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dzwm87 Wrote:One of my main concern is why do S-chips like to dual-list elsewhere? If it's for the additional capital, then why the need for so much capital given the strong cash holding? "Chinese liking to hold lots of cash" isn't a good reason unless we know why they LIKE to hold it. Besides, it is common sense that business that constantly require placement burns capital and is never good for shareholders (let alone minority ones like us). The only other reason I can think of is that other listing allows better valuation. If that's the case, then the company no longer has any incentive for their listing in SGX to attain "fair valuation" since this will be better attained elsewhere (HK/Taiwan).. Might turn out to be a value trap.

Some plausible answers:

1. Some or all of the cash is fake. Real money must be injected from time to time for the show to go on.

2. The company is desperate for cash.The company is real, but it has some massive capital needs coming up and it can't or doesn't want to borrow.

This is possible as borrowing by non-SOEs is getting harder in China. But if so, is the company wise to be expanding on such a large scale that it cannot fund this growth internally?

Even if the expansion is the correct decision commercially, given how cheap the shares may be, the cost of capital is extremely high. Can the new project generate returns sufficient to offset the dilution to shareholders? If you issue shares at 4x PE you are implying that the new project can generate after-tax IRRs of over 25%. This is very tough in practice. A lot of projects look like that before you put the money down. Few actually deliver.

3. False beliefs. The controlling shareholders believe that a dual listing will:

a. improve liquidity since there are potentially more investors who can buy the shares; and
b. reduce undervaluation since more investors theoretically means more efficient pricing

I would point out that the typical dual-listing only involves a small percentage of the shares issued, so usually liquidity in the new market is abysmal. Any price premium usually evaporates quickly as the new investors discover they can buy the same shares cheaper on SGX. However, instead of the SGX price moving up to the secondary market's price, it is usually the secondary market's price that declines to the SGX price. It was noted earlier this year in various articles that the dual-listing bubble had since popped, with no discernable benefits (except perhaps to the investment banks who got paid to arrange the deals).

As usual, YMMV.
(16-10-2011, 05:32 PM)d.o.g. Wrote: [ -> ]If you issue shares at 4x PE you are implying that the new project can generate after-tax IRRs of over 25%.

Hi d.o.g,

Care to share how did you calculate IRR of 25% with 4x PE share issuance? Thanks!
mrEngineer Wrote:Care to share how did you calculate IRR of 25% with 4x PE share issuance?

If the company buys its own stock at 4x PE the earnings yield is 25%. Therefore if it sells stock at 4x PE to fund a project, the project must deliver more than 25%, otherwise the exercise is dilutive.
Yep, you are right d.o.g

I guess overall, there is really too much grey areas worth to be covered for s-chips.

Better china companies are either listed in China or HK and the B- or C-lister are in S'pore..

Ultimate question is this, how much effort do we need to do to be certain that a particular s-chip is free from any fraud risk. Maybe if they employ one of the big-4 auditors, it may ease some concerns though not certain that they will be completely fraud-less

I still think foreland is one of the better s-chips, given how much the management does its publicity back in SG (anybody knows if Gaoxian did exactly that? sending CFO to Singapore for investors conferences, etc).

However, visibility of catalyst for multi-bagger re-valuation is still poor (maybe at most 30%-50% upside gain for privatisation)

Too much effort, IMO, to realise such little gains. At current, HKEx or SG companies might have better opportunities.. '

But still, interesting to see how foreland goes. Hope it's the best for those vested in it!
dzwm87 Wrote:Ultimate question is this, how much effort do we need to do to be certain that a particular s-chip is free from any fraud risk. Maybe if they employ one of the big-4 auditors, it may ease some concerns though not certain that they will be completely fraud-less

Here is a partial list of S-Chips that have blown up (suspended or liquidated) and the auditors who signed off their last annual report:

Beauty China (Foo Kon Tan Grant Thornton/HLB Hodgson Impey Cheng)
Celestial Nutrifoods (PricewaterhouseCoopers)
China Food Industries (Ernst & Young)
China Gaoxian Fibre (Ernst & Young)
China Hongxing (Foo Kon Tan Grant Thornton/RSM Nelson Wheeler)
China Milk (Grant Thornton)
China Printing & Dyeing (Foo Kon Tan Grant Thornton)
China Sun Bio-chem (PricewaterhouseCoopers)
Ferrochina (Deloitte & Touche)
Fibrechem (Deloitte & Touche)
Hongwei Technologies (Ernst & Young)
Oriental Century (KPMG)
Sino-Environment (PricewaterhouseCoopers)
Sino Techfibre (Ernst & Young)

How many companies are in the list above? 14.

How many had a "Big 4" auditor? 10.

It does not seem like having a "Big 4" auditor means anything at all.

As usual, YMMV.
lolz! Big Grin

very true!
dzwm87 Wrote:Ultimate question is this, how much effort do we need to do to be certain that a particular s-chip is free from any fraud risk. Maybe if they employ one of the big-4 auditors, it may ease some concerns though not certain that they will be completely fraud-less
fyi..in the recent year..if u go to hkex website..there are many noticeable announcements on change of auditors from the big 4 (by the H-shares) to china-based auditors. this is because hkex has relaxed some of the rulings/recognize these china-based auditors.
(17-10-2011, 08:58 PM)pianist Wrote: [ -> ]
dzwm87 Wrote:Ultimate question is this, how much effort do we need to do to be certain that a particular s-chip is free from any fraud risk. Maybe if they employ one of the big-4 auditors, it may ease some concerns though not certain that they will be completely fraud-less
fyi..in the recent year..if u go to hkex website..there are many noticeable announcements on change of auditors from the big 4 (by the H-shares) to china-based auditors. this is because hkex has relaxed some of the rulings/recognize these china-based auditors.

true true. Once again, just proven that there is nothing which can stamp a guarantee that risky investment comes with little risk. Reminds us of the credit ratings on subprime mortgages.

Well, as of now, staying clear of S-chips.. just need too much effort for a thorough investigation.
(16-10-2011, 10:27 AM)dzwm87 Wrote: [ -> ]I think foreland fabrictech is one of the better s-chips. If you look at websites like NextInsight, they are covered extensively.

In case there are misconceptions that NextInsight is a fully independent news site, please note that the co-founder of NextInsight is also the founder and MD of the public relations firm Financial PR. NextInsight is also actively marketed by Financial PR as one of the channels through which the firm can help its clients in the online space.

NextInsight's team - http://www.nextinsight.net/index.php/abo...topmenu-84

Financial PR's team - http://www.financialpr.com.sg/index.php?...&Itemid=14

Financial PR's services - http://www.financialpr.com.sg/index.php?...&Itemid=26
Foreland likes to provide positive profit alerts. Interesting, but not a usual practice among listed companies.

http://info.sgx.com/webcoranncatth.nsf/V...B002AECE6/$file/Foreland_Announcement_Positive_profit_alert_and_date_of_results_3QFY2011_20111101.pdf?openelement
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