Regarding Xingquan

Received the following set of the comments.

• mosea said...
  What do you think of Xingquan International? I have read that a strategic investor has taken up a pole position in this company and would even be willing to buy more should Xingquan pays 20 sen dividend as a long term policy.
  
  Xingquan's 3rd Q account shows that the company has more than RM270 million cash. I am sure the EPS would be around 40 sen upon its 4th Q result announcement.
  
  What is your take on Xingquan? It could be very well a big diamond in the making.

Xinquan the stock, decided to launch into orbit.

Well do not get me wrong, I am not implying anything. Just stating the facts. And Xingquan closed at 1.82, which is a twelve month high (IINM this should the highest closing ever for Xingquan)

Firstly, as I am sure you are more than aware, I am not an investment advisor and neither am I a Sotong. Which means, I really do not know much about diamonds and neither do I know if this stock can continue its journey into the orbit and neither do I know if the stock will plunge. Basically, I know nuts about what a stock will or will not do!

Ok?

Not trying to be rude or being an anti-social communist but I am merely stating what I am so that we have no misunderstanding and personally, I think the Sotong is way over rated! :P

So where are we?

Oh.. Xingquan. :)

Xingquan was listed in July 2009. The IPO retail price was was adjusted lower from 2.10 to 1.71 (institutional investors paid 1.80 for it).

My beloved and absolute star research house, OSK Research gave it an IPO fair value price of just 1.73. Here's their reasoning:

• A short term spike in interest. Although the Group is fundamentally sound, we think that the stock is fully valued at RM1.73 (based on a weighted average of Singapore listed Peers’ PE of 5.4x FY10 EPS). We feel that benchmarking against sportswear related S-share companies in Singapore is more realistic rather than Hong Kong- or China-listed companies given the nature of the Malaysian market. Nonetheless, as this is the first foreign IPO in Malaysia, short term interest may possibly lead to short term gains. However, in the longer term, interest may wane with more such IPOs, unless Xingquan outperforms our expectations.

( Hmm.. it would interesting to know how many S-Share companies in Singapore are in the sportswear sector and it would also be extremely to see their earnings performance since listing in Singapore)

OSK's fy 2010 earnings forecast for Xingquan is 102.6 million.

CIMB was one of the facilitator for Xingquan's listing, so I would probably take the following comments from CIMB Research with a massive dosage of salt! :P

• Initiate with OUTPERFORM. Backed by an increase in production capacity and expansion of its distribution network, and underpinned by the increasing popularity of sports, we project FY09-FY11 earnings CAGR of 32% for Xingquan on revenue CAGR of 34%. Our target price is RM2.60 based on 6.0x CY10 P/E or a 60% discount to listed peers under our coverage in view of Xingquan’s smaller size.

CIMB's 2010 forecast earnings for Xingquan's fy 2010 is 220 million! (LOL!)

RHB's target price was even higher! :P

• Valuations. For comparison purposes, we have selected a combination of companies that have similar business divisions and produce goods related to Xingquan’s portfolio of products. By applying a 50% discount to the FY10 sector average of 12.1x, we derive a target PER of 6x. We have applied the discount to reflect its smaller size, i.e. revenue and capacity. Ascribing a target CY10 PER of 6x, we derive a fair value of RM2.63 for Xingquan.

RHB's earnings forecast for Xingquan's fy 2010 earnings is 138.5 million.

Xingquan the stock however never did perform since listing and despite CIMB executing the green show option to stabilise the stock price post IPO.

24th July 2009: Xingquan’s share price continues to slide

• ... CIMB Investment Bank announced on Monday that it had ceased stabilisation action since July 16 after purchasing a total of 5.86 million shares at between RM1.72 and RM1.80 per share.
  
  When it was listed on July 10, Xingquan was the first foreign direct listing on Bursa Malaysia Securities.
  
  A senior analyst at SJ Securities Research said: “While some would be sceptical about the market reception to a China company that chose to list in Malaysia, other analysts may say that it is not easy for Malaysian investors to have exposure to the China market.
  
  “So, logically with the good reception to China shares in Hong Kong and in Singapore previously, a listing here would be well received (or so thought).”
  
  However, he personally felt that Malaysian investors could be wary of such listings, especially if the business was purely in the China market.
  
  “Investors will ask: Why don’t list in China? Why do they list in Malaysia?” he said.
  
  Nonetheless, SJ Securities Research has not revised its buy call issued on July 10 on the counter with a target price of RM1.93.
  
  The analyst added that Xingquan was a compelling growth story with a quadrupling in third party-owned retail outlets in China to 1,600 now from 400 over the past three years. He added that analysts had yet to travel to China to verify this although Xingquan was arranging such a visit for them.
  
  Another analyst at a large local brokerage said one reason for the sudden drop in share price “could be that retail investors were buying for short-term gains due to the price stabilisation actions”.
  
  But also being the first foreign IPO listed in Malaysia, it was not unusual to expect a short-term spike in interest in the stock but the novelty may just wear off, she said.
  
  In terms of the attractiveness of the stock at the fundamental level, she said at its IPO price of RM1.71, the valuation of roughly five times forward price-to-earnings ratio (PE) did not compare well with similar stocks listed in Singapore.
  
  China-based athletic footwear stocks in Singapore include China Hongxing Sports Ltd at 7.3 times 2009 PE, China Sports International at 3.1 times PE and Hongguo International Holdings at 5.7 times PE.
  
  The analyst said Xingquan looked fully valued at the IPO price, especially considering that the stock’s peers in Singapore were of larger size in terms of earnings. “At the same average PE, and you are smaller it doesn’t look good,” she said....

Ah... the red bold fonts give an idea how other similar footwear stocks trade in Singapore.

Ok.. that was the very brief past.

Here's how Xingquan has fared since listing.

And that's all I have.

And seriously, it's just too little data for anyone to make any comments and I, for one, shall refrain from passing judgement on the company. (hmm.. strange. Despite all the cash, Xingquan took on loans. Not saying it's bad but just stating the fact that it did borrowed money.)

Some thoughts regarding its 'cash richness'.

Xingquan raised some 159.682 million from its IPO listing. From its last reported earnings in May 2010.

From the above table, apparently there's plenty of cash raised from the IPO still hasn't been utilised and then Xingquan had stated in the press about its capex plans.

Oct 2009:

• Xingquan’s new factory
  
  Published: 2009/10/15
  
  CHINESE shoemaker Xingquan International Sports Holdings Ltd, the first foreign company to list on Bursa Malaysia, has broken ground on its new manufacturing facility in HuiAn county, Fujian Province, China.
  
  The facility comprises a five-storey production building, a seven-storey hostel and a nine-storey office building.
  
  “We are investing RMB260 million for the construction of the new factory complex, equipment and machineries.
  
  The investment will be funded partially by proceeds from initial public offering as well as internal funds and bank borrowings,” said executive chairman Wu Qingquan.
  
  The new factory complex is expected to be completed in 2011.

March 2010: Xingquan to expand ops in China

• “We plan to expand to Xinjiang after establishing a presence in Gansu and Qinghai,” he told StarBiz in an interview recently, adding that the demand for outdoor footwear was growing in China due to higher spending power and better economic performance.

31 July 2010: Xingquan bullish about future demand

• The company is in the midst of constructing a new factory in Hui’an, near Jinjiang. Incidentally, Jinjiang is China’s largest manufacturing base for walking and sports shoes.
  
  Says Xingquan’s executive chairman and chief executive officer Wu Qingquan: “Our new plant in Hui’an will be completed in the fourth quarter of this year. Production is expected to start in the first quarter of next year. This new factory will increase our production lines to 10 next year from six currently.”
  
  He says the company expects to achieve double-digit growth for its net profit and revenue in the financial year ending June 30, 2011 (FY11) driven by improving production capacity and China’s large consumer base.
  
  He says the new plant will increase Xingquan’s production capacity from six million pairs of shoes annually to 10 million while its shoe sole production will rise to 28 million pairs from 18 million currently.
  
  “We will increase our production capacity by about 35% annually to reach the maximum level of 10 million and 28 million for shoes and shoe soles respectively,” he says.
  
  He says staff strength will also double to 6,000 when the new plant is operational. It will have a production floor area of about 55,000 sq m.
  
  “The construction cost of our new plant is over 200 million renminbi, of which 100 million renminbi will be financed from the proceeds of the initial public offering while the balance will be financed through internally generated funds,” he says.
  
  “We aim to increase our point of sales in China to 3,000 in three years,” Wu says, adding that the company currently has over 2,000 point of sales in China covering 25 provinces. The outdoor wear manufacturer recently started its expansion into five new provinces – Shaanxi, Gansu, Qinghai, Guizhou and Ningxia....

Of course, it's great to see the company having all these expansion plans and from an optimistic perspective, this is rather positive. This means the company is ambitious and have laid out well the future plans. However, having said that, these expansion plans could have a strain on Xingquan's cash pile. Me? I would only expect Xingquan cash pile to shrink due to all the capex plans.

And that's about it.

Me still say it's way too early to pass judgement on this company.

ps: Here is Xingquan's website: http://www.xingquan-international.com/competitive.html