China Flexible Packaging

[touzi]

I just received the AR. The group has been profitable for the last 5 years, is trading at a 0.3 times book value ( one of the lowest ), and has no debt. Since the 2008 financial crisis, it has been trading around this level, so what is wrong?

Is there anyone also holding or following this stock. Will like to hear your views.

Thanks.

[iisterry]

...so what is wrong?...

Cash per share about 6c.

NAV at around 60+c.

Trading at approximately 19.5c implies a PE of 12x FY2010 earnings.

EPS ended 3 months October 2010 is $0.001 RMB VS $0.03 RMB for 3 months ended October 2009. A significant decrease. Annualized earnings may be higher but 4Q shows a significant 90+% drop in profits.

For market segment analysis, you can look at Changtian. They have divested their BOPA film business citing unfavourable market conditions, declining prices, intense market competition and increasing operating costs due to substantial increase in the raw material prices.

Changtian was trading at approximately 16c during their Nov Results Announcement or 5.7X PE. Their 3Q earnings also shows a significant drop from 5.79 to 1.39 RMB cents.

Cost of sales increased by 20.46% in 4Q VS a 9.71% increase in revenue.

Administrative expenses have also increased by a whooping 59.16%.

NAV is really moot since their assets are likely to be non-liquid. Meaning it may not fetch book value were it to be liquidated tomorrow.

Mere observations through a cursory glance at their last result announcement. YMMV. Not vested.

[Nick]

Investors must understand that most S Chips are not the strongest company in that particular industry which they operate it so together with the perceived poor corporate governance issue, it is normal for them to trade at single digit PE and below book value. Similarly, for strong S Chips with pretty decent moats (YZJ, Cosco, CM Pac, CAO etc), they do attract higher valuation.

A PE of 8 may be cheap for a blue chip, fairly valued for a so-so company and expensive for a poor company. Valuation is not set in stone - it varies depending on each company.

It must be noted that 4Q profit dip 96% !!!

[touzi]

Thank you for sharing your views. The explanation for the Q4 ( and Q3 ) result is that one production line was shutdown for maintenance and increase in raw material (oil) price. I guess the company under invested in production such that shutting down one line has such a huge impact!

Unfortunately they have been holding the AGM in Guangzhou, so no chance to query the management, unless one is prepared to go over.

[corydorus]

Question will be do we take line shutting down a reason?
If so, more others to come.

[newborn1000]

......that is because there is wide spread distrust......

though there are exceptions like rice-crackers-Wan Wan

[touzi]

The Account Receivable of ChinaFlex is RMB 242 Mil, but the Account Payable is only RMB 60 Mil. Is it normal for the AR and AP difference to be so huge? What can it mean? Thanks.

[touzi]

The recent bad news about S-chip prompted me to send a email to the CFO, was listed a IR contact in the AR. Hope he replies. If he doesn't, not sure what I can do since the company does not hold AGM in Singapore.

[touzi]

I got the following replies a few days after emailing my question to the company. Hope to see significant improvement in their Q1 result.

Question 1: I noticed that your Accounts Receivable is almost 5 times your
Accounts Payable. I will appreciate if you can clarify how is this possible?

Answer: Our debtor turnover day is generally around 90-100 days, however,
the creditor's trunover days generally not more than 60 days.


Question 2: I would like to know when the production line that is under
repair will be ready for operation again.

Answer: The production line was under repair has been resumed its operation
since 1Q2011.

Question 3: I will also like to know if the Board has any plans to hold
future AGM in Singapore.

Answer: The Managment will take into your consideration and will propose
the future AGM to be held in Singapore for better communication with
shareholders located in Singapore.

[yeokiwi]

I got the following replies a few days after emailing my question to the company. Hope to see significant improvement in their Q1 result.

What is your expectation of the company?

Earning growth? It did not live up to expectation since IPO.(75cts).
Turnaround? Maybe, but i do not expect a major turnaround.
Delisting offer? unlikely since the return is poor.(ROE 2-3%?? for fy2010) and most of the NAV are properties,plants and equipment.
Rerating?? unlikely since most s-chips' reputations are below sea-level.

Any good reason to own CFP?