China Fibre Tech

(27-02-2014, 03:00 PM)oys-ter Wrote: Thanks all for the valuable feedbacks. It seems like my valuation of china Fibre tech need to be modified to reflect some of the concerns raised in this thread.

In my first post, i have tried to value China Fibre tech by assuming all asset except cash to be zero and then subtracting all liabilities from the cash. This gives a conservative "intrinsic" value of S$0.181 per share which consisted of mainly cash. However, after reading all posts in this thread especially GPD, i believe a more appropriate way to value China Fibre tech is to price/treat it like an option. This is because the true value of China Fibre tech is contingent on whether the cash is real or not.

Thus, China Fibre tech can be seen as a long dated option (unknown expiry date) with exercise price of S$0.181. The probability of exercising this "option" = probability of the cash being real. Hence, the value of the stock you perceived will be equivalent to your perceived probability of the real cash.

In such case, the market is perceiving that there is 15% (0.027/0.181*100%) chance that the cash is real.

Do you all think it is more appropriate way to value/treat such stock to be more like an option instead? Or if you have a better way to value such stock or maybe a modified version, please do kindly share so that all of us in the forum can benefit from this case studies?

I don't think there is a way to value stock whose financial information are questionable. There may be other cans of worms for all we know.

Given its business prospect, there is no reason to offer a higher valuation than its NTA. So if everything is real you can said top range is 22cts. If cash can be faked, then no figures in the financial statement can be trusted. In this case, you can said the values is 0cts. So anything between 0-22cts.

A few other points:
- There will be no catalyst for this stock coming from business prospects.
- It has already pre-warned investors a poor Q1 FY14. Quite nice of them to reveal that. So be prepared for a dip.
- CEO and BOD are grilled on the company share's performance in the last two AGMs (source from NextInsight). Still nothing happened. This coming AGM will probably be another grilling. If still nothing happened or no plans revealed to investors who are getting really impatient with them, there should be no upside on the price.
- They can exit with a decent offer or do acquisitions but the CEO's expertise is with textile dyeing (?), so changing or buying new business may not be a good idea. Joint venture may be a possibility.
There are no institutional interest in this stock. So is only between retailer A and B.
- You might also want to check which other company the IDs sit on. That will give you an idea of their calibre and if they are the sort that can bring value to investors. I wouldn't bet on it.
- This company is in Shishi City which is famous for their textile and the CEO sits on some of their public boards. So seems pretty like he might be more reliable(?). That said, I think he can run his textile business ok but have no clue to what CEO of a PLC is all about or simply ignoring it. Not that I know but at least the bits about increasing shareholder's values has been absence so far.

If the cash aren't real, we are just all wasting time here!

(27-02-2014, 03:00 PM)oys-ter Wrote: Do you all think it is more appropriate way to value/treat such stock to be more like an option instead?

I think you need to ask yourself whether you are playing for fun or to make money.

If you just want fun, then go ahead and put some money that you can afford to lose and then go away and do some real work to make money. Or you can play toto or 4D.

If you want to make money on such bets, then a poker player will advise you to scale your capital correctly, play many hands and hopefully your edge puts you in the black over many runs over the long run (and hopefully your capital scaling enables you to stay in the game long enough before a bad run takes you out).

Unfortunately, the obvious thing abt such an approach is that the distribution of frauds amongst counters having such features (i.e. price trading below cash and comes from China) is distinctly not a normal distribution.

In a way this is akin to what happened during the GFC - quants priced the CDS using the copula approach, assuming that loans from the subprime can be normally distributed so given enough loans in a tranche, more will pay up than not. However when dirt hits the fan, correlation approaches 1 and everything failed. Similarly, a basket of china firms listed on the sgx where price<cash cannot be treated as a diversified basket of bets - since similarly correlation approaches 1 when investigations start.

(27-02-2014, 07:44 PM)AlphaQuant Wrote:

(27-02-2014, 03:00 PM)oys-ter Wrote: Do you all think it is more appropriate way to value/treat such stock to be more like an option instead?

I think you need to ask yourself whether you are playing for fun or to make money.

If you just want fun, then go ahead and put some money that you can afford to lose and then go away and do some real work to make money. Or you can play toto or 4D.

If you want to make money on such bets, then a poker player will advise you to scale your capital correctly, play many hands and hopefully your edge puts you in the black over many runs over the long run (and hopefully your capital scaling enables you to stay in the game long enough before a bad run takes you out).

Unfortunately, the obvious thing abt such an approach is that the distribution of frauds amongst counters having such features (i.e. price trading below cash and comes from China) is distinctly not a normal distribution.

In a way this is akin to what happened during the GFC - quants priced the CDS using the copula approach, assuming that loans from the subprime can be normally distributed so given enough loans in a tranche, more will pay up than not. However when dirt hits the fan, correlation approaches 1 and everything failed. Similarly, a basket of china firms listed on the sgx where price<cash cannot be treated as a diversified basket of bets - since similarly correlation approaches 1 when investigations start.

Well said, another quality post. Thanks you.

If the cash balance of a company can't be trusted, then all fundamentals go out of the window. What is left is a punt, not an opportunity to invest.

I don't want to suggest that all China-listed companies in Singapore are frauds, just too many are behaving in a dubious manner.

From MAS,
Trade with Caution - China Fibretech

http://infopub.sgx.com/FileOpen/CFT_Clai...eID=380370

CLAIM BY CUSTOMERS

The Board of Directors of China Fibretech Ltd. (the “Company”) wishes to announce that the Company’s wholly-owned subsidiary, Shishi Simwa Knitting & Dyeing Co., Ltd (石狮市新华针织漂染有限公司) has received notices from three customers on 25 November 2015 and 26 November 2015 alleging that they have suffered substantial damages and financial losses due to the products processed by the Company’s subsidiary not meeting thespecified requirements, resulting in de-colouring in their end-products(the “claims”).It is noted that the said notices have not quantified the alleged losses incurred.

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Can't they be more creative???

(03-12-2015, 03:03 PM)GPD Wrote: http://infopub.sgx.com/FileOpen/CFT_Clai...eID=380370

CLAIM BY CUSTOMERS

The  Board  of  Directors  of China  Fibretech  Ltd.  (the  “Company”) wishes  to  announce that  the Company’s wholly-owned subsidiary, Shishi Simwa Knitting & Dyeing Co., Ltd (石狮市新华针织漂染有限公司)  has  received notices  from  three  customers  on  25  November  2015  and  26  November  2015 alleging that they have suffered substantial damages and financial losses due to the products processed by the Company’s subsidiary not meeting thespecified requirements, resulting in de-colouring in their end-products(the “claims”).It  is  noted  that  the  said  notices  have  not  quantified  the  alleged  losses  incurred.

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Can't they be more creative???

Shades of Foreland Fabritech?

I keep my share certificate from Beauty China on my study wall to remind me NEVER to invest in another S-chip.

(03-12-2015, 03:03 PM)GPD Wrote: http://infopub.sgx.com/FileOpen/CFT_Clai...eID=380370

CLAIM BY CUSTOMERS

The  Board  of  Directors  of China  Fibretech  Ltd.  (the  “Company”) wishes  to  announce that  the Company’s wholly-owned subsidiary, Shishi Simwa Knitting & Dyeing Co., Ltd (石狮市新华针织漂染有限公司)  has  received notices  from  three  customers  on  25  November  2015  and  26  November  2015 alleging that they have suffered substantial damages and financial losses due to the products processed by the Company’s subsidiary not meeting thespecified requirements, resulting in de-colouring in their end-products(the “claims”).It  is  noted  that  the  said  notices  have  not  quantified  the  alleged  losses  incurred.

*****************************************************************************************************

Can't they be more creative???

Why do they need to waste time to be creative when Singaporeans are naive? Even our late MM said so.

(03-12-2015, 06:33 PM)Bibi Wrote:

(03-12-2015, 03:03 PM)GPD Wrote: http://infopub.sgx.com/FileOpen/CFT_Clai...eID=380370

CLAIM BY CUSTOMERS

The  Board  of  Directors  of China  Fibretech  Ltd.  (the  “Company”) wishes  to  announce that  the Company’s wholly-owned subsidiary, Shishi Simwa Knitting & Dyeing Co., Ltd (石狮市新华针织漂染有限公司)  has  received notices  from  three  customers  on  25  November  2015  and  26  November  2015 alleging that they have suffered substantial damages and financial losses due to the products processed by the Company’s subsidiary not meeting thespecified requirements, resulting in de-colouring in their end-products(the “claims”).It  is  noted  that  the  said  notices  have  not  quantified  the  alleged  losses  incurred.

*****************************************************************************************************

Can't they be more creative???

Why do they need to waste time to be creative when Singaporeans are naive? Even our late MM said so.

Singaporeans are not more naive than most other people in other parts of the world.  But it seems more to me like lawyers in Singapore are less gangho than those in the other parts of the world which will offer services to start law suit against wrongdoers (and rightdoers) although I think it is more driven by the tough business environment and a need to have "business".

http://infopub.sgx.com/FileOpen/CFT_ADJU...eID=440848

So in the end, the claims demanded by its customers was to the tune of 470mil RMB, which is more than the cash in balance sheet and 7 times China Fibretech's annual revenue.

For two years worth of products delivered to these three customers, it amounted to such a massive damage!!

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