Tuesday, September 16, 2014

China Stocks Listed Locally An Embarassment - from Malaysia-Finance Blogspot


China Stocks Listed Locally An Embarassment

OK, this is the umpteenth time that I am warning not to touch China stocks listed on Bursa. Seems like an old record, but when syndicates are appointed to play up these shares, there are still bound to be followers. Bursa has kind of avoided the wreckage caused by scandalous shenanigans in some Chinese counters listed in Singapore, Taiwan and the US. Surprisingly, the ones listed as red chips in HK did not suffer a similar fate, maybe those were much larger in market cap?

What is most galling is the supposed cash in bank for these counters. Some even had the audacity to raise funds via rights issue when they supposedly have so much cash in bank, citing no more cashflow to buy raw materials. So, are you admitting that there is really no such cash balance in your bank account ... or are you telling us that there is no fucking way you could withdraw the funds. Either way, the company is crewed and so too will the minority shareholders.

The Edge did a nice table:

Shares that their "cash per share" is LESS than their share price. This is a no brainer, but to me, at least these company can and have used up their cash. To me, they are A LOT better than those with multiples of cash in hand to their share price.

Share Px Cash Per Share
Kanger 0.37 0.043
Sinotop 0.08 0.007
China Ouhua 0.11 0.06

Shares with their price equaling their cash per share. this makes more sense. May be the better ones in the group but I would still avoid them if I can. Because its not the fundamentals that are the problem, its the whole huge tidal wave of negative sentiment that is almost impossible to turn around. Just imagine, would you buy into a new Madoff fund today?

Xidelang 0.18 0.21
HB Global 0.07 0.078
(suspended, PN17)
China Auto 0.34 0.409
K Star Sports 0.115 0.14

The following are the ones that really piss you off. Their cash balance is in multiples of their share price, and some had the audacity to make rights issue. Very dubious, when things do not smell right, it is usually bad.

China Stationery 0.125 0.795
Maxwell 0.23 0.34
Xinquan 0.605 1.77
Multi Sports 0.225 0.522

Cash balance - OK, that is one portion of valuing a share, what is galling is that most of them trade at PER of around 2-4 x... that has to be the cheapest shares in the world, and many are backed by cash as well. If all is true, WHY AREN'T private equity firms and IBs offering loans and Management Buyout deals??? I am sure many have done their homework ... and almost just as many declined to proceed further. Whats up man?

Although we did not have any major scandals with China listed firms here (yet), their share prices ALREADY has been adjusted to a level worse than an already erupted company with scandals. So we had our very own quiet correction.

What should Bursa do?

a) Nothing - As long as promoters/IBs keep bringing these China companies over, and as long as they fulfill the "basic requirements", fill in the blanks, you can list or do an RTO with a China company. This is because Bursa is a gatekeeper, not a market predictor or market selector or stock selector.

b) Something - From the evidence, Bursa can see that there is little or no interest from retail or institutional funds with these companies. You should be very wary of these companies STILL WANTING to list on Bursa, when all data shows very clearly that their share price will more than halve or be decimated after listing!!!

c) More Than Something - Reject rights issue if a company's cash per share is more than their share price unless reasons provided are solid (i.e. doing something that would use up their cash in hand as well). Protect the integrity of the markets by vetting and following all shares holders of promoters/owners of these companies and their transaction trail for two years after listing. Follow up with queries/fines/barring from industry if there are shenanigans.

Wednesday, September 10, 2014

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