XingQuan International Sports (XINQUAN) – What The Duck!
Aug 19th, 2010 by AhYap
XingQuan is one of the 4 China shoe companies listed in Malaysia. I am more familiar with MSports, XDL and XingQuan and is not familiar with KStar (too new for me to be interested).
While XinQuan has been the most favorable stock among the shoe companies to most people, it is not to me when compared to MSports and XDL. Why I like MSports has been written in my long Multi Sports Holdings review.
Unfortunately I didn’t have the time to write about XDL so I will try to tell you briefly about them.
Three of these companies are shoe companies but they have very different business model. While their market price move in tandem with each other because they share the same theme, i.e. China and Shoe, they are actually very different to each other.
MSports is a very simple business, they manufacture shoe soles and sell them to other shoe makers. Yes, plain vanilla with no added chocolate chips, just shoe soles. Their customers are other shoe makers.
Introduction to XDL (XiDeLang)
XDL on the other hand doesn’t even manufacture shoe soles! They might consider buying it from MSports or probably have been buying from MSports. Shoe soles are the most important component of a sport shoe and there are only 100+ among the 3,000 shoe companies in JinJiang that manufacture them.
XDL buy shoe soles from other shoe soles maker and use them to make complete shoes. They are not OEM shoe maker which means they are not making shoes for other branded shoe companies such as Nike or Adidas. They are manufacturing their own branded shoes XiDeLang and sell them in their own XiDeLang stores.
So, XDL is more a retail shoe companies with their own manufacturing capability and brand. MSports on the other hand manufacture and sell shoe soles. So they are very very different.
XDL also sell sports apparels for XiDeLang brand but they don’t manufacture apparels themselves. They source them from other makers. They are planning to manufacture the sports apparels themselves in the future using operating cashflow and the IPO proceeds.
They do not own the retail outlets themselves. It is more like “franchise” but not exactly that. There are 3 parties involved.
1. XDL which owns the brand and supply the shoes. They are in charged of the branding and marketing effort. They get around 38% of the final retail price.
2. Distributor – they mark up the price not more than 10% and sell to the retailers.
3. Retailers – Operate the stores and try to make money after paying for the shoes, rental and sales staff.
XDL customer in “accounting” terms is the distributor. But their ultimate customers that affect their sales is the end user who shop at the retail shops. If retailers can’t sell the shoes, they won’t buy from the distributor and distributor won’t buy from XDL. So XDL is a consumer retail business.
XinQuan = MSports + XDL
What about XinQuan? XinQuan is a mixed of both. XinQuan manufacture shoe soles and also manufacture own branded shoes AddNice and sell them in their own AddNice stores [also through distributors]. They even manufacture their own AddNice apparels.
So we shouldn’t generalize all these shoe companies and think that they are the same. They are not. They have different business model and they make their money in different ways.
Does That Mean XinQuan is Better?
For many people, yes because it has multi different income sources and is more diversified. For me, no.
Don’t get me wrong, XinQuan is a good business selling at a very very cheap valuation out now. What I am trying to do is to compare it to MSports and XDL. I am trying to explain why I like MSports and XDL more than XinQuan, not trying to say XinQuan is bad. XinQuan on its own is good enough, but not as interesting when compared to MSports and XDL.
Reason #1 – Too Much Cash
While most people assume a lot of cash is a good thing but it is not for me. I am trying to make an investment, investment that is suppose to give me good returns. But cash are – CASH! Cash are not investment because it can’t generate good return on it’s own unless it is invested.
Cash in a business is like the sugar in the coffee. We don’t want too much or too little. We are not drinking “sugar”, we want it to be just enough.
With quick approximation for better illustration, XinQuan is worth around RM500 million today (at RM1.64), but it has RM250 million net cash after paying back all borrowings! When you buy their stock, you are like making 2 investments. The first half in XinQuan business that manufacture shoe soles and sell AddNice products. The second half in something like a fixed deposit or a savings account.
I want to make money investing in “stocks” and “businesses”! If I need to put money in fixed deposit or savings account, I can do it myself and have full control instead of going through a company!
More discussions on the “cash debate” later in this article.
Reason #2 – Harder to Value
While it is cool to have a diversify business but I can get the same diversification through XDL and MSports and even better, I have 2 stocks and 2 market price instead of just 1 stock with 1 market price.
It is also slightly harder to value the business due to the business mix. Since both business (shoe soles and retailing) are very different in nature, the metrics that we are trying to get from the consolidated statements such as margin, days sales outstanding (DSO), inventory sales outstanding (DSI) will be a mixed making us harder to figure out which segment is doing better and which is not.
And as reason #1 has stated, you are technically investing in 2 investments when you buy Xing Quan – the business and the cash. You have to value the cash too and most of the time, RM1 is RM1. [No matter how hard I try, the most I can sell you my RM50 note is RM50, it can be less but not more]
The whole company is selling for RM500 million today and it has around RM250 million net cash.
So how much is the “fixed deposit” part worth? RM250 million max.
So how much is the business worth? RM250 million too. [RM500 million minus RM250 million cash]
The company makes RM100 million in the last 4 quarters, so what is the PE? PE is only 2.5 for the business! Yes it is very cheap, similar to MSports. But wait, when you buy MSports, you don’t need to make another investment in an ‘FD’. But if you buy XinQuan at PE 2.5, you need to put an equal amount in an ‘FD’ (that is out of your control) that give you maybe 2% return max.
So if you mix that “two” investment together, it no longer looks that sweet. 2% is nothing at all. It is like the cash under your mattress. Actually under somebody else mattress because you don’t have full control on it although technically it is yours.
Might as well use 50% of your money to buy XDL or MSports and put the remaining 50% in FD at a local bank? You have a real FD with full control and it doesn’t affect the valuation of your XDL or MSports.
But again, don’t get me wrong, all of these are coming from a comparison point of view with MSports and XDL. Without the 2 of them, XinQuan will look marvelous on its own. Why? Because even if you assume the cash never exist and you are buying XinQuan at RM500 million where is makes RM100 million a year, you are buying a PE5 stock, a very very very cheap valuation. What does PE5 means? If this is a private business, it means you are making a 20% return investment. Because you pay RM5 for a business that can make you RM1 per year, thus 20% return (We call this earning yield). Not bad at all.
Petronas Dagangan is selling for above PE10, Public Bank is selling above PE10 too. Both are considered fairly valued because you still get a good 10% earning yield. There are stocks like SP Setia that is selling for nearly PE20, a 5% earning yield which is expensive [at least for me].
Reason #3 – More People Are Interested
Surprisingly, more people prefer to invest in XingQuan then the other shoe companies. This can be seen by its current price as comparison with its IPO price and how much it has gone up from the bottom, which outpaced the other shoe companies. It is also owns by more funds then the others.
Why? Because they assume it is safer with that cash and the diversification mixed of their business. I have mentioned that for me it is a different story. If I need an FD, I can put it myself, no need to go through a company. And if you hold too much cash for me, I will need to worry that you are not taking good care of it! These money are not “free”, we pay for it when valuing the company as a whole. Remember we add RM250 million valuation to the company because of the cash?
And for the business mixed, I can have that by owning XiDeLang and Multi Sports. I then have 2 stocks price, 2 managements and 2 AGMs (means more door gifts, aha)…
What is a better investment? An investment that everybody interested in? Or an investment that no body interested in?
Not both, sorry I tricked you. A good investment is an investment that no body interest in RIGHT NOW but will make everybody interested in it IN THE FUTURE. There are more people interested in XinQuan right now compare to the other shoe companies, making it less favorable to serious investors.
On the other hand, MSports and XDL are better candidates as investments that not many people interested in NOW but ‘might be’ in the FUTURE.
REASON #4 – KIAMSIAP MANAGEMENT WHO DOESN’T KNOW HOW TO PLEASE INVESTORS
When they announced the Q4 earnings and dividend 3 days ago after market close, my first respond (and the second and third for the entire night and until today) is “WHAT THE DUCK!!!” [replace D with F]
These management certainly doesn’t seems to understand the importance of minority shareholders. They announced another 2.5 cents dividend making it total 5 cents for the year. [Their financial year end is June 2010]
The entire year earning is 34 cents. But management certainly failed their math in primary and secondary school. They have been promising shareholders that they will make 20% payout for 2010 and 2011 but hey, 5 cents is only 15%!!! It should be 6.8 cents or 7 cents rounded up.
7 cents over 5 cents is 40% more dividend for the shareholder.
Now they will explain to you that they didn’t promise you 20% payout, they are promising “up to” 20% payout, which is very different in meaning. They are playing with words! They think they are very smart and funny.
But this is not the whole point as we are not Karpar Sigh trying to fight in court. We as shareholders are using the 20% as reference point. If management pay 20%, we assume they are honoring their promise, keeping their words. If it is above, we will believe that we have found a great management that love us as much as our father and mother! But if it is below, we may think that we have been cheated by a bunch of duckers (you know what to replace the d with).
The management is correct in interpreting the phase “up to”. But what is the point for management to be “right” in that sense but totally “wrong” when come to fulfilling their responsibility to the shareholders? It is like the law that say it is “wrong” to beat the traffic light. So you are “right” when you try to block the ambulance from sending a man who has been badly hit by a meteor to the hospital. You can argue and “win” but what is the point? Do you feel proud with your winning and will everyone else like you?
What is more upsetting is that they have RM250 million of net cash! They make RM100 million for the year and the refuse to pay RM20 million to the shareholders as promised but choose to pay only RM15 million. They want to save RM5 million for what?!
What the duck! [yes, replace the d]
So what happened to XinQuan stock price? It dropped 13.7% in 3 days after the announcement. Padan Muka!
I hope they have learned a lesson here and do not repeat it in the future.
And for MSports (promised 20% payout) and XDL (30%), I hope they learn a lesson too from XinQuan mistake.
But the bad news is, it is very likely that they won’t learn it! We will see when they make the announcement in the next few days. Why? Because when I attended the XDL AGM a few months ago and even when the shareholders are shouting to them (I am one of them), the management still keep on debating the word “up to” and keep reminding us that they need a lot of capital.
I can forgive them on less dividend payout if they are buying back shares in the market. But they are not doing that!
Reason #5 – Slowing Down?
Ending June 2009
| (RMB) | Q1-09 | Q2-09 | Q3-09 | Q4-09 |
| Revenue | 184,019 | 221,861 | 222,780 | 215,168 |
| COGS | (114,336) | (136,034) | (144,553) | (139,846) |
| Gross Profit | 69,683 | 85,827 | 78,227 | 75,322 |
| Other Income | 939 | 348 | 176 | 208 |
| S&D | (13,760) | (22,486) | (17,980) | (14,695) |
| Admin Ex | (2,753) | (7,880) | (3,564) | (7,911) |
| Interest | (1,050) | (1,121) | (1,085) | (1,076) |
| PBT | 53,059 | 54,688 | 55,774 | 51,848 |
| Tax | (8,714) | (9,221) | (9,034) | (9,110) |
| Net Profit | 44,345 | 45,467 | 46,740 | 42,738 |
| EPS * | 0.14 | 0.15 | 0.15 | 0.14 |
| EPS (RM) * | 0.07 | 0.07 | 0.08 | 0.07 |
| Gross Margin | 37.9% | 38.7% | 35.1% | 35.0% |
| Tax Rate | 16.4% | 16.9% | 16.2% | 17.6% |
| Net Margin | 24.1% | 20.5% | 21.0% | 19.9% |
Ending June 2010
| (RMB) | Q1-10 | Q2-10 | Q3-10 | Q4-10 |
| Revenue | 262,139 | 357,889 | 355,484 | 299,355 |
| COGS | (165,168) | (232,470) | (236,965) | (204,523) |
| Gross Profit | 96,971 | 125,419 | 118,519 | 94,832 |
| Other Income | 212 | 377 | 408 | 4,040 |
| S&D | (18,058) | (37,618) | (28,836) | (34,644) |
| Admin Ex | (28,683) | (18,273) | (8,599) | (5,199) |
| Interest | (731) | (386) | (660) | (747) |
| PBT | 49,711 | 69,519 | 80,832 | 58,282 |
| Tax | (11,952) | (12,957) | (13,522) | (13,744) |
| Net Profit | 37,759 | 56,562 | 67,310 | 44,538 |
| EPS * | 0.12 | 0.18 | 0.22 | 0.14 |
| EPS (RM) * | 0.06 | 0.09 | 0.11 | 0.07 |
| Gross Margin | 37.0% | 35.0% | 33.3% | 31.7% |
| Tax Rate | 24.0% | 18.6% | 16.7% | 23.6% |
| Net Margin | 14.4% | 15.8% | 18.9% | 14.9% |
* EPS has been adjusted by assuming company has 307.33 million shares all the time
Again as I said in my MSports article, you don’t compare the results with previous quarter, you don’t compare Q4 with Q3 because of seasonality. You need to compare Q4 with Q4 of previous year.
Quick judgment cannot be done because it didn’t say anything very clearly. There is no dead body found, maybe only some fingerprints. We just got a few hints. These hints are:-
Revenue increased a lot. It increased 39% from last year. But Q3 increase even more at 59%. 39% increase is very very good, but is not better than 59% achieved in Q3.
But the key is that profit is almost flat! Why? There are a few reasons but the most alarming is the drop of gross profit margin. Gross profit margin drop to 31.7% which means they are trying to push for more sales (revenue) by giving a lot of discounts. They are trying to make more sales by making less money per shoe sold.
The other 2 reasons you got to be aware of is the tax rate, they no longer have much tax incentive left and is nearing the 25% tax bracket. You will have to pay this tax rate onwards.
The S&D (Sales and Distribution) expenses is quite high this quarter but I will “assume” that it is used for network expansion and other good purposes.
The only alarming factor out of these 3 reasons is the gross margin. We want to monitor this in the future quarters closely. It can means 2 things in the future, revenue remain high while profit margin improve – good news. Revenue drops while profit margin remain low – bad news.
But Q4 and Q1 are usual slow quarter for XinQuan. Q2 (year end) and Q3 (new year) are important quarters for them. So we need to pay more attention to Q2 and Q3.
| Q4-09 | Q1-10 | Q2-10 | Q3-10 | Q4-10 | |
| ROA | 37.9% | 20.0% | 26.2% | 29.1% | 19.3% |
| ROE | 72.9% | 26.1% | 35.4% | 38.9% | 24.2% |
| DSO | 59 | 47 | 38 | 41 | 36 |
| DSI | 25 | 19 | 14 | 13 | 18 |
XinQuan ROA and ROE still remain very strong, especially if you strip the cash from the assets/equity. They are just amazing.
Based on DSO and DSI, they also don’t have any problem collecting bills and they don’t have inventory problem.
More Cash Debate
The cash XingQuan is holding now is like armies. They can serve their purpose well when we need them. But did Angkatan Tentera Malaysia need to go to war? We invest a lot on them buying them M16 and submarines but all we need of them is when there is flood in Kelantan and when there are buildings falling down in Bukit Antarabangsa.
Cash in a company can be invested to make great returns for the shareholders. If you have a lot of cash, you can make a lot of investments. But the problem is you don’t have good investment hanging around all the time. So the cash will just sleep and do nothing when you are waiting for it. And this is a risk to the investor.
On the other hand, assume opportunity arise and Xing Quan is able to acquire a good business at a good valuation, for a good example the entire MSports which is worth exactly the cash they have right now (RM250 million)! Then that would means a very good use of the cash.
But the problem is, what is the chance of them being able to do that? It is difficult. So as a retail investor, I will prefer to keep that cash to myself so I can buy MSports or other stocks, instead of letting them sleeping in XinQuan bank account and hoping that one day they can find a good investment. I am sure I have more investment ideas and opportunities then them (because I am small and nimble, I only have that much cash).
Even if they start building factories and expanding their retail networks with those cash, it will take a long time before those cash are invested. With the strong cashflow from operation and their kiamsiap dividend policy, there will be a lot of cash sleeping all the time. They are suppose to raise cash from the IPO to invest but end up that they are now having more cash today then after the IPO.
Because XDL and MSports don’t have that ‘much’ cash [They do have a lot of cash, but a lot less when compared with XinQuan], they might not be able to make big acquisition even if opportunity arise. Management might be very upset for that but it is totally OK for shareholders like us!
We as retail investors are not trying to make money from their “once in a millennium” opportunity to acquire another company or their big aggressive growth plan to dominate the earth. We don’t need it to grow to the moon. Our strategy is to buy 1 dollar for 50 cents. We invest on them at very cheap valuation (such as PE 2.5 for MSports) and ‘wait’ for the valuation to increase to PE 5 or PE 8 or even PE 10. You see, we don’t really need them to grow to the moon or make big acquisitions. Because we are already buying them very very cheap, i.e. buying 1 dollar for 50 cents (maybe 25 cents for the shoe companies). We just need them to maintain the business as usual.
Since the cash factor plays an interesting role in XinQuan valuation, if XinQuan stock price drops 50% tomorrow, that would means it is trading at net cash value. You pay RM10 and you get RM10 in their bank account (assume they didn’t steal the money and fake the book) plus all the future cash flow which is 40 cents per year! 
Conclusion
XinQuan on its own is still a very good investment even with all the reasons I “hate” about them because the valuation is too cheap. But due to the existence of better alternatives, I didn’t “weight” it so heavily when allocating my capital.
Disclosure: Long XinQuan, MSports & XDL. I might buy and sell anytime without SMSing you!
Disclaimer: This is not a recommendation to buy or sell. Information can be wrong. Invest at your own risk.
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My analysis tells me that all of them have done very well in the last financial year, if the figures given are genuine. Profit margin and return of invested capital (ROIC) wise, Msport is considerable better at 28% and 37% respectively compared with 17% and 32% for both XDL and Xingguan, though XDL’s ROE is higher at 40% compared to 37% and 34% for Msport and Xingguan respectively because XDL leverages more. This may not be very correct because ROIC for Xingguan may be higher because not all its cash is used in the operations and much of it is merely in cash (FD?). I agree with Ah Yap too that too much cash is not good if it is not utilized well.
However, Xingguan is a favourite child of the market having a PER of 4.5 compared with 3.0 and 2.7 for Msport and XDL respectively at this morning (20/8/10) closing prices. Xingguan’s price-to-sale and price-to-book are also considerably higher. Is it because XingGuan is more trusted by the market (like Dali said)? It is also the only one which has given dividend (though peanuts) to investors? MSport’s problem is it because still asking money from investors?
I think the most important issue whether we should trust these companies given the Singapore experience. That would be the most important assignment for potential investors. If so, all of them have great potential.
@ KC, the PE is a bit distorted due to the cash. If you use Price per Enterprise Value (Market Cap + Cash – Debt), you will notice that their ratio is around the same which is probably below 3. So the high XingQuan PE is due to the distortion of the large cash they are having. As I said, do you want 50% of your investment in their FD account?
The distortion can means a lot because a 20% payout for a PE3 stock is very different than a 20% for a PE5 stock. PE3 stock will give u a dividend yield of 6.6%. PE5 will give you a peanut size of 4%. But no matter what, be it PE3 or 4 or 5, they are not “normal” valuation. It is either a trap on an opportunity. Investors have to pick either side. I think everyone still remember Megan (PE2).
Hi Ah Yap,
When we use PE ratio, the E includes all earnings, from ordinary operation as well as say interest from FD. Hence I think if one uses PE ratio to compare, they should be comparable and hence Xingguan is relatively more expensive. Only thing is the FD portion earns little return compared to that from the ordinary operations. I agree with you enterprise value approach is more appropriate. Then we must know how much the cash portion is not involved in the ordinary operation, ie the part in FD (Some part of the cash is still required for the operations as part of the working capital). We work out the enterprise value from Net Operating Profit After Tax (NOPAT) which equals to market Capitalization plus Debt and less non-operating cash (I think you mis-stated the formula). We can then separate what belongs to each party and get the value per share. Then we add back the cash (FD part) per share to give the total value per share for equity holder. Just like your Reason #2; too much cash for Xingguan makes it harder to value. My conclusion, Xingguan is still expensive compared with others. Like you, I do not like to pay for the company to hold the cash; very risky.
Another great comparison.
Ppl said to be good investor.
you need to pick the right company and the right time.
somehow and i think we need to form a team and do some pushing.
and also spread some bad/good news like what you’re doing.
@KC, yes I agree XingQuan is more expensive then the others and I think the cash is a disadvantage. And yes, it is the non-operating cash that should be use for enterprise value. I always do quick calculations instead of looking for precision and can cover my ass by being very conservative.
A few pertinent points:
(1) Xingquan had about Rmb180mill net cash prior to the IPO exercise. Mr Wu, the CEO / major shareholder, could have declared a dividend taking the money out, this is legal. 99% of major shareholders take all the cash out prior to listing. Mr Wu left the cash in the company as he feels the cash is required to fund future expansion.
(2) Xingquan has identified outdoor wear as the next area of growth – similar to products produced by Timberland, Northface and Columbia. Xingquan has first mover advantage but expansion requires funding. A few hundred million Rmb as China is huge geographically and as an economy.
(3) In the first year of listing, Grant Thornton Singapore (GTS) has audited every quarterly result. This has been reduced to half yearly as an audit every quarter is cumbersome. GTS visits the banks to visually sight the bank balances.
(4) The banking system in China is still a few years behind that of the West and even Malaysia. The most prudent way to fund expansion is via cash. Anta, a HK listed sportswear company, has about Rmb4 billion in cash. It spent about Rmb2 billion to get to where it is today.
(5) The planned expansion could of course fail and on hindsight better to have declared a higher dividend of 10sen from the current 5sen. My view is to be patient with management. Give them two years to achieve results. As Lim Guan Eng puts it, it is better to try and fail than fail to try.
@Ronnie, thank for the info. I like (3) very much.
Sifu, can you please write a blog why high dividend is better for small investors? The stock price will be adjusted ex-dividend anyway. And we have to pay tax for the dividend.
Hi Ah Yap,
I saw you stated that “They have been promising shareholders that they will make 20% payout for 2010 and 2011″. I’m not sure am I wrong about this. Since the 1st day I follow this counter and read through the IPO prospectus, it stated very clearly that the proposed dividen is 10% to 20% from its net profit. And if this translate to the 5sen based on current year’s EPS, it is 15% from the net profit and it falls between the promised windows. Please correct me if I’m wrong. Thanks
@Buff, As I say, they are “right” but for what purpose? To piss the shareholders and to tank the market price more than 10% in 3 days? Shareholders are not dairy cow for milk, management need to learn how to please investors. They need to learn how to under promise and over deliver, i.e. I promise you 20% but every time i will give you 30% [everyone love surprises and stock market behave the same].
@CW, will try to do so but not in near future.
It is not high dividend is better than small investors. There are many things you need to consider. When I explain AXREIT, the yield at that time is 15%, since it is a very stable business. People will be happy when it is 8%, that means the stock price as a potential to double. For normal stocks, FD now is mere 3%, if a stock can give 5% or 6%, investor might consider to move money from FD to stock. But again, we can buy stocks that never gives us dividend as long as it is cheap enough and when management are able to reinvest those money at high returns. Again, many factors and not a straight rule that say “dividend = good”.
On its net cash of 587 million renminbi, Wu said the company would spend most of it on expansion. “We will spend 180 million renminbi to pay off the remaining cost for our new factory (in Hui’an, Fujian), 40 million on shoe sole machinery, 100 million for distribution expenses, 100 million for the makeover of point of sales, 80 million for purchase of building and land use rights for the existing factory,” he said.
Source: TheStar
“Our new factory at Huian Fujian Province will start production in the first-quarter of next year,” he told an analyst briefing here Monday.
The new factory with a floor space of 55,000 square meters would increase production capacity for shoes to 10 million pairs, from six million shoes now, and for shoe soles to 28 million pairs against 18 million shoes currently.
Source: Bernama
Ah yap:
Did Msport promise the divident payout is how much?
“up to” 20%.
dividend for this year haven’t announce right?
XinQuan financial year end for 2010 is June 2010. So finished already. They announced 2.5 cent earlier and now ‘proposed’ another 2.5 cent subject to AGM approval. They sure kena tempak gao gao in the AGM, hopefully I am there to tempak as well.
Wa? How come they give more dividend also kena tempak ?
Hi Mak,
AhYap not satisfy with 15% of the net profit distribute as dividend. He hope to get the 20% from the net profit which Directors agreed on as the “highest possible” dividend. He don’t like Directors promise 10 to 20% but getting 15% which is in the middle.
For me, I’ll just keep eye on it whether the directors really keep promise. Which is 10 to 20% as dividen. As long as it falls in this windows I think it is acceptable for me. How about u Mak?
For me… more than 10% is enough for me…. If more than 20%, i will wonder it maybe risky also….
1. please do not confused dividend yield with dividend payout
2. many companies promised “at least”, not “up to”. HAIO – at least 50% of profit. Almost all the stocks I hold didn’t pay dividend, i.e. 0 payout. I don’t bother with peanuts dividend. Why I tempak XinQuan is because they don’t understand how all these works and how it will affect investor sentiment and their stock price. If they want to pay 15%, just promise a 10% payout earlier. And then when they make 15%, wooohooo, everyone happy. It is psychological.
You told your mum, “Ma, I will give you up to RM2,000 every month ya”. Then you give RM1,500. What your mum feel? Compare to RM3,000? Or if you just say “Ma, I will give you RM1,000 every month”. And you give her the same RM1,500. Managing a public company is different than our ah gong business, it involve the responsible to take care of the stock price and other shareholders benefit.
3. Public bank make 85% payout. Public bank is risky?
Hi Yap,
I guess no body is confused with any of the dividend yield or dividend payout. I think I rather the directors to be truthful to all of the investors. If they did that, by underpromise and give suprise I doubt all the fund managers will invest in that company. All fund managers and fundamental’s investor need real information instead of suprise so they can allocated they investment portfolio wisely according to their risk taking factors.
For me personally, what the directors need to do to keep my investment in is he have to earn my trust by keeping all the promises. The dividend is 1 of it. The selling point shop expansion is another. The investment into new factory to boost up the revenue is the ultimate. What directors did until now I think still earned my trust because the progress of the factory is keep updating, and the directors never sell any single piece of the stock at all until this moment. But as we knew about the fraud counter in Singapore, I’ll still keep track of the directors action to ensure my investment secured.
I guess every people will have their own preference. I like certainty instead of suprise to manage my portfolio wisely.
Ya… wat i means is dividend yield… thx
@Buff, as long as one know exactly what he is doing, that’s good investing.
@Mak, dividend yield is not dividend payout. dividend payout = dividend / earning while dividend yield = dividend / market price. For XinQuan, dividend payout is 5 cent dividend / 34 cent earning = 15%. Dividend yield is 5 cent / RM1.64 market price = 3%. Everyone will jump at 10% dividend yield including me.
If 10% dividend yield, the share price will shoot up to RM3 loh…
Anyway, i have met the owner and his IR guy before and they seems to be trying their best to do a lot of IR as requested by Bursa and their institutional shareholders in view that they are the first direct IPO Chinese company. They have been trying their best to be transparent and the the CEO fly to Malaysia to meet investors and analyst almost every quarter. Apparently, they have investors going to their factory almost every 1-2 months and the CEO will try his best to take this investors around for a 3-4 hours tour of the existing plant and new plant compare to the other 3 CEO/MD Ah Pek who has not done much IR work. The 3 Ah Pek took the money and went back to spend on i don’t know do what with it. As for now, 2 new Ah Pek is coming to Malaysia to con us, Ouhua and Maxwell, another shoe company, this one is worst, a small OEM shoe manufacturer.
And yes, according to the IR guy, Mr Wu’s family has left RMB180 million in the Company before listing despite being ask by his advisers to suck it out. He left it becoz RMB180 million is nothing in China if you want to expand. He claims that they are now one of the leader in outdoor wear and if they were to slack now, their competitors will catch up very soon. Apparently, they have new comers converting from sportwear to outdoorwear in Fujian now as most of the smaller sportwear company cannot compete with the big boys which are listed on Hong and Singapore. So, they will just keep expanding and their dividend policy will be average only. So, if you invest in Xingquan, dividend is just for you to makan char koay teow only, cannot eat abalone.
Their website is quite informative and i like their new factory progress pictures. They update it every3-4 months so that we know what is happening. Apparently, the Malaysian Directors visit the new factory every 3 months before the Board meeting to make sure it is on target.
I hope the share price will fly soon as their 1st and 2nd quarterly result is always the best since it is selling the Autumn Winter products. 1st quarter result should be out in Mid November. Anyway, if you follow their analyst briefing, you will know how to estimated their revenue, PBT and PAT. All u have to do is add the Autumn/Winter trade fair (which is RMB673 million as announced in May 2010) and the Spring Summer trade fair (which will be announced in November) and add their shoe sole revenue of around RMB200-250 million, u will be able to guess the revenue and assume a PAT margin of around 18-20%, you will get the PAT for FYE2011. Goodleh, they have been too transparent until we can guess what their revenue and PAT will be. According to the analyst briefing, after each trade fair, sales from the trade fair will start coming in 3 months down the road. I have check the FYE 2010 results and what the IR guys say is correct.
Since they are rather transparent, may be new to Malaysian market, they don’t know how to ular like how our Malaysian CEO works. Where i am coming from is, give them a break, the CEO is trying his best to make his shareholders happy and at the same time, he has to deliver his company’s performance. No point he keep doing IR work and end up he spend less time making money for us, the shareholders. So, we should support him rather than keep hentam him so that he can concentrate and make money for us. After all, CEO is not the Boss, we shareholders are the Boss since we can make a fool of them during AGM… hehe..
Lastly, thank you Ah Yap, you blog is Great…
Hi Sifu,
May i know which brand is more famous in China ? XDL or Addnice ? and what is the brand for MSSport ?
Thanks in advance !
In China, the famous Chinese brands are Lining, Anta, Xtep, Peak, 361, Qiandan, Erke, Kappa. Other Chinese sports shoe companies like XDL and Kstar will try to cari makan in smaller cities. Addnice is no more a sports wear company. They have converted from Outdoor Sports Wear to Outdoor Casual Wear like Jeep, Camel and Timberland style.
Hi Xinquan Investor,
What do you think about TDR (Taiwan Depository Receipts program)? Is it good for Xinquan??
Taiwan ADR = Another Joke. You already have so much cash that you don’t know how to deploy and you still want to raise more cash to dilute current shareholders value? Cash is pointless, it is the return that you can generate from the cash that matter. How much and how well can XinQuan management invest those cash?
dear yap, any comments on xdl,msports and xingquan lately?? what do you think bout their Q3 and long term growth?? still can buy more as their price hardly move eventhough klci boom….
i personally bought into xingquan and xdl….wanna know your great view…thanks
Hi Lee,
Based on what the singapore and hong kong companies are doing, the moment they announce, share price go up, by here in malaysia – opposite direction, the problem is not the company, it is bursa malaysia, chek kai exchange, nobody want to invest in shares in Malaysia simply because all lot of uncle and auntie got burn those days and now invest in property. So, actually doing TDR is good because 1) It help increase the valuation of the share price of the home exchange and 2) Company get money to expand. I notice that Xingquan case is all new money, that mean money is mean for company and not owner/investors compare to Kstar – 25% for per-ipo investors.
You got plenty of money why do you still want to raise more money? Money sitting there doing nothing = bad investment. Investor want the company to give them money, not the other way.
Hi Tai Ko Yap,
I already whack their IR guy and their reply is money will be used up substantially once the new factory is up and when most capital expenses been made, by 1Q and 2Q 2011. The money raised from IPO (RMB320 million) and the one left by the owner (RMB180 million) is meant for expansion, that is why they go listing mah, if not why would the owner want to do listing and left his money in the company before ipo? They do the TDR for 2 reasons, 1) To increase valuation in Malaysia and this model seems to work in Singapore and Hong Kong and hopefully it will work in Msia too and 2) they need to raise money for expansion for 2Half 2011 onwards once their cash drop after making payments by 1Q 2011.
Dear Yap,
XinQuan drop to historical low…is it a value buy for long term?
Almost all Chinese companies listed oversea are frauds, including all the Chinese shoe makers in Malaysia.
0.67 now…. yap are you holding their share ??
I have 0 shares in stocks. I repeat all Chinese shares listed overseas are fraud and will worth 0 eventually (i.e. delisted). And the market will crash another 30-50% easily. Please follow my facebook:-
http://www.facebook.com/AhYapDotCom
Hi Ah Yap,
Why you said ‘Chinese shares listed overseas are fraud and will worth 0 eventually (i.e. delisted). And the market will crash another 30-50% easily.’?
Mind sharing more with us? I am thinking to buy their shares.
Thanks a lot.
A lot of Singapore listed Chinese shares already went kaput and a few of them are shoe markers. A lot of US listed Chinese shares also went kaput and delisted, the most notorious being CCME which went from $10 tp $20 back to $10 and $20 again and then back to $10 and then $0. There are many many many similar companies. You just need to think “lightly”, they have so much cash but they still want to raise more and more cash. Many people give them lots of reasons why they do so but none seems valid to me. You will probably lose your underwear investing with any of them (yes it can double but eventually, it will be like CCME).