China Taisan Technology Group Holdings

[AAA]

China Taisan is one of the few stocks that are trading at a rolling PE of less than 5.

It is one of the leading producers of knitted performance fabrics used for sports and casual apparels in China.

Its revenue grew by 85.3% in 9m10 and 117% in 3Q10 year-on-year. Its net profit grew by 282% in 9m10 and 757% in 3Q10 year-on-year.

It did a dual listing at Taiwan TDR recently at a price of about S$0.255 per share.

According to the recent announcements, its machineries are running in excess of 80% utilization over the last few quarters.  Its customers have recently given positive indication that their orders for 2011 would continue to grow and it anticipates being able to secure new customers in 2011. Hence, it plans to embark on a massive capacity expansion to increase production capacity by 50% by 2012.

It is stated in the FAQ of its website that it generally has higher revenue in the last quarter.

I believe China Taisan is a good  bet at the current price in the current market cycle.

I invite forumers to take a close look at this counter.

I am vested and still accumulating.

[ichiran]

Just some observations -

1. For a manufacturing company, it's ROE and operating profit margins are surprisingly high at 27.05% (ttm) and 24.59% (ttm)! Just curious how this compares with the industry average?

2. There was a placement of 30 million new shares in May 2010. Following the issue of the Placement Shares, the number of issued and paid-up ordinary shares of the Company had increased to a grand total of 957,900,000 ordinary shares.

3. The company issued another 125 million new shares in Sep 2010 for the TDR listing. Following this issue of the New Shares, the number of issued and paid-up shares of the Company is now an astounding 1,109,587,735!

[Blackjack]

Some suggestions for would-be investors which can be easily followed and done. Instead of going through rigorous and extensive analysis into valuations, industry trends, PR announcements made by the companies, competition, etc etc, just look at the timings & frequency of cash calls, especially for new listings, and come to your own conclusion. This includes companies which may have just listed recently and "wishes to tap on improved valuations via dual-listings".

This works even better than spending all the unnecessary time and works as an effective initial filter, and will save lots of time and potential pain in future.

[dydx]

Just some observations -

1. For a manufacturing company, it's ROE and operating profit margins are surprisingly high at 27.05% (ttm) and 24.59% (ttm)! Just curious how this compares with the industry average?

2. There was a placement of 30 million new shares in May 2010. Following the issue of the Placement Shares, the number of issued and paid-up ordinary shares of the Company had increased to a grand total of 957,900,000 ordinary shares.

3. The company issued another 125 million new shares in Sep 2010 for the TDR listing. Following this issue of the New Shares, the number of issued and paid-up shares of the Company is now an astounding 1,109,587,735!

Before looking at profits and ROE, perhaps it is important to also look at the level of Trade Receivable. Based on China Taisan's latest Q3-FY10 results announcement, the Trade and Other Receivables balance of Rmb365.72m is equivalent to 1.14x of Q3-FY10's Revenue of Rmb322.16m.....
http://info.sgx.com/webcoranncatth.nsf/V...8003CA9B7/$file/ChinaTaisan3Q10.pdf?openelement
It doesn't make good sense that the company should provide its customers an average trade credit of >100 days!

Quite obviously, notwithstanding the recovery in revenue and profits in the 1st 3Qs, China Taisan's issuance of a total 155.0m new shares - and its dilutive impact on EPS and earnings - has had a negative impact on its share price so far. When we compare the share price evolution in the last 12 months of China Taisan and that of Foreland Fabrictech - which has not done any share placement or TDR - it is even more obvious that Mr Market has reacted very differently for the 2 counters.....
http://finance.yahoo.com/q/bc?t=1y&s=B0I...l&c=F2X.SI

[AAA]

In general China Tai San gives 90 day credit. 1.14 times of Q3FY09 is 103 days. It is not unusually for groups to have receivable days of about 100, especially that you have very big and strong customers.

It is for good reasons that China Tai San is raising fund, for capacity expansion. Even with the dilution, the valuation looks very attractive.

Having said that, I am not one who will buy and hold for long term. Within the next 6 to 12 months, probably there will still be strong demand for China Taisan's (and Forland's) products. Beyond that, the good margin will attract other players. This is just the nature of business for most of the PRC manufacturers like China Taisan and Foreland. I just aim to make a profit for the next few months as I believe the market will rise higher, driven by liquidity.

I also bought into Foreland when it was 0.1 but sold out at about 0.14 because the valuation has become less attractive compared to Chian Taisan after the rise.

[AAA]

China Taisan lumps trade receivables with other receivables, and deposits for land use right together under receivables.

IN AR 2009, the breakdowns are as follows:
Trade receivables – third parties 196,622k
Other receivables 20,295k
Deposits 29,736k
Total 246,653k

FY09 revenue is 832,641k; so trade receivable days is about 86 days.

Also stated in AR09, the average trade receivable days are:
83 for FY 05
99 for FY 06
70 for FY 07
68 for FY 08
65 for FY 09

The discrepancy between my calculation of 86 days vs the 65 days stated in the AR for FY09 may be due to average receivable days being longer in Q4 FY09.

As compared to Foreland, China Taisan seems to be selling more (% wise) to the top brands in China. For example, China Taisan is an approved supplier for China’s No.11 casualwear retailer Metersbonwe. Also stated in its announcement on 17 Nov 08, it supplies up to 90% of Xtep’s knitted performance fabrics requirements, and Xtep is one of the top 3 domestic sports brand names in China.

[egghead]

I'm rather amused that the release of FY2010 results mentioned payment of dividend but defer the announcement of the amount. Makes me wonder if they have difficulty finding the cash to pay dividend - especially after the recent scandal relating to Hongwei and Hongxing.

[Asspen]

I'm rather amused that the release of FY2010 results mentioned payment of dividend but defer the announcement of the amount. Makes me wonder if they have difficulty finding the cash to pay dividend - especially after the recent scandal relating to Hongwei and Hongxing.

But in both of those companies we saw explicit problems with the auditors - they resigned or asked for extension in submitting the AR. In Taisan they did not.

We (me and my partners) also suspected fraud here so earlier this month we called one of the independent directors of Taisan that has an expertise in accounting and head the auditing committee in Taisan. You can see his reputation in the link below. We also talked with Patrick Kan the CFO.
We urged the company to resume its previous dividend policy of distributing 30% of profits but they claim that it "did not contribute to the valuation of the share throughout 2009-2008", our explanation that those years were not usual years did not help.
We pushed that the company is currently generating enough cash to support expansion so a large div can be distributed, or at least a div policy can be reinstated, but they refuse to listen.
We also asked why the company holds a small loan (45M RMB) that eats away all of its already negligible interest income on the money when they have 733M RMB in the bank. This loan has been around for years, it is rolled over from year to year. They claim that it is not so easy to raise debt in the PRC so they are keeping it going.

I must also quote the Director in our phone conversation, he said that "Our auditors are very happy" i.e. there are no audit problems. Coming from him this should matter i think.

You can also call him if you want, maybe it will apply some more pressure on the company to share with its shareholders some cash
http://www.ltc-cpa.com/pdf/05.%20Mr%20Th...%20For.pdf

A 30% of profits dividend distribution like in previous years (08'-09') can easily yield 11% here...

[egghead]

Hi Asspen

Thanks for sharing.

My reference to the two S-chips is meant to provide a background context. Anyway it seems like the bottom line is that you and your partners remain unconvinced with management's explanation of how they are using the cash.

Company has indicated early on the intention to distribute dividend (though not the quantum) so it is rather perplexing that the decision on how much to distribute remains outstanding at the time of results annnouncement.

The share price has since melted down to 13-14 cents range. If I base on the results, that is a PE of <3 at a substantial discount to NTA. Note that there has been neither directors buying of shares nor share buy-back at this price; whereas they were done previously at a higher price.

[egghead]

This counter has the highest trading volume today - after Sino Techfibre accounting issue reported yesterday. Interesting...