Qingmei Group Holdings

[donmihaihai]

The usual disclaimers apply. I would be happy to see the above analysis countered with supporting data.

Let me try to balance the whole view a little as its swing too far to an extreme.

1 ) Superman, Wonder Woman and incredible

IPO prospectus page 62.

“For FY2007, we only commenced sales in October 2006 and recorded sales for a period of nine months as compared to 12 months in FY2008.”

IPO prospectus page A-27

PPE at beginning of the year (FY2007)- nil
Addition - 74m
Depreciation - 14m
PPE at end of the year - 60m

PPE at beginning of the year (FY2008)- 60m
Addition - 20m
Depreciation - 18m
PPE at end of the year - 62m

PPE at beginning of the year (FY2009)- 62m
Addition - 17m
Depreciation - 21m
PPE at end of the year - 58m

Depreciation period of PPE - 1-10 yrs (page A-16)

Actual depreciation per machine is unknown but average depreciation can be re-calculated. But that is not my concern.
My concern is PPE and depreciation does support sale for FY2007 was not for 12 months. Add in production start up issue, learning curve, etc, it does not support superman and wonder woman thing. Maybe someone with knowledge can point out that it is impossible to has 8,590 pair of shoes per worker per year.


2) Utilisation rate and gross margin.

Note : gross margin is used rather than net margin because in production, overhead expense goes to direct cost and admin, selling and distribution expenses is minimum for this company.

IPO page 59

Direct material as % of COS - FY2007 - 62.8%, FY2008 - 65.4%, FY2009 - 65.4%
Manufacturing overhead as % of COS - FY2007 - 14.9%, FY2008 - 12.1%, FY2009 - 12.7%
Direct labour as % of COS - FY2007 - 19.4%, FY2008 - 19.3%, FY2009 - 19.7%

Explanation of Direct material, manufacturing overhead & direct labour can be read on the same page.

My point is when manufacturing overhead is as low as 12 - 15%, utilisation rate is not the key to margin. Direct material is.

3) Disappearing of PPE from B/S

IPO prospectus page A-4
Other payable and accrual - 149m, 144m, 48m
IPO prospectus page A-6
Increase in other payable and accrual - 16m, 7m , 18m
Payment for purchase of PPE - (130m), (52m), (53m)

IPO prospectus page A-27
Addition of PPE in note 13

IPO prospectus page A-32
Other payable and accrual in note 20

Please do the calculation.

Note : A company can cooked it book but it can’t make it disappear just like that. (I have done the same thing for Ezra 2 or 3 years back but that was just for cash flow statement for financial statements but not a full report. There is a different and for cash flow statement, it can be present in all kind of way and even omit information but still look good. But that is for cash flow statement only)

NOTE : I know nothing about this company BUT I don’t think they can cook it book in such simple way.