Foreland Fabrictech

(24-09-2012, 11:30 PM)Serendipity123 Wrote: At this price (~0.045), here is what the market is discounting..

1) the entire cash hoard is non-existent (as opposed to the approximately $60m cash recorded in the books)
2) the company is actually a loss-making business (as opposed to its financial statements which show that Foreland is profitable every year)
3) the company has a huge amount of undisclosed debt (as opposed to the currently zero debt recorded in the books)

Thus, even with all the fears of fraud, I find Foreland to still be a good buy simply because of the price.

To further illustrate, let's say you discount all the cash to be conservative.

Total assets 737,898
Cash 307,704
Total Liabilities 60,808

Adjusted book value per share = (total assets - cash - total liabilities)/No. of shares = ~0.14

Compare this with the market price of 0.047. Even if you take this extremely conservative stand, the company is still undervalued. If the company is wound up right now at this very instant, payout to shareholders is likely to be substantially more than 0.047.

Comments welcome.

Disclosure: I hold Foreland stock

Assuming ONLY the cash reserve is doubtful, you still over-valued

Took a closer look into the balance sheet, almost half of the asset is PPE. I did not look further, but it is likely worth much less for a garage sales.

The rest of the asset are inventory and receivable, all are likely worth much less than booked value

(24-09-2012, 11:56 PM)Some-one Wrote: The assumption that you made here is that the following exists. However, are the assets real? If it is real, are they worth that much? In the case of liquidation, shareholders would be the last to get the payout. Creditors and bondholders would get it first. As such, it would not be right to say that the "payout to shareholders is likely to be substantially more than 0.047".

Total assets 737,898
Cash 307,704
Total Liabilities 60,808

You misunderstand me. Read what I'm saying again. I'm not assuming that the following exists. In fact, on the contrary, I'm pointing out the fact that even if I do assume that a huge part of the assets don't exist, the stock is still cheap because the bad news has already been built into the price. At this price, it's not just bad news, it's very very very bad news that has already been discounted into the market price.

So much so that even if ALL the cash is nonexistent, Foreland is STILL undervalued.

If the true situation at Foreland turns out to be very very bad, but not very very very bad, investors will still be able to earn a fair return on their investment.

And if Foreland's accounts turn out to be real all along, even better.

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(25-09-2012, 11:30 AM)CityFarmer Wrote: Assuming ONLY the cash reserve is doubtful, you still over-valued

Took a closer look into the balance sheet, almost half of the asset is PPE. I did not look further, but it is likely worth much less for a garage sales.

The rest of the asset are inventory and receivable, all are likely worth much less than booked value

I don't understand what's the point you are making here. So what would you prefer that the balance sheet contain? Other than PPE, inventory, receivables and cash, what other assets are you looking for? More 'reliable' indicators like, uh, goodwill? Intangible assets? Investments in associates and joint ventures? If you see a huge part of the assets tied up in these items, you would feel more comfortable?

In addition, if you are of the opinion that inventory and receivables are worth MUCH less than book value, what other assets do you think are closer to book value?

For me, if I have doubts about the major shareholder's (and therefore management) conduct of business, I'll pass. If there is doubt about the balance sheet, why shouldn't there be doubt about the P&L numbers?

The question I ask myself is: do I want to live with the possibility that I wake up one day to find the company being investigated, trading halted, and my capital tie-up (best case) or gone (worst case)? My answer to this question is no.

Value investing is inapplicable if the account is in doubt.
Just like the scientist that will not use Newton's laws near speed of light.

It is just a matter of habit or experience after a few lessons over the past decade.

But of course, the investor can still gamble if he wants to.

Serendipity123:

What you are doing here is something like Ben Graham's net-net, except you discount away fake cash but took into non-current assets such as PP&E. But what makes Ben Graham's net-net work is the concept of diversification. He buys a portfolio of net-net which diversifies away company-specific risks.

If you think Foreland is a conviction, then I suggest it will be better to find other similar cases and use it as a comparison. You will be surprised how many there is in Asia markets. China Fibretech is another one - btw, their auditor just resigned.

Disclaimer: just a suggestion, not a call or anything

Can the company still function AND OPERATE AS A GOING CONCERN if ALL THE CASH IN NON EXISTENT?

(26-09-2012, 12:36 AM)Serendipity123 Wrote:

(25-09-2012, 11:30 AM)CityFarmer Wrote: Assuming ONLY the cash reserve is doubtful, you still over-valued

Took a closer look into the balance sheet, almost half of the asset is PPE. I did not look further, but it is likely worth much less for a garage sales.

The rest of the asset are inventory and receivable, all are likely worth much less than booked value

I don't understand what's the point you are making here. So what would you prefer that the balance sheet contain? Other than PPE, inventory, receivables and cash, what other assets are you looking for? More 'reliable' indicators like, uh, goodwill? Intangible assets? Investments in associates and joint ventures? If you see a huge part of the assets tied up in these items, you would feel more comfortable?

In addition, if you are of the opinion that inventory and receivables are worth MUCH less than book value, what other assets do you think are closer to book value?

IMO, Cash and Cash Equivalent is the ONLY asset that closer to book value, especially to company like Foreland Fabrictech

But too bad it is the ONE been doubtful.

(26-09-2012, 09:42 AM)dzwm87 Wrote: Serendipity123:

What you are doing here is something like Ben Graham's net-net, except you discount away fake cash but took into non-current assets such as PP&E. But what makes Ben Graham's net-net work is the concept of diversification. He buys a portfolio of net-net which diversifies away company-specific risks.

If you think Foreland is a conviction, then I suggest it will be better to find other similar cases and use it as a comparison. You will be surprised how many there is in Asia markets. China Fibretech is another one - btw, their auditor just resigned.

Disclaimer: just a suggestion, not a call or anything

Fibretech already has warning signs all over it. I looked at it before but decided to give it a pass because of several red flags.

1) The company has no history of paying dividends.

2) The business itself is lousy(Large declines in profit year after year; it's running losses now)

3) The independent directors have resigned one after another (check previous years' annual reports)

So now that more bad news has happened, it's not surprising. But anyway, since you mentioned Fibretech, take a look at the price action subsequent to the announcement. You notice that even with this bad news, the stock hardly reacted. Reason being it's already been PRICED inside the stock.

Foreland, at this price, is in the same situation in that it already has a lot of bad news priced inside, but without any of the accompanying giant red flags. That's why I think it's a good buy.

(26-09-2012, 09:55 AM)propertyinvestor Wrote: Can the company still function AND OPERATE AS A GOING CONCERN if ALL THE CASH IN NON EXISTENT?

Precisely my point. At this price, even if it were to liquidate IMMEDIATELY, I expect the amount retrieved to be more than the current 0.045 per share.

(26-09-2012, 10:28 AM)CityFarmer Wrote: IMO, Cash and Cash Equivalent is the ONLY asset that closer to book value, especially to company like Foreland Fabrictech

But too bad it is the ONE been doubtful.

Ask yourself, in that case, what new information are you looking for that would convince you that Foreland is an honest company and the accounts are good? If there's nothing, it means because of the S-Chip scandals, you trust NO S-chips now. ALL S-chips are doubtful, ALL of their accounts are fake.

Nothing I say or do, and nothing Foreland's management say or do, will ever convince you otherwise.

That's okay though. Everyone is entitled to their own opinion

(26-09-2012, 04:23 PM)Serendipity123 Wrote:

(26-09-2012, 09:42 AM)dzwm87 Wrote: Serendipity123:

What you are doing here is something like Ben Graham's net-net, except you discount away fake cash but took into non-current assets such as PP&E. But what makes Ben Graham's net-net work is the concept of diversification. He buys a portfolio of net-net which diversifies away company-specific risks.

If you think Foreland is a conviction, then I suggest it will be better to find other similar cases and use it as a comparison. You will be surprised how many there is in Asia markets. China Fibretech is another one - btw, their auditor just resigned.

Disclaimer: just a suggestion, not a call or anything

Fibretech already has warning signs all over it. I looked at it before but decided to give it a pass because of several red flags.

1) The company has no history of paying dividends.

2) The business itself is lousy(Large declines in profit year after year; it's running losses now)

3) The independent directors have resigned one after another (check previous years' annual reports)

So now that more bad news has happened, it's not surprising. But anyway, since you mentioned Fibretech, take a look at the price action subsequent to the announcement. You notice that even with this bad news, the stock hardly reacted. Reason being it's already been PRICED inside the stock.

Foreland, at this price, is in the same situation in that it already has a lot of bad news priced inside, but without any of the accompanying giant red flags. That's why I think it's a good buy.

(26-09-2012, 09:55 AM)propertyinvestor Wrote: Can the company still function AND OPERATE AS A GOING CONCERN if ALL THE CASH IN NON EXISTENT?

Precisely my point. At this price, even if it were to liquidate IMMEDIATELY, I expect the amount retrieved to be more than the current 0.045 per share.

(26-09-2012, 10:28 AM)CityFarmer Wrote: IMO, Cash and Cash Equivalent is the ONLY asset that closer to book value, especially to company like Foreland Fabrictech

But too bad it is the ONE been doubtful.

Ask yourself, in that case, what new information are you looking for that would convince you that Foreland is an honest company and the accounts are good? If there's nothing, it means because of the S-Chip scandals, you trust NO S-chips now. ALL S-chips are doubtful, ALL of their accounts are fake.

Nothing I say or do, and nothing Foreland's management say or do, will ever convince you otherwise.

That's okay though. Everyone is entitled to their own opinion

win big or lose all might not be for everyone, but nonetheless might be a good strategy for some who wish to stomach the risk. Foreland used to be my favourite s-chip as it happens to have the least red flags flashing before the chairman cashed out at ridiculous price.

My personal speculation/imagination is:
chairman might have used quite a bit of money to "buy" the permit for building the andong facility(Was delayed for several years), and thus it looking for ways to recoup the cash. btw, half the assets under the non-current assets is the new andong facility, which is worth hundreds of million of rmb, hence it is not impossible that to use this investment, the chairman used some "creative" methods of payment.

Even so, given his is the major shareholder, why not declare a intern or special dividend?

Given many companies that are hit by the scandals are from the textile sector, Gaoxian, HongXing, Sinotech fibre, 1 more which i can't recalled now, and that chinafibretech has so much problems, i suspect there might be some "common practices" in china that we don't take too kindly to here.

I am willingly to hold on or add to my holding as the price goes down until the chairman did such a stunt, which remind me of qingmei (from the bottom of 5cents to 7 cents now) boss which placed out shares at 16 plus cents and then there is no end of red flags.

I agree that if there is no fraud or coporate governance issue here, you would get a multi-bagger in a few years time. But I gave up and move on, it seems too much like a gamble than a investment to me, IMHO. I have been to china for work several time, their business culture is very different from here, it might not be fraud but their coporate governace is... even schools openly accept "donations" for enrollment places...

I wish you all the best. 1 red flag is no big deal if you invest in s-chip, let's just hope it stops here

(26-09-2012, 04:23 PM)Serendipity123 Wrote: Nothing I say or do, and nothing Foreland's management say or do, will ever convince you otherwise.

There are many things that Foreland management can do - and many buddies have mentioned them before in this thread. That is why there is doubt about the cash in the first place.