiny amount of interest the company is earning on the cash:
That is about 0.3% on a yearly base, why such a low number?
Is the cash really in the company, as stated?
Strangely enough, the company also seems to have some doubts, otherwise the following announcement does not make much sense.
The company announced the same day a rights issue with warrants attached.
Why would a company spend RM 1M in money and go through the hassle of additional work for a relatively insignificant amount of RM 26M to be used to buy machineries, when it claims to have about RM 1 Billion in cash?
The company has done the same in the past, but through a private placement (highly dilutive to its shareholders), again for a puzzling small amount of RM 30.7 million:
The rationale given by the company for the rights issue:
Those numbers (pre payments etc.) should show up in the balance sheet, here are they:
Regarding the inventory and receivables, they might grow when the turnover rises, say with RMB 60 million in the next year, but that would only be 4% of the cash available.
Regarding the payables, borrowings and tax, the total amount is only about 6% of the current cash.
Nothing that even comes even close to the magnitude of RMB 1,457 million cold hard cash.
Next to that, the company claims to have made a net profit of more than RMB 200 million over the last year alone. Profit that is easily enough for the increase in working capital.
In other words, the above rationale as described by the company is dubious at best, it simply does not make any sense.
The rights issue is accompanied by an issue of free warrants. Needless to say, the stock immediately went up, most likely chased by punters who don't quite understand that all shareholders receive the same free warrants and thus that all get diluted in the same way in the long run.
There is a possible way out of the lack of confidence regarding Chinese listed companies on Bursa.
Bursa could ask companies with suspicious high cash levels to voluntarily cooperate in the following exercise:
"Let the highest authority of the banks (not just the branch manager) where they hold the cash verify that the cash balance of (say) the last eight quarterly statements and the average bank balance of (say) the last one year is indeed correct. Let them send this statement to Bursa (or another independent organisation), who will be allowed to check the authenticity of the statement with the source. After checking the statement, it can be announced on Bursa's website"
Companies that cooperate and where the balance does check out will see its share rise, having lifted the suspicion of their high cash bank balance.
Companies that do not cooperate might have something to hide and most likely their share price will suffer. Auditors and Independent directors might start to feel the heat and take appropriate action.
Remarkable is the enormous amount of cash, RMB 1,456,947,000, about RM 1 Billion:
Something else remarkable is the tiny amount of interest the company is earning on the cash:
That is about 0.3% on a yearly base, why such a low number?
Is the cash really in the company, as stated?
Strangely enough, the company also seems to have some doubts, otherwise the following announcement does not make much sense.
The company announced the same day a rights issue with warrants attached.
The company has done the same in the past, but through a private placement (highly dilutive to its shareholders), again for a puzzling small amount of RM 30.7 million:
The rationale given by the company for the rights issue:
Those numbers (pre payments etc.) should show up in the balance sheet, here are they:
- Inventory RMB 44 million
- Trade and other receivables RMB 254 million
- Trade and other payables RMB 68 million
- Borrowings RMB 18 million
- Tax payable RMB 7 million
Regarding the inventory and receivables, they might grow when the turnover rises, say with RMB 60 million in the next year, but that would only be 4% of the cash available.
Regarding the payables, borrowings and tax, the total amount is only about 6% of the current cash.
Nothing that even comes even close to the magnitude of RMB 1,457 million cold hard cash.
Next to that, the company claims to have made a net profit of more than RMB 200 million over the last year alone. Profit that is easily enough for the increase in working capital.
In other words, the above rationale as described by the company is dubious at best, it simply does not make any sense.
The rights issue is accompanied by an issue of free warrants. Needless to say, the stock immediately went up, most likely chased by punters who don't quite understand that all shareholders receive the same free warrants and thus that all get diluted in the same way in the long run.
There is a possible way out of the lack of confidence regarding Chinese listed companies on Bursa.
Bursa could ask companies with suspicious high cash levels to voluntarily cooperate in the following exercise:
"Let the highest authority of the banks (not just the branch manager) where they hold the cash verify that the cash balance of (say) the last eight quarterly statements and the average bank balance of (say) the last one year is indeed correct. Let them send this statement to Bursa (or another independent organisation), who will be allowed to check the authenticity of the statement with the source. After checking the statement, it can be announced on Bursa's website"
Companies that cooperate and where the balance does check out will see its share rise, having lifted the suspicion of their high cash bank balance.
Companies that do not cooperate might have something to hide and most likely their share price will suffer. Auditors and Independent directors might start to feel the heat and take appropriate action.
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