China Essence

Well, company can "play" bankrupt and get one of their "friendly" party to buy over all the assets on the cheap.

SGX can do nothing to stop them. The "friendly" party can get the deal on the cheap and run all the plants ....

does this story sound familar?

(14-11-2012, 07:12 PM)jzk Wrote:

(14-11-2012, 03:07 PM)Curiousparty Wrote: massive dumping at 3.5 cents....probably Samlem

Massive dumping indeed. HKD 33.460 changing hands


Results analysis:
-Topline just as horrible as expected.
-They will easily pull it through cb repayment at the end of the year (obviously assuming a lot of christmas spirit from the creditors, namely dbs).
-Receivables still slow, hopefully recovering.
-With this gross margin the imminent bankrupcy will be avoided, but this is not even close to what they need to get the utilisation higher.
-Cash is needed. I wouldn't issue new shares and nobody will loan them any more. So all there is to do is to sit down with your fingers crossed and hope that the margin recovery continues. If that is to happen, there are only a couple of years left to sit.

(14-11-2012, 09:29 PM)Curiousparty Wrote: Well, company can "play" bankrupt and get one of their "friendly" party to buy over all the assets on the cheap.

SGX can do nothing to stop them. The "friendly" party can get the deal on the cheap and run all the plants ....

does this story sound familar?

Yes it does. That risk is involved in all investments. The risk can be almost non-exixtent, almost certain and everything in between. Compared with eg. Apple that risk is definitely higher in China Essence.

(14-11-2012, 10:22 PM)jzk Wrote: Yes it does. That risk is involved in all investments. The risk can be almost non-exixtent, almost certain and everything in between. Compared with eg. Apple that risk is definitely higher in China Essence.

Not exactly true. The risk with s-chip is 1) no recourse 2) unable to seize the asset 3) no transparent asset sale process. What it means is asset valuation is almost useless ie classic value trap. Best case we can hope for in this trap is privatisation like Synear and the incentive for the principal is to reduce hassle. You can only have certainty when it "shows you the money" literally through dividend, share buyback or cash repatriated to the parent company

CESS admin expense continued to stay high, EBITDA margin negative RMB1m ie generate enough cash to pay the high admin expense... Hollowing out the company? Cash at company level has literally gone to zero. Receivables remain high at RMB400m even after the cycle ended and new harvest begins. Whether or not the receivables are uncollectable is becoming irrelevant because they are not going to have enough cash to ramp the next cycle

In ur view, what is the minimum cash needed for each harvesting season?
Have u considered the scenario where the company sells off a few plants to raise cash?

(15-11-2012, 08:17 AM)specuvestor Wrote:

(14-11-2012, 10:22 PM)jzk Wrote: Yes it does. That risk is involved in all investments. The risk can be almost non-exixtent, almost certain and everything in between. Compared with eg. Apple that risk is definitely higher in China Essence.

Not exactly true. The risk with s-chip is 1) no recourse 2) unable to seize the asset 3) no transparent asset sale process. What it means is asset valuation is almost useless ie classic value trap. Best case we can hope for in this trap is privatisation like Synear and the incentive for the principal is to reduce hassle. You can only have certainty when it "shows you the money" literally through dividend, share buyback or cash repatriated to the parent company

CESS admin expense continued to stay high, EBITDA margin negative RMB1m ie generate enough cash to pay the high admin expense... Hollowing out the company? Cash at company level has literally gone to zero. Receivables remain high at RMB400m even after the cycle ended and new harvest begins. Whether or not the receivables are uncollectable is becoming irrelevant because they are not going to have enough cash to ramp the next cycle

It has debt (DBS, local banks, CB) of $770 mil.

But adding up inventory (assuming 10% margin), A/R (assuming 10% bad debt) and cash only gives 572mil.

There is a gap of $200mil RMB.

Even if all the A/Rs are collected back, does it have enough cash for next harvesting cycle. Can Essence even start the next cycle?

The BIG QUESTION MARK is the A/R. Before it can be collected back and appear as CASH on B/S, it is still considered worthless!

(15-11-2012, 12:17 PM)Underdogger Wrote: In ur view, what is the minimum cash needed for each harvesting season?
Have u considered the scenario where the company sells off a few plants to raise cash?

(15-11-2012, 08:17 AM)specuvestor Wrote:

(14-11-2012, 10:22 PM)jzk Wrote: Yes it does. That risk is involved in all investments. The risk can be almost non-exixtent, almost certain and everything in between. Compared with eg. Apple that risk is definitely higher in China Essence.

Not exactly true. The risk with s-chip is 1) no recourse 2) unable to seize the asset 3) no transparent asset sale process. What it means is asset valuation is almost useless ie classic value trap. Best case we can hope for in this trap is privatisation like Synear and the incentive for the principal is to reduce hassle. You can only have certainty when it "shows you the money" literally through dividend, share buyback or cash repatriated to the parent company

CESS admin expense continued to stay high, EBITDA margin negative RMB1m ie generate enough cash to pay the high admin expense... Hollowing out the company? Cash at company level has literally gone to zero. Receivables remain high at RMB400m even after the cycle ended and new harvest begins. Whether or not the receivables are uncollectable is becoming irrelevant because they are not going to have enough cash to ramp the next cycle

You can guesstimate by looking at last year's 3Qend Dec operating cash flow which is about 50% utilisation, and adjust roughly by the ASP decline.

I'm not sure how long you followed the company but do you know how much of the book is actually in the new plant? What I'm trying to say is that how are they going to dispose assets that will not antagonise the local govt/ farmers, which the capex in the first place doesn't make economic sense?

As I posted previously I think the political overture is more important than the economic sense ie it is not simple maths that Curiousparty pointed out, though he is not wrong analytically, but he didn't factor in the government support. If I'm right we will see local bank loans rise in 3Q to spend for harvest just enough to sustain the farmers. Means little if you are the shareholder though and obviously it is unsustainable for long. Something gotta give for eg transfer of assets to stronger hands to sustain the social cause, privatisation on the cheap to settle the problem behind close doors etc. IMHO best possible case if it does another Synear so at least shareholders get some scrap back.

Can China Essence shareholders get back NAV if company folds up?
We know it will never happen that way or else those deeply undervalued companies (MV versus NAV) will be bought up..

(15-11-2012, 02:44 PM)specuvestor Wrote:

(15-11-2012, 12:17 PM)Underdogger Wrote: In ur view, what is the minimum cash needed for each harvesting season?
Have u considered the scenario where the company sells off a few plants to raise cash?

(15-11-2012, 08:17 AM)specuvestor Wrote:

(14-11-2012, 10:22 PM)jzk Wrote: Yes it does. That risk is involved in all investments. The risk can be almost non-exixtent, almost certain and everything in between. Compared with eg. Apple that risk is definitely higher in China Essence.

Not exactly true. The risk with s-chip is 1) no recourse 2) unable to seize the asset 3) no transparent asset sale process. What it means is asset valuation is almost useless ie classic value trap. Best case we can hope for in this trap is privatisation like Synear and the incentive for the principal is to reduce hassle. You can only have certainty when it "shows you the money" literally through dividend, share buyback or cash repatriated to the parent company

CESS admin expense continued to stay high, EBITDA margin negative RMB1m ie generate enough cash to pay the high admin expense... Hollowing out the company? Cash at company level has literally gone to zero. Receivables remain high at RMB400m even after the cycle ended and new harvest begins. Whether or not the receivables are uncollectable is becoming irrelevant because they are not going to have enough cash to ramp the next cycle

You can guesstimate by looking at last year's 3Qend Dec operating cash flow which is about 50% utilisation, and adjust roughly by the ASP decline.

I'm not sure how long you followed the company but do you know how much of the book is actually in the new plant? What I'm trying to say is that how are they going to dispose assets that will not antagonise the local govt/ farmers, which the capex in the first place doesn't make economic sense?

As I posted previously I think the political overture is more important than the economic sense ie it is not simple maths that Curiousparty pointed out, though he is not wrong analytically, but he didn't factor in the government support. If I'm right we will see local bank loans rise in 3Q to spend for harvest just enough to sustain the farmers. Means little if you are the shareholder though and obviously it is unsustainable for long. Something gotta give for eg transfer of assets to stronger hands to sustain the social cause, privatisation on the cheap to settle the problem behind close doors etc. IMHO best possible case if it does another Synear so at least shareholders get some scrap back.

(15-11-2012, 03:01 PM)Curiousparty Wrote: Can China Essence shareholders get back NAV if company folds up?
We know it will never happen that way or else those deeply undervalued companies (MV versus NAV) will be bought up..

There is no quick way out. Even bankrupcy wouldn't be quick.

Businesswise the situation is difficult, though not impossible. The only thing that could turn this ticker gold is widening gross margin. And that will take time, more than two years even in the most positive scenario. I am not too optimistic about it, but we are all dealing with assumptions, not certainities.

one thing for sure,those cowards will not dare to hold AGM in Spore for the fear of being mobbed by shareholders..

looks like it is going to drop below 3 cents... really dirt cheap, but this doesnt mean that it will become cheaper still...it is no bottom...

(15-11-2012, 03:16 PM)jzk Wrote:

(15-11-2012, 03:01 PM)Curiousparty Wrote: Can China Essence shareholders get back NAV if company folds up?
We know it will never happen that way or else those deeply undervalued companies (MV versus NAV) will be bought up..

There is no quick way out. Even bankrupcy wouldn't be quick.

Businesswise the situation is difficult, though not impossible. The only thing that could turn this ticker gold is widening gross margin. And that will take time, more than two years even in the most positive scenario. I am not too optimistic about it, but we are all dealing with assumptions, not certainities.

All time low of 2.8 cents hit!