S-chips make a comeback in Singapore

Business Times - 22 Aug 2011

Many S-chips among Q2 loss-makers

Strengthening yuan and rising inflationary pressures cited for poor performance

By MICHELLE TAN

IT seems that market scepticism shrouding S-chips have somewhat rubbed off on their results for the quarter ended June 30, with most of the companies going 'under water' this season being Chinese firms.

A strengthening Chinese yuan coupled with mounting inflationary pressures were the key macro headwinds attributed to the sector's lacklustre performance.

Higher numbers posted in China's monthly inflation reports were mainly attributed to escalating food prices, which led to prices of foodstuff like pork to skyrocket.

Some Chinese food players were still unable to capitalise on higher selling prices triggered by inflation to bolster earnings, and faced continued cost pressures.

Abalone breeder Oceanus Group - once a darling of the stock market - has met with headwinds in the earnings department, posting a net loss of 58 million renminbi (S$11 million) for the quarter ended June 30. The losses came on the back of lower average selling prices and increased mortality of its abalones.

Having said that, a few bad eggs do not necessarily mean that the whole basket is bad, and heavy selling across this genre of stocks has made S-Chips increasingly attractive from a valuation standpoint.

Commenting on current valuations of S-Chips, Tan Han Meng of DMG & Partners Research said: 'S-Chips currently trade at a trailing 0.9 times price-to-book, reflecting investors' reduced risk appetites amid concerns over slowing global economic growth. Should events turn for the worse, we see next support at 0.8 times price-to-book, but view the probability of testing the historical 0.6 times price-to-book trough as low.'

Mr Tan also added that in times of volatility, investors could take advantage of rebound waves when returns averaged 20 per cent between 2007 and 2009, and 6 per cent since November 2010.

Mr Tan also shared his views on potential gems among S-Chips, which he said could be attractive investment propositions at this juncture. He highlighted upstream food-related players such as China Animal Healthcare, China Minzhong and Yamada; and environment counters such as Leader Environmental and Sound Global.

Outside of the S-chips, many of the loss-making counters were small to mid caps, which faced increased margin pressure amid a rising costs environment.

Analysts also attribute an intensification of competition among industry peers and the cannibalisation of market share by larger players as other key reasons behind the negative showing reflected by some small to mid caps for the period.

Even Pacific Healthcare Holdings (Pacific HC), which is part of the seemingly resilient healthcare industry, was unable to escape the falling knife. It reported a loss of $3.5 million for the quarter on the back of declining revenues for its dentistry and medical segments following the closure of a dental unit in Hong Kong, an attrition of doctors and losses incurred in the disposal of subsidiaries.

Sector-wise, manufacturing firms also tended to report thinner margins citing rising staff costs and operating expenses as well as an intensification of competition among industry peers, leaving many smaller players with nothing more than a report card splashed in red for the period ended June 30.

Some oil and gas counters were also in the 'hot seat' during the reporting period ended June 30.

For instance, CSE Global reported a greater-than-expected net loss of $7 million for the season, triggering a wave of earnings and ratings downgrades from analysts who have turned bearish following the company's string of earnings misses and longer-term concerns over order intake.

Topping the loss-making chart however was Singapore's largest shipping and transportation company, Neptune Orient Lines (NOL), whose share price has been on a relentless freefall over the past few months. The shares have slumped more than 50 per cent year-to-date despite beating the Street's estimate by posting a lower-than-expected loss for the quarter on the back of leftover trickle effects from high rate transpacific contracts negotiated previously and continued profitability on the intra-Asian trade route.

Despite already trading way below its historical mean, some analysts have sliced earnings estimates and ratings for the global container carrier on the back of a prolonged depressed outlook for the sector.

Citi Research's Rigan Wong commented: 'While our long-term outlook for fleet consolidation and market share dominance by major liners under our coverage remains intact, we think short and mid-term investor attention may turn towards the duration of earnings depression and the 'turning point' for earnings recovery.'

Mr Wong added that he has downgraded NOL on fears that the company may 'fall further into losses' in the subsequent periods on the back of weak freight rates, and its share price may not have fully factored in further earnings disappointments.

Business Times - 02 Sep 2011

S-chips stay under pressure in Q2

Majority report lower earnings or losses; headwinds forecast to continue in H2

By LYNETTE KHOO

COST pressures and a rising yuan continued to take their toll on many Singapore-listed Chinese firms (S-chips).

Of the 95 S-chips which have announced results for the April-June second quarter, 34 reported lower net profits year on year and 13 swung from profits to losses. But for reasons ranging from strong cost management to foreign exchange gains, 36 managed to post year-on-year rise in earnings. And three firms that were in the red last year returned to the black. Eight continued to suffer red ink and one has no comparative figures.

DMG & Partners Securities analyst Tan Han-Meng noted that headwinds seen in the first half of the year - ranging from margin compression and waning export demand amid a strengthening yuan to an uncertain global economic outlook - will continue to rage in the second half.

'We expect the second half to be weaker given the more cautious outlook,' said Mr Tan, who revised his fiscal 2011 earnings growth forecast for S-chips from 30 per cent down to 25 per cent.

Austerity measures by the Chinese government in the property market have hurt some S-chips.

High-end developer Yanlord Land saw a 92 per cent slump in net profit to 40.8 million yuan (S$7.7 million) in the second quarter, dragged by lower gross floor area of residential units delivered.

Bund Center Investment, which focuses on commercial properties in China, marked a 43.4 per cent decline in net profit to $6.7 million on lower hotel occupancies amid an increased supply of hotel rooms. The report cards of S-chips in other sectors pointed to mixed fortunes.

Yangzijiang Shipbuilding remained the top earner among S-chips, posting a 20 per cent jump in net profit to 963.9 million yuan in the second quarter, boosted by foreign exchange and interest income gains.

Similarly bolstered by foreign exchange gains and a 33.8 per cent jump in revenue, JES Shipbuilding reported a 146.7 per cent surge in net profit to 117.3 million yuan.

Cosco Corp, however, saw its earnings hammered by lower freight rates and reduced returns from its ship-repair and conversion units, leading to a 53 per cent plunge in net profit to $31.9 million.

In the food industry, integrated food producers appear to have managed costs better than the pure downstream food processors.

Integrated food producers Yamada Green Resources and Sino Grandness both incurred higher expenses in the second quarter but managed to garner an 11.1 per cent rise and a 57.1 per cent surge in net profit to 7.2 million yuan and 53.8 million yuan respectively.

Unable to withstand the margins squeeze, processed food maker People's Food marked a 55.7 per cent fall in net profit to 31.4 million yuan and Synear reported a 44.9 per cent fall in net profit to 22.6 million yuan.

Roger Tan, vice-president of SIAS Research, said he foresees rising costs, especially labour costs, to moderate and stabilise in the second half of the year.

'We continue to like companies that focus their business on domestic consumption,' he said. 'We are more careful with those that rely mainly on exports to generate their revenue.'

Given a lack of investors' confidence, however, any near-term rerating is unlikely, analysts say.

'Many investors are still wary about S-chips' management and question their alignment of interest,' Mr Tan of SIAS said. 'It will take some more time for investors to realise that a lot of good S-chips are selling at unreasonably low valuation.'

DMG's Mr Tan also concurred that valuations are attractive now, but also pointed out that third-quarter earnings are unlikely to excite based on his current estimates.

'Assuming concerns over slower growth come true, investors might want to consider consumer staples and those with negative factors being fully priced in,' he said. 'We like upstream food players which have shown resilient earnings in current quarter.'

Confirm die liao...


FibreChem Technologies Limited (“the Company” or “FibreChem”)
Statutory Demands For Payment

The Board of Directors of the Company wishes to announce that the Company’s advisors have
been informed on 9 December 2011 by the solicitors acting for United Overseas Bank Limited
(“UOB”) and a consortium of local and international banks arranged by Oversea-Chinese Banking
Corporation Limited (“OCBC Syndicated Lenders”) that UOB and the OCBC Syndicated Lenders
have each issued a statutory demand on 5 December 2011, under Section 351(2)(a) of the
Companies Act (Cap.50), demanding:
a) under term loans and credit lines granted by UOB to the Company payment from the
Company to UOB of the sum of US$58,683,534.08 together with accruing interest or
composition of the said amount within 3 weeks from the date of service of the statutory
demand on the Company; and
b) under a term loan facility granted by the OCBC Syndicated Lenders to the Company
payment from the Company to the OCBC Syndicated Lenders of the sum of
S$29,095,099.73 together with accruing interest or composition of the said amount within 3
weeks from the date of service of the statutory demand on the Company.
The Company is seeking legal advice on its position.
The Company will make further announcement(s) as and when there are material developments
in relation to the aforesaid matter

wow this is bad publicity for the local banks esp UOB

The Straits Times
Dec 25, 2011
Are S-chips still a possible play?
The lure of China remains, but bear in mind these are largely risky punts

By Jonathan Kwok

Mention 'S-chip' and you are likely to send shivers down the spines of many an investor.

These Chinese companies have gone from being the darlings of the local stock market in 2006 and 2007 to being sullied by a seemingly never-ending series of corporate and accounting scandals and issues.

In the past week alone, scandal-hit Hongwei Technologies said it had appointed provisional liquidators in a desperate attempt to safeguard its assets.

There was also a saga at China Sky Chemical Fibre over the issue of appointing special auditors.

Amid the souring public perception of S-chips, those who have lost money cursed their bad luck while many others vowed never to touch these China plays again.

But are S-chips such a bad deal? Is there still a case for having them in your portfolio?

There is little denying that Chinese companies will benefit from the country's economic expansion. Though China will not be fully sheltered from global storms, its growth will remain faster than Western economies'.

Valuations of S-chips have also fallen, meaning they can be regarded by some to be 'cheap'. The price-earnings ratio of some counters can reach as low as under two - a very low valuation, though some local small-caps also offer similar valuations.

But that does not detract from the corporate governance issues of S-chips, and whether one can still have confidence in their reported numbers after the spate of accounting scandals.

Slightly less than 10 per cent of the about 150 S-chips are suspended due to governance or accounting issues, but this leaves out those that had been delisted or that needed to be saved by a white knight.

Even large firms like China Hongxing Sports, which at its peak had a market value of almost $4 billion, have been hit by scandal.

Among China companies listed elsewhere, Canada-listed timber giant Sino-Forest is an example of a large company accused of fraud.

In the course of my work I have had the chance to speak with many S-chip bosses. The first thing I have found is that many of them really seem like very decent people.

They argue passionately that they are honest businessmen, and that only a small handful of other firms are sullying their name.

However, over the past few years, even firms with charismatic leaders, strong growth stories and apparently robust internal controls and finances have fallen prey to scandal, meaning that even investors who have done their homework have lost their cash.

Successful British fund manager Anthony Bolton recently told the Financial Times that when investing in China firms he faces the challenge of whether to believe what he is being told and whether the figures he is getting are real figures, adding that 'the quality of the information that you're getting is definitely an issue'.

When even professionals find it hard to discern whether the company in front of them is going to be the next big thing or the next suspended counter, it is not going to be an easy game for retail investors.

As the market turmoil drags down valuations across sectors, it is hard to blame investors who park their cash in less scandal-tainted sectors, such as local blue chips.

But some investors continue to keep faith with S-chips, citing China's growth story and the low valuations of the stocks. If one chooses to do so, it is helpful to consider strategies for managing risk.

Mr Bolton said he conducts research on the sectors the firms operate in, to see if the industry performance confirms their reported financials.

He cited a case where he sold shares in a Chinese firm that was reporting 30 per cent to 40 per cent sales growth but market research suggested a significantly lower figure.

While it is unlikely that retail investors will be able to undertake such industry research, it is helpful, when reading research reports, to see if the analyst has undertaken similar steps to counter-check the veracity of reported figures.

There is also a need for diversification, to spread risks. A shareholder who recently bought stocks of an S-chip in agriculture said that 'investors should selectively buy a basket of them'.

'One or two may die on you, but hopefully you will make' good money on some, added the investor, who declined to be named.

This investor, being a wealthy individual, flies to China, speaks to companies' management and goes through their accounts 'with a fine-toothed comb', but still admits the difficulty of discerning whether troubles will erupt at a particular firm.

'I still can be misled,' he said. 'I still see a future in certain S-chips but I protect myself by going for companies with visible assets, as opposed to just numbers on a balance sheet.'

He invests in property companies as he can see their physical office buildings or shopping malls, but shies away from manufacturing, retail or service companies due to his scepticism over their reported sales, bank balances and inventory numbers.

Another important piece of advice: In the light of the risks of S-chips, investors should bet only money that they can afford to lose or take heavy losses on.

The sector should be assessed as a more risky play compared with, say, local blue chips. The investor calls it 'just a part of my portfolio that I am willing to risk... I consider them more high-risk than hedge funds'.

This is a sector where you should be ready to do your research and manage your risks. Even so, especially for smaller S-chips, this may just be a game of putting in the cash that you can afford to lose, hoping that you will be rewarded very handsomely in time to come, if the firms' valuations and earnings rise.

jonkwok@sph.com.sg

"When even professionals find it hard to discern whether the company in front of them is going to be the next big thing or the next suspended counter, it is not going to be an easy game for retail investors."

Unquote:-
i have tried. It's really not worth it. i think now i really understand WB,'s advice:-

1) Rule NO.1 don't lose money. (Even $$$ that you have made from the Market)
2) Rule NO. 2 refer to rule NO. 1

Actually it's that "simple' for common folks like me. How about you?
You may be one of the a specialist? Congratulation!

(25-12-2011, 08:37 AM)Temperament Wrote: Actually it's that "simple' for common folks like me. How about you?

For myself, it's a simple mantra - if I don't understand it or don't feel comfortable with it, I won't invest.

Business Times - 17 Feb 2012

Why S-chip fraud cases keep cropping up

Poor corporate governance is simply a symptom but not the root of the problem

By QIAN MEIJUN

INTRODUCED with the purpose of riding on China's economic growth and to develop Singapore's financial market, the listing of Chinese firms in Singapore (S-chips) has, unwillingly and sadly, resulted in a heartbreaking experience for many Singapore investors and Chinese firms themselves.

With their reputation tarnished by a minority involved in frauds, the prices of S-chip stocks have collapsed and remained low for a long period.

It is easy to point fingers, put the blame on the poor corporate governance of these culprits, and become biased against all Chinese firms because of certain rogue companies.

However, corporate governance is not exogenous, but a choice of firms and a result of the regulatory environment. Just as human behaviour is the product of society, corporate behaviour is the product of the regulatory and market conditions.

Therefore, poor corporate governance is simply a symptom but not the root of the problem. If the institutional or regulatory rules - whichever give rise to incentives and opportunities to steal as well as myopic behaviour - remain the same, the market will remain doomed for S-chips.

So, what is the root of the problem here? Let's think about all the agents directly involved. First of all, most S-chips, with some exceptions, are small and medium enterprises in China. The overall awareness of corporate governance and discipline to fulfil fiduciary duty to shareholders are still quite immature in China, particularly among the small firms. It is not surprising to see that firms' founders, managers, controlling shareholders, and board of directors are often the same couple of people or closely related.

Yet, given the prevailing free-riding problems in monitoring the management of firms with extremely diverse ownership, such family-owned structures could potentially be a good model of governance in the sense that they reduce the principal-agent problem. We have seen good examples here, such as United Overseas Bank.

Unfortunately, there is also the potential for a bad scenario: controlling shareholders expropriate minority shareholders. In extreme cases, such tunnelling behaviour can go beyond the legal boundaries and turn into fraud. So what determines the equilibrium of the game?

We probably cannot expect the management of corporations to be completely altruistic, because probably nobody is. There is always an 'economic' side to all of us. Therefore, what we can hope for are only a good selection process and an incentive to make firms behave within the boundaries.

The Singapore Exchange (SGX) seems to make the selection during the listing process. No matter how much SGX boasts of its stringent listing requirements, it has, arguably or even factually, been much easier for Chinese firms to be listed in Singapore than in Hong Kong, or the US, or mainland China itself.

The effectiveness of regulatory rules relies on a good institutional structure to ensure implementation. The conflicting roles of SGX - a regulator that should ensure the quality of firms, and a profit-making entity that earns fees generated from listing firms - undermine its role as a watchdog.

A metaphor for this structure is having a drug seller diagnose patients. As a result, many firms are simply packaged to meet listing standards on paper. This is superficial, merely ensuring firms have the required skeletal structure and faces.

Low standards, by themselves, would attract all firms, not only the bad ones. Although similar frauds in Chinese firms have occurred in China, Hong Kong, and the US, why has Singapore attracted proportionately more bad apples compared to the other markets?

The answer is: low valuation. A high-quality firm that meets the listing standards of more than one market will naturally choose the one that appreciates its shares more. Low valuation leads to low quality, and the low quality confirms the low valuation. It is a vicious cycle.

In addition to SGX, investors make the selection of firms and they do so with real money. Investors as a whole are not only victims but also partially responsible for this vicious cycle, not on an individual level.

When the trading of stocks reflects only a 'concept' - such as 'China', 'tech', or 'bio' - the market has failed in its role of price discovery. Trading is no longer investing but gambling, because there is little concern for the actual value of a firm. Real investors, if they care about governance, would vote with their feet. They would appreciate firms with good governance, and depreciate those with bad governance.

However, as it is too costly for individual investors to gather and process information, this price discovery failure should make us think about the role of institutional investors in Singapore - whether and to what degree their existence in Singapore has helped mature the Singapore equity market? (Or are they just another side to the problem?)

Since the first S-chip scandal in 2007, we have seen many. There have been complaints, discussion, and so-called measures taken. SGX also emphasised the importance of attracting Chinese firms for the development of Singapore financial markets. Such superficial talk might marginally influence market sentiment, but without any action targeting the root of the problem, the market would still be trapped by the S-chip stigma, scandal and frauds that keep happening.

It will not be surprising to see more good S-chips volunteering to delist - because they are undervalued. Although certain listing rules make it very costly for them to do so in the short term, these firms will have enough time to adjust and exit in the long term. We have already seen this happening, for instance, in Yangzijiang Shipbuilding.

So, stop blaming competition from Hong Kong, stop blaming the corporate governance of Chinese firms, because those are beyond Singapore's control. The dragon year will be auspicious only when we start asking ourselves how we can improve.

The writer is an assistant professor in Finance, NUS Business School. She specialises in asset management, governance of financial institutions, and the financial system in China

Rather valuable insight and suggestions from the writer.

(17-02-2012, 09:13 AM)egghead Wrote: Rather valuable insight and suggestions from the writer.

Think the writer probably read valuebuddies..haha..