China Fibre Tech

Just out of curiosity, i took a look at the numbers.

According to the company website (which looks terrible with just 2 pages and no display of its plants nor product), "Based in Shishi City in the Fujian Province, PRC, China Fibretech is principally engaged in the provision of dyeing and post-processing treatment services for cotton, polyester (including spandex) and mixed knitted fabrics. Post-processing treatment imparts special functionalities such as water and fire-resistance, UV-protection, moisture wicking, anti-static and antibacterial properties and enables us to produce velvet and polar fleece fabric. China Fibretech’s customers are mainly fabric trading companies and garment producers located in the Fujian Province, PRC, whose products are primarily sold in the PRC domestic market."

The revenue, gross+net profit, margins are computed as below

2012 2011 2010 2009 2008
Revenue 48562 133116 162104 256338 470265
Gross Profit4506 28669 43972 73901 145592
Net Profit -11548 10833 32813 47640 119328

GPM 9.28% 21.54% 27.13% 28.83% 30.96%
NPM -23.78% 8.14% 20.24% 18.58% 25.37%

Essentially this bloke supposedly dips a bunch of fabric into a bunch of solutions and for this it commands a 20-30% GPM and a 10-25% NPM??? I have no comparables for firms in the dyeing industry but profitable precision engineering firms ran by rather smart blokes based in China gives a 5-7% NPM. So imagine the precision engineering bloke squeezing costs to make very precise/bespoke components for aircrafts only able to get a 7% NPM, and this fella who treats fabric getting 25% NPM? Their end product is sold in "domestic markets" i.e. to mainland chinese , not LV /Prada/Gucci you know....

Since this is a low barrier business, a 25% NPM should have led to a bunch of people all jumping in esp in China where companies are willing to sell below cost to gain market share. If this business is a secret, then the release of their AR surely will have attracted a bunch of vultures, but yet their NPM has maintained in the high 20s only until recently.

Smelly smelly.

(26-02-2014, 04:28 PM)AlphaQuant Wrote: Just out of curiosity, i took a look at the numbers.

According to the company website (which looks terrible with just 2 pages and no display of its plants nor product), "Based in Shishi City in the Fujian Province, PRC, China Fibretech is principally engaged in the provision of dyeing and post-processing treatment services for cotton, polyester (including spandex) and mixed knitted fabrics. Post-processing treatment imparts special functionalities such as water and fire-resistance, UV-protection, moisture wicking, anti-static and antibacterial properties and enables us to produce velvet and polar fleece fabric. China Fibretech’s customers are mainly fabric trading companies and garment producers located in the Fujian Province, PRC, whose products are primarily sold in the PRC domestic market."

The revenue, gross+net profit, margins are computed as below

2012 2011 2010 2009 2008
Revenue 48562 133116 162104 256338 470265
Gross Profit4506 28669 43972 73901 145592
Net Profit -11548 10833 32813 47640 119328

GPM 9.28% 21.54% 27.13% 28.83% 30.96%
NPM -23.78% 8.14% 20.24% 18.58% 25.37%

Essentially this bloke supposedly dips a bunch of fabric into a bunch of solutions and for this it commands a 20-30% GPM and a 10-25% NPM??? I have no comparables for firms in the dyeing industry but profitable precision engineering firms ran by rather smart blokes based in China gives a 5-7% NPM. So imagine the precision engineering bloke squeezing costs to make very precise/bespoke components for aircrafts only able to get a 7% NPM, and this fella who treats fabric getting 25% NPM? Their end product is sold in "domestic markets" i.e. to mainland chinese , not LV /Prada/Gucci you know....

Since this is a low barrier business, a 25% NPM should have led to a bunch of people all jumping in esp in China where companies are willing to sell below cost to gain market share. If this business is a secret, then the release of their AR surely will have attracted a bunch of vultures, but yet their NPM has maintained in the high 20s only until recently.

Smelly smelly.

Doubtful doubtful, indeed

Base on industrial wide observation, fabric market is having a severe overcapacity. IIRC, almost all fabric related companies are struggling for survival.

The company must has a "special recipe" for its success.

If you believe the cash is real the book value is 22.5cts.
If you believe the cash is not real the book value is 1.8cts
If you are assume 50%-50% chance, the book value is 12.1cts.
For the current price of 2.7cts, the Market placed a 5% confidence that the cash is real.

Just for fun.

How about other S-Chip like valuetronics, do u guys think its cash is real?

Just invested around 1 year ago and I have come across quite a number of s-chips that have very good numbers from a fundamental analysis perspective (if i analysed correctly that is). High ROE, ROA, low leverage, high FCF, increasing net income, good margin, etc.

At one time, I was considering China Minzhong and China Merchant, both of which had very good numbers. Came especially close to buying China Minzhong (Temasek Holdings had some stakes in it as well) some time ago, before it plunged 50% to around 45 cents in a couple of days due to the saga before it rebounded back to where it was trading - around 90 cents. That probably scared me off.

Alas, I didnt buy any s-chips.Think I wont be buy any soon not unless very good due diligence is done - even if it was previously owned by any sovereign funds..

(27-02-2014, 02:05 PM)Art or Science Wrote: Just invested around 1 year ago and I have come across quite a number of s-chips that have very good numbers from a fundamental analysis perspective (if i analysed correctly that is). High ROE, ROA, low leverage, high FCF, increasing net income, good margin, etc.

At one time, I was considering China Minzhong and China Merchant, both of which had very good numbers. Came especially close to buying China Minzhong (Temasek Holdings had some stakes in it as well) some time ago, before it plunged 50% to around 45 cents in a couple of days due to the saga before it rebounded back to where it was trading - around 90 cents. That probably scared me off.

Alas, I didnt buy any s-chips.Think I wont be buy any soon not unless very good due diligence is done - even if it was previously owned by any sovereign funds..

Now that China Fibretech's independent auditor has stated how they verify the cash balances, I have zero confidence that the cash on China Fibretech's balance sheet is real.

Give the fact that most China firms listed overseas have faked their cash balances by colluding with the bank's local branch manager to forge bank confirmation to fool the independent auditor, I'd have expected China Fibretech's independent auditor to do the bank confirmation with the bank's head office instead.

Unfortunately, China Fibretech's independent auditor continues to do bank confirmation with the local branch and hence my zero confidence in China Fibretech's cash balances.

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?

Now that China Fibretech's independent auditor has stated how they verify the cash balances, I have zero confidence that the cash on China Fibretech's balance sheet is real.

Give the fact that most China firms listed overseas have faked their cash balances by colluding with the bank's local branch manager to forge bank confirmation to fool the independent auditor, I'd have expected China Fibretech's independent auditor to do the bank confirmation with the bank's head office instead.

Unfortunately, China Fibretech's independent auditor continues to do bank confirmation with the local branch and hence my zero confidence in China Fibretech's cash balances.

How then can we gain from the potential downfall of this counter ?

(27-02-2014, 03:52 PM)potatolover Wrote: How then can we gain from the potential downfall of this counter ?

We gain wisdom from avoiding s chips, u can try using sbl to short it if u are greedy. Good luck ^^