Thursday, August 12, 2010

Chinese Footwear Pariahs n Darlings

I only mentioned Xinquan, not any of the other China footwear companies listed on Bursa.

The leader is Xinquan. Even when it shot up from RM1.25 to RM1.60 on good volume, not many paid any attention. When it made its next move up to RM1.85, suddenly all the other footwear companies are in the "me too" category.

Please re-read my posting on these companies:


I do not subscribe to the thinking that there is a positive rerating for this group of companies as a whole. If investors think that there is a rerating, then they will be sorely disappointed and misguided.

You can read reams and reams of good analysis at:

Multi Sports ( and just replace Multi Sports with the other names, you get the drift)

There are still a lot of unanswered questions, my main ones are:

Why are the companies hoarding so much cash, some even do rights issue amidst all that cash, ... some trade at 2-3x PER, .....
why are there NO private equity funds going in to fund the owners to do a buyout??? ....
the simplest way to gain credibility is to issue a statement that you will pay 40% or even 60% of net profits back as dividend (every 6 months to get better traction), any idiot knows that, why won't they do that???

Until I get real answers to the above questions, I can only assume the worst. The reason why I singled out Xinquan is that some shrewd investors have visited the company and "invited to invest", apparently there will an "agreement" with respect to paying out a certain percentage of profits as dividend as part of the exercise. You have that, and people have done their due diligence, then its a lot less risk.

As for the rest, my view has not changed for them: AVOID, its a false rally.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.


ronnie said...

I spoke to an investor / friend who visited Xingquan in Xiamen. He was impressed with the opeartions and Mr Wu. Hope company improves dividend payout. said...

Here is a good read on the "cash" thing

And for XinQuan, one thing I like a lot about them is that they want their external auditors to audit their cash every quarter. said...

Oh, actually should be this link

Sorry sorry...

xinzhang said...

I have bought some Xingquan too. I am bullish because it has an extremely healthy account. They havealso put in place great plans for future business expansions. The 3rd Q results revealed that they have some 280 million cash. EPS for 3rd Q was 28 cents and you do not need a genius to tell you that by 4th Q the EPS should be in the region of 40 cents. If Xingquan put in place a policy of 40% of its profit as dividend, it would no doubt fly up the sky to say RM2.80 within weeks. What Xingquan needs to do is to convince the Malaysian investors that they are different from the rest of the Chinese firms.

The Emperor said...

Apple has US$46 billion in cash. A large number of shareholders are asking for a large portion of the cash to be returned to shareholders. This issue begs the question - should Apple listen to these shareholders or Steve Jobs who must be CEO of the decade & of course done a magnificent job guiding the company ? Based on Mr Jobs track record, we assume he has a good idea what he wants to do with the cash when an attractive target presents itself. It is unlikely to engage in a related party transaction which is popular in Malaysia. Coming back to M chips. Until these companies engage in unsavoury practices , which they have yet to do so, let us not pass judgement on these M chips.

Salvatore_Dali said...


Its not a fly by nite thing for Apple or Google or Microsoft to hold cash ... they all keep within a "professional threshold" to take on opportunities and to be solvent in a crisis or two ... its no coincidence that its around 13% ... now whats the cash position like for the China apeks???

What is their justification? They r not like the above companies which is experiencing massive free cash flow every day ... they have done nothing, not even share buybacks, what gives??

Its appalling to compare them to Apple ...

Which tech company is most cash rich: Apple, Microsoft or Google? Having tons of cash in reserves gives them a lot of clout, always on the lookout to buy companies that can add value to its R&D or product mix. The reason why they have so much cash is that they have the structure or products or patents that keep generating massive amounts of free cash flow to the reserves. Now, why would they not give it back to shareholders? We can debate this till the cows come home - a company, in particular a tech company, needs the cash to invest in R&D, to keep pushing the line on innovative products, they need the cash to compete with new technologies or disruptive technologies, and when they cannot compete... they can use their cash to buy the competition out.

One good thing about these 3 companies, there will not likely be a rights issue anytime soon. You invest in a company for growth, not for dividends.

The chart below from Gridstone looks deceptive if you only look at absolute cash holdings. One should look at the number of shares issued and the actual Cash Per Share. Even that is not good enough, to throw a better light at it, the net cash per share should be cited as a percentage of the most recent market share price.

Total cash at at Oct 2009: $21.99bn
Shares Issued: 316.5m
Market Cap: $174.6bn
Cash per share: $69.43
CPS/Mkt Px: 12.6%

Total cash as at Oct 2009: $29.9bn
Shares Issued: 8.9bn
Market Cap: $234.97bn
Cash per share: $3.356
CPS/Mkt Px: 12.7%

Total cash as at Oct 2009: $24.22bn
Shares Issued: 895.82m
Market Cap: $178.0bn
Cash per share: $27.039
CPS/Mkt Px: 13.6%

Here lies the interesting finding, the cash on hand for each of these companies IS NOT AS RANDOM as you might think. There is obviously some "finance strategic" modeling behind it. Cash per share as a percentage of its share price CANNOT possibly be between 12.6% to 13.6% among these 3 companies by chance, obviously they benchmark against each other for competitive reasons.

Benchmarking is just one aspect, could this be the "optimum" cash holding level for companies that have a high propensity to do M&A as a major part of their corporate strategy? Looks that way as having that optimum cash cushion will allow them to act very fast, either in paying cash upfront in a desperate bidding war, or even raising double or triple that cash level from short term lending - which banks will not lend to these 3 companies with such a cash backing? All said, each of these are primed to ACT should they come across a significant major company for sale. Imagine Apple or Google buying Nokia ... Nokia has a market cap of $49.27bn. Say they pay a 30% premium to take over the company, it would cost $64.05bn in value. They need a warchest to at least buy up 51%-100% in case all shareholders accept their offer. No problem, with their cash back, they can easily raise the funds within hours literally.

Lastly, the reason why they such a similar level of cash per share as a percentage of their share price is to FEND OFF the vultures. They can use the cash to buy back shares if they want to, and cancel them as well. By benchmarking with each other, none of the companies would appear to be "too attractive" to vultures - imagine if one of the company has a ratio of 25% instead of 12.5%-13.6%, private equity mega houses may gang up to raid the companies or greenmailing them.

Can I get my honorary PhD now?


The Emperor said...

If I was a real emperor, I would confer a tan sri-ship on you. A financial genius. You are master class.

Buyer said...

Dali, I am from those MNC RND background, and you just talk like our CEO in term of financial prespective during his quarterly sharing! ):p

Salvatore_Dali said...


maybe i am your ceo??!!

Subba Rao said...

Dali, I would like to first thank you for your Blog and your financial Analysis.
I tried doing the same to Intel,
Roughly the following:
Total cash at end of 2009: $13.9bn
Shares Issued: 316.5m
Market Cap: $5.57bn
Cash per share: $2.49
Share Price = $20
CPS/Mkt Px: 12.5%

invest_klse said...


May I know what is your comment regarding Xingquan's branding strategy?

can read the story here:

Its ADDNICE shoes sell good, maybe just because people think it's an old, established Germany brand.

can this kind of business sustain?

山下聖人 said...

I used to invest in Xingquan too. I shared your view. But recent rally in market in my own view would not be long. Thus I sell all now and wait to buy some back

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