China Hongxing Sports

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#11
isaac Wrote:...fishy low interest earnings...
...Is there really something fishy, or is my overactive mind thinking too much?

This cash-but-low-interest issue was raised many years ago by a CLSA analyst regarding People's Food. Apparently the company threw a fit and supposedly banned him from future briefings.

The trouble with reconciling cash balances with interest earnings is that cash is shown as of a particular date, while interest is earned over a period of time. If a company is using its cash actively, there may not be much cash sitting in the bank on any given day as the cash is used to buy raw materials, pay employees etc and is later regenerated when customers pay. The company could even incur interest charges if seasonal working capital needs require it to take on short-term loans which are repaid by the end of the reporting period, whereupon it shows no debt but has incurred interest costs.

That said, if a company clearly has excess cash balances especially after a capital raising, it would be sensible to assume meaningful interest income since that money should be sitting around in the bank until it is actually used. An annualized interest rate of less than 1% today in China is probably too low and definitely a cause for concern, especially if the situation of high cash balances and low interest earnings has persisted over a couple of years.

As a side note, today's Straits Times has an article on suspended counters titled Investors left out in the cold. The list shows 17 counters, of which 11 are clearly Chinese in origin. Enough said, I think.
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#12
(03-03-2011, 01:06 AM)d.o.g. Wrote: The key is not whether a company pays dividends, but rather what it would cost the promoters to create the dividends out of thin air if the business was fake.

In the case of China Hongxing the IPO raised RMB 191m, and a further RMB 503m was raised from selling convertible bonds which were subsequently all converted. Total cash inflow was RMB 694m.

Dividends actually paid out were:

2006: RMB 24m
2007: RMB 81m
2008: RMB 104m
2009: RMB 28m
9M10: RMB 28m

Total: RMB 175m

However the Wu brothers own about 33% of the company so only about 2/3 of this amount actually went to minority shareholders i.e. RMB 118m went to non-insiders.

We know RMB 694m went in, and RMB 118m came out. So there was more than enough money raised from the IPO and CBs to pay out dividends to minority shareholders. The RMB 576m balance would have been available for whatever purposes the Wu brothers deemed fit. Apparently, sharing some of this bounty with their auditors in exchange for their blessings was not one of these purposes...

There was also another share placement of 400,000,000 shares at $1.18 in late 2007. That probably explains why there was a surge in dividend payment in 2008.
400 million shares at $1.18 = $472 million = about RMB 2.4billion

Including the IPOs and convertible bonds, the total money sinked in is more than RMB 3 billion.
That's hell lots of money vaporizing.

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#13
yeokiwi Wrote:There was also another share placement of 400,000,000 shares at $1.18 in late 2007. That probably explains why there was a surge in dividend payment in 2008.
400 million shares at $1.18 = $472 million = about RMB 2.4billion

Including the IPOs and convertible bonds, the total money sinked in is more than RMB 3 billion.
That's hell lots of money vaporizing.

Oh yes I missed that huge placement.

Since the Wu brothers only own 1/3 of the company, cash-in-company converts to cash-in-pocket at a 33% rate if they pay dividends. But if they decide to help themselves to the money it converts at a 100% rate. RMB 3 bn is quite a nice chunk of money. Dividing it 2:1:1 among the 3 brothers, the smallest share is still RMB 750m, or S$150m. That funds a rather comfortable lifestyle anywhere in the world.

Since the Wu brothers live in China and don't ever need to come back to Singapore, prosecution risk is effectively zero. So it would have been an easy choice to just take the money.

In any case, no additional findings have been made public yet. It will be interesting to see what the special audit uncovers.

Moderator: perhaps the recent posts should be moved to the Hongxing thread?
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#14
(03-03-2011, 02:08 PM)d.o.g. Wrote: Moderator: perhaps the recent posts should be moved to the Hongxing thread?

Done! Big Grin
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#15
Did they invest the cash raised in the equity placement proceeds or was it just lying around ?

I guess it is best to avoid companies whereby a single person is both executive and the controlling shareholder. I never felt comfortable with such a structure especially in a foreign company.
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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#16
I made a trip to Xiamen, a second tier city in China recently. While at the main shopping district, Zhongsan Road (中山路), I looked out for the sport apparel shops.

Hongxing's erke (尔克) looks like business as usual. The shops are well stocked. However the largest outlets belong to Anta (安踏). Erke is probably second. I don't see LiNing (李宁)or Peak(匹克). There are others that appear to be smaller players: 361, Zungui (尊贵), Tebu (特步 or Xtep).

Unfortunately it was a raining day, with the typhoon threatening, so there weren't many shoppers. What is obvious is that it is a very competitive industry in China with so many outlets from various players in an area that is maybe half the size of Orchard Road and without the malls. The mainland chinese love their sport apparel....and the MeiMeis looked soooo cute in their trackpants and sport shoes.

By the way how do I post pictures ( of the shops, not the MM ) ?



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#17
(03-09-2011, 01:38 PM)touzi Wrote: By the way how do I post pictures ( of the shops, not the MM ) ?

Need to put your photo with flickr or any sites that have a url reference.
then put the url within the following html tags
[ i m g ]http://www.valuebuddies.com/images/logo3.jpg [ / i m g ]
(remove the white space in the html tags)
eg..
[Image: logo3.jpg]
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#18
If I may paste an extract (below) of dog's previous sharing (guess it was long time ago), his key pt then was to make use of peer comparison by adding another market eg HKex:

...One huge advantage (perhaps the most important advantage) of adding another market is that there are just a lot more companies to look at for the purposes of peer comparison. For example, on SGX there is only one big Chinese branded sports shoe company: China Hongxing. On HKSE there are 6 big Chinese branded sports shoe companies: 361, Anta, China Dongxiang, Li Ning, Peak Sport and Xtep. I will refer to them as the "HKSE 6" for convenience.

By itself, Hongxing looks like a fantastic bargain - no debt, lots of cash, low PE, trading below net cash etc. But when compared against the HKSE 6 it looks highly suspicious.

The HKSE 6 all had year-on-year sales growth in 2009 vs 2008, which tallies with the mass media reports of strong growth in the retail sector. Hongxing on the other hand reported a sales decline of over 30%.

Certainly it's possible that some of the HKSE 6 were channel-stuffing, especially 361 and Peak Sport, which had both high sales growth (>50%) and very high trade receivables (>100 days). However, the big 3 (Anta, Dongxiang and Li Ning) all reported sales growth of 20-27% while keeping receivables at 30-50 days. So I think there was significant growth in the underlying sales.

Somehow Hongxing is different. One possible explanation is that all the HKSE 6 are cooking their books, and Hongxing is the only honest one. Another possible explanation is that the HKSE 6 are honest and Hongxing is not. Maybe the truth is somewhere in between. I will leave it to readers to think of other explanations...
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#19
(23-07-2012, 10:16 PM)yeokiwi Wrote: Since we are on the topic of cash....

China HongXing - Report of the special audit
http://info.sgx.com/webcoranncatth.nsf/V...400417B22/$file/Executive_Summary.pdf?openelement
Cash and bank balances is 263 million rather than 1417 million.

In FY09, they had 2.9 billion cash and now the company is left with 263 million.

Hi yeokiwi,

Since this pertains to Hongxing, have replied to your post here instead in this thread.

Yes it's amazing how the money was just "magicked" away!
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#20
https://www.theedgesingapore.com/closure...bsidiaries

OK so the Wu family, occupied both the CEO and Chairman positions in the company, repeatedly claimed that the company had the money when it didn't have, the accounts were audited by RSM Nelson Wheeler and Foo Kon Tan Grant Thornton, and the company even went to the extremes of printing out bank statements showing they had the cash as stated in their accounts.

Despite all this charade....
it turned out that they actually DIDN'T have the cash, the company got suspended, CEO and Chairman quit, the auditors were changed etc.
Yet the same guys who started this con job... is now back trying to buy out the company's operating assets at 1/4 their stated value in the balance sheet?!

Did anyone else read this report in TheEdge?

I honestly got a real genuine qn:
WHY IS NOBODY IN JAIL ALREADY OVER THIS?!?!?!?!?!?????

Not only not in jail, still can come back to try to buy out the company on the cheap?!!!!!!!
Surely some laws on fraud and deception were broken, no?

I am genuinely amazed.
Or at least they'd have been deemed to breech their fudiciary duties as board members? No?
Anyone one with the expertise, please explain this to me.

It's mind boggling.

This is akin to a bank robber robbing the vaults of the bank and saying nope, there's no robbery and the bank still has money.
When they discover the vault has no money, the bank ceased operations, and after 2 years, the bank robber came back to try to buy out the remaining operations of the bank for a quarter of its value.
And the bank robber is doing it officially. Granting interviews and such.

Seriously?!
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