Interviews with CEOs of S-Chips

[Musicwhiz]

For this week, it's Sinopipe!

Aug 1, 2011
EYE ON SINOPIPE
Growth in the pipeline
It is one of China's largest makers of pipes for wide variety of uses
By Yasmine Yahya

THE infrastructure needs of a growing economy tend to centre on big-ticket items like bridges and motorways but the humble pipe deserves equal billing.

Pipes are an essential feature of any country's basic utilities, transporting basic needs such as water, electricity and gas into homes and offices.

They also transfer waste to sewerage systems, and carry data and make it possible for us to communicate with people all over the world.

That all puts Singapore-listed Sinopipe in the box-seat.

As one of China's largest makers of plastic pipes and pipe fittings, the firm feels it is in a good position to ride on the country's economic growth and infrastructure build-up.

Sinopipe makes pipes for a wide variety of uses, from telecommunications to agricultural irrigation and golf courses.

However, the areas with the biggest growth potential are likely to be water, sewage and gas, said chief executive Chen Li Hui.

'With the rise in living standards, there is increased demand for new or upgraded infrastructure to provide clean water supply and sewerage systems to households, offices and industrial areas,' he told The Straits Times.

Many parts of China still do not have access to clean water, and an extensive network of water and sewage pipes will need to be built over the coming years, he said.

'Riding on the momentum of the current green movement, we believe that there will be a gradual increase in demand for our fuel gas pipes,' Mr Chen added.

Coal, which is considered a 'dirty' source of energy as it releases a lot of carbon dioxide when burnt, still provides about 65 per cent of China's energy.

However, Mr Chen believes that natural and fuel gas will become increasingly popular as the government seeks to cut its dependence on coal and rely more on 'cleaner' sources of energy such as natural gas.

Despite Sinopipe being a market leader, Mr Chen admits that several challenges lie ahead, particularly rising labour costs.

'China's labour cost has been on a rising trend and hence many companies also feel the pressure,' he said.

'In recent years, we have been actively improving our production bases and production capacity by implementing automation and retaining talent, especially skilled workers and sales personnel, by improving salaries.'

And although China is brimming with business opportunities, Mr Chen admits that competition is intense.

Still, Sinopipe has a distinct advantage in the form of its extensive network.

'We have more than 10 manufacturing bases in different regions across China, which reduces the cost and time to transport our products to the distributors, and we also have distribution agents all over China,' he noted.

Sinopipe is also proud of the fact that it has managed to avoid any unflattering headlines about the kind of accounting scandals that have landed some of its fellow S-chips - Singapore-listed Chinese firms - in the soup. And it has done this so far by strictly following regulatory guidelines in Singapore.

'If the Singapore Exchange says we must do it, we do it,' Mr Chen quipped.

The firm has appointed independent auditors Crowe Horwath First Trust to conduct an annual internal audit and examine its transactions and internal controls, he added.

However, many investors have been spooked by the spate of accounting irregularities revealed at several S-chips here and abroad, and Sinopipe's shares have not been spared from the broad sell-off.

Its last closing price of 22.5 cents last Friday means it is down more than 4 per cent this year.

Mr Chen urged investors not to paint all Chinese firms with the same brush.

'We believe that there are still many trustworthy Chinese companies, because China has achieved such economic success which the world and everyone has seen and this is achieved by the joint efforts of all Chinese companies.'

yasminey@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here. Yasmine Yahya looks at the business challenges these companies face and the steps they are taking to improve their corporate governance.

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MR CHEN Li Hui co-founded Sinopipe with the firm's chairman, Mr Kusnadi Lybianto, in 1994.

Armed with a Bachelor of Science degree from Fuzhou University, Mr Chen got his first job at the Xiamen Maritime Bureau as deputy station head of the radio control station.

In 1989, he joined Unitex Plastics as a deputy manager of the engineering department.

He was responsible for the construction, expansion and overall maintenance and management of the engineering department of the plastic film production facilities.

Mr Chen then joined Fujian ZhenYun Plastic as a general manager and director.

Three years later, he formed Sinopipe through a 50-50 joint venture with Mr Lybianto.

He is also an executive committee member of the All-China Federation of Industry and Commerce.

[Musicwhiz]

The interviews continue with Delong today....

The Straits Times
Published on Aug 8, 2011
EYE ON DELONG HOLDINGS
Steel-maker rises from the ashes
It's eyeing expansion to boost production and M&A in the steel sector This is a weekly series of interviews with the head honchos of Chinese companies listed here. Jonathan Kwok takes a look at the business challenges these S-chips face and the steps they are taking to improve their corporate governance.

BY MANY accounts, Beijing-based steel-maker Delong Holdings has had a rough couple of years.

The company was battered black and blue during the global financial crisis, as commodity prices and the demand for metal plunged with the contracting of global economies.

Delong suffered a full-year loss in 2008. Even though it returned to profitability in 2009 and last year, there was always a cloud on the horizon, owing to its debt levels.

In fact, the steel-maker's share price plunged in April last year after its auditor PricewaterhouseCoopers expressed doubt over its ability 'to continue as a going concern'. It attributed this to Delong's short-term borrowings for plant and equipment as well as its liabilities from its convertible bond programme.

But since then, many observers say that things have turned around for the firm, which listed in Singapore via a backdoor listing in 2005. Significantly, it managed to redeem all of its bonds - more than 700 million yuan (S$130 million) worth - by the end of last year.

It was a mix of planning and circumstance: Delong had restructured its bonds towards the end of 2009, but due to weak cash flows and the tight borrowing market then, it could not redeem the debt.

The chance finally came last year, as its financial performance improved and the credit and liquidity environment became more favourable. Delong bought out its bond-holders using a mixture of internal funds and borrowings.

That has opened the way to a bright new future for the firm, reckons its executive chairman and chief executive Ding Liguo.

Now, instead of trying to keep afloat, Delong is eyeing new expansion plans to grow its production capacity. In particular, it is looking at mergers and acquisitions (M&A) within the steel industry as the entire sector consolidates in China.

'The company is considering increasing its production capacity from the current 2.6 million tonnes a year to 10 million tonnes a year by the end of 2012,' said an upbeat Mr Ding.

'We are currently in talks with several companies in the steel industry to explore M&A opportunities... We will continue to scout for potential opportunities.'

Many of its developments are geared towards the drive by the Chinese government to reduce environmental pollution in the steel industry.

It has undertaken the recycling of waste gas, water and residue. Delong has also improved its smelting technology and use of scrap steel.

'We expect these initiatives to help reduce our energy consumption and reliance on raw materials,' said Mr Ding.

The firm's new co-generation power project, which will be ready next month, will help lower coal consumption by 32,856 tonnes and slash costs by 40 million yuan a year, he said.

In another corporate development, Delong proposed a fresh issue of debt late last year to repay short-term bank loans and for the acquisition of related firms in the steel industry.

But it said in February that it had decided to defer the proposed notes issue, after meetings with potential investors and a review of the market conditions at that time.

'The company will continue to monitor the market conditions and, when appropriate, review its decision,' said Delong at that time. There have been no further announcements about this issue.

Delong reported a net loss for the first quarter.

But Mr Ding reassured investors that it was due to a six-week maintenance programme on its two blast furnaces from February. That cut its production capacity dramatically for the quarter.

'Since the resumption of the facilities in March, our performance has normalised,' he said. 'In the second quarter, the group rebounded with a net profit of 83.4 million yuan.'

The board of directors holds the key to maintaining corporate governance at Delong, said Mr Ding. The seven-member board includes three independent directors, two of whom are Singapore nationals.

The directors have the 'right core competencies and diversity of experience' to do a good job, he said. 'All of our directors undergo relevant training to develop requisite skills for their role.'

They have independent access to information, he said. They also have access to the company secretary at all times.

He said Singapore investors can contact the firm via Ms Yeo Lee Luang, the firm's finance manager and company secretary, who is based in Singapore. They can also contact the investor relations firm here, or its Singapore independent directors.

'The top management also comes here regularly for roadshows and (general meetings) where investors and shareholders can meet them,' said Mr Ding.

But the soft sentiment in Singapore for S-chips - Singapore-listed Chinese firms, which have been collectively tarred by corporate and accounting scandals at some firms - means that Delong's share valuations are still very low.

Its shares closed last Friday at 39 cents, at a historical price-earnings ratio of 5.7. The ratio is a commonly used measure of share value.

By contrast, Hong Kong-listed China steel-makers Angang Steel and Maanshan Iron & Steel are trading at ratios between 18 and 22. There are no other China steel firms listed in Singapore to compare Delong's valuations with.

jonkwok@sph.com.sg

-------------------------------------------
Chelsea boss tried to buy stake in firm

DELONG Holdings is based in Beijing, and manufactures and sells hot-rolled steel coils. Its main market is China.

The firm was listed on the Singapore Exchange in 2005 via a reverse takeover of Teamsphere. The listed entity was renamed Delong Holdings.

Delong hit the headlines in 2008 when Russian steel and mining giant Evraz Group tried to buy a 51.05 per cent stake in the firm.

Evraz is partly owned by Russian billionaire Roman Abramovich, who owns Britain's Chelsea Football Club.

But China's government stepped in to force Evraz to abandon the US$1.5 billion deal, as it did not want the asset falling into foreign hands.

Evraz had tried to buy the stake from a holding company controlled by Mr Ding Liguo, Delong's executive chairman and chief executive.

Mr Ding has years of experience in the steel industry.

He spent years in the 1990s being the chairman of a steel factory in China, and before that, he was an employee with the Shenzhen Futian District Materials Bureau from 1991 to 1992.

Mr Ding is a deputy of the National People's Congress in China.

[Musicwhiz]

For this week, it's Fabchem China being featured.

The Straits Times
Aug 15, 2011
EYE ON FABCHEM CHINA
Explosives maker having a blast
The company has an edge in China's highly regulated industry

By Aaron Low

FABCHEM China is raking in a healthy profit out of what it does best - making explosives.

The mainboard-listed Chinese firm produces explosive devices, industrial fuses, detonators and explosives.

Its products are used extensively in the energy sector, in areas such as coal mining, hydroelectric construction and oil exploration.

Thus, the company's prospects remain bright, especially since commodities are currently in high demand, said Fabchem managing director Sun Bowen.

Increased global dependency on energy resources and commodities continued to underscore the strong business fundamentals of the firm's core operating markets, he said.

'At the same time, older and more hazardous commercial explosive products such as fuse caps are being phased out, thus creating demand for more safety-oriented products such as those manu-factured by the group,' he noted.

Furthermore, the explosives manu-facturing industry in China is highly regulated and foreign involvement is restricted. Indeed, since 2005, the Chinese government had stopped issuing new licences for the production of explosives, Mr Sun explained.

These factors have allowed the company to enjoy strong growth in recent years.

The most recent quarter saw Fabchem record a 21.5 per cent jump in net profit, while revenue soared 33.5 per cent.

The company is keen to continue expanding overseas into commodity-rich areas such as Australia, Indonesia, South Africa, India and Eastern Europe.

In addition, it is looking at ways to manage rising costs through its relationship with suppliers, as well as increase productivity, said Mr Sun.

'In the longer run, we aim to maintain cost-efficiencies, create more value propositions for our customers and enhance our market position in the industry's value chain.'

Even as Fabchem moves to aggressively expand its business, it is taking steps to ensure that a high level of corporate governance is maintained.

As some S-chip companies had been hit by corporate scandals involving fraud and corruption, Mr Sun was keen to reassure investors that Fabchem held itself to the highest standards.

He noted that two of its non-executive directors are appointed by chemicals manufacturer Incitec Pivot, which is listed on the Australian Securities Exchange and holds 29.9 per cent of the company.

Fabchem also has an internal audit department that conducts regular audits of the company's activities and a whistle-blowing policy that allows staff to raise corporate improprieties to the internal auditor, Mr Sun said.

The company maintains a small office in Singapore and continues to hold its annual general meetings here, he added.

Stressing that Fabchem takes a pro-active approach to answering investor and media queries, he said investors could e-mail the company to ask about its activities.

He said that given this active investor engagement platform, he was disappointed with the firm's share price performance so far.

The stock closed at 14.5 cents last Friday - a far cry from the initial public offering (IPO) price of 32 cents.

When Fabchem was listed in 2006, its share price closed at a premium of nearly 100 per cent over its IPO price on the day of its trading debut.

Mr Sun noted that the company had a price-to-earnings ratio of just 4.5 times - the figure ranges between 25.9 and 36.1 for its China-listed peers - even though it had achieved profits every year since its listing.

Last year, Fabchem decided to pay at least 10 per cent of its profits back to shareholders in the form of dividends.

'With a unique business operation, a stable financial performance and net tangible assets that are double the current market valuation, it does seem that the group's intrinsic value is not being truly reflected based on current valuations,' Mr Sun said.

'We understand this could be a situation where investors are not well informed about our company's fundamentals, and we will be engaging in more investor relations outreach activities to highlight the company's business profile and merits.'

aaronl@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.

[Musicwhiz]

For this week, it is the Midas Holdings, the company which has been in the spotlight for its train carriages and also because of China's railway accident!

The Straits Times
Aug 22, 2011
EYE ON MIDAS HOLDINGS
Train parts supplier sees growth on track
Firm confident recent China collision will not derail industry there

By Jonathan Kwok

MANY S-chips struggle and strain to attract the attention of analysts and investors but Midas Holdings seems to have no such difficulties getting in the spotlight.

Analysts from at least nine different banks and broking houses closely follow the fortunes of the firm, which makes aluminium parts for train carriages.

There could be several reasons for its relative popularity.

One is that Midas is diligent about engaging shareholders - seen by its winning of the Best Investor Relations (Gold) award in the mid-cap category at the Singapore Corporate Awards last year.

The industry Midas operates in could also generate interest. China's railway sector offers plenty of opportunities, especially with many cities still lacking basic metro systems, says Midas chief executive Patrick Chew. 'As China develops economically, railway tracks and trains are critical... Many cities are clogged up with traffic and need metros. I estimate that at least 50 more cities need metros.'

The bullish outlook has prompted Midas to build a plant in Luoyang in Henan province costing around 600 million yuan (S$113 million) to 650 million yuan. The plant, which will be completed in the second half of next year, will serve central and southern China while its existing manufacturing facility in Jilin province caters to the rest of China and the international market. Midas supplies products for metro rail services and the high-speed railways that connect China's cities.

The industry met a huge setback on July 23 when a high-speed rail collision near the eastern city of Wenzhou left 40 people dead and many more injured. The Chinese government ordered a temporary halt on approving new high-speed lines while a safety review was carried out. Nervous investors sold down companies involved in the Chinese railway industry on fears that earnings will be affected.

Midas shares lost 10 per cent in the week after the accident to 57 cents. The global market selldown early this month dragged the shares down further, to last Friday's close of 38.5 cents, its lowest since March 2009.

But Mr Chew remains confident of the medium to long-term prospects for high-speed railways in China. 'They have to loop up all their cities,' he said.

On the corporate front, Midas has put in policies to help uphold corporate governance. Of its six-member board, only Mr Chew and co-founder and executive chairman Chen Wei Ping are executives. That leaves four independent directors or two-thirds of the board - higher than the requirements of the Singapore Exchange (SGX) that one-third of directors be independent. All four Chinese operating subsidiaries have either Mr Chew or Mr Chen as their legal representatives.

Mr Chew is a Singaporean born and bred, while China-born Mr Chen has taken up citizenship here.

Legal representatives have huge power under Chinese law, including the capacity to execute agreements, transfer assets and provide guarantees. Some firms have faced problems with rogue legal representatives and Mr Chew wants to ensure that does not happen to Midas. The firm also amended its articles of association to ensure the legal representatives can be sacked by the board if needed. It made the change after the SGX sent a circular to firms about the issue in March.

Mr Chew spends about half his time in China looking after the operations while Mr Chen is based there. Chief financial officer Tan Kai Teck flies over about once a month to ensure the books are in order.

Midas held a secondary listing in Hong Kong last October, where it has more industry peers and where it can reach more Chinese investors. Valuations of its shares in Singapore and Hong Kong are similar, said Mr Chew.

Midas tries to be as open with investors as possible. Mr Tan or its public relations agency will reply to investor queries, while Mr Chew will try to meet as many investors as possible when he is in Singapore via events like roadshows. The company maintains an office at the SGX Centre in Shenton Way, and a representative office in Hong Kong as well.

Midas recently reported a 15 per cent rise in second-quarter net profit to 63 million yuan, while revenue rose 34 per cent to 313.9 million yuan. It declared an interim dividend of 0.5 cent. Last year it made two payments of 0.5 cent each, making a total of one cent.

Analysts are relatively bullish about Midas, with an average target price of 72 cents, according to Bloomberg's poll of nine analysts. That is more than 80 per cent higher than Friday's 38.5 cents.

OCBC Investment Research says 'metro train contracts and exports would still provide opportunities to support Midas' earnings momentum in the near term'. But it trimmed earnings forecasts due to higher finance costs and lower contribution from its joint venture firm. OCBC reduced its target price to 80.5 cents from 88 cents, but kept its 'buy' call.

Kim Eng Research has a 'hold' call with a target price of 44 cents. 'Value might have emerged after the recent steep decline in share price but we would rather stay on the side of caution until there is greater clarity on the future order flow in China's rail industry,' it said.

jonkwok@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.

[Musicwhiz]

For this week, it is Bright World Precision Machinery.

The Straits Times
Aug 29, 2011
EYE ON... WORLD PRECISION MACHINERY
Machine firm aims to stamp its mark
S-chip feels its stock is undervalued here and wants to woo investors

By Jonathan Kwok

FOR World Precision Machinery, listing in Singapore was a matter of as much happenstance as it was choice.

In the months leading up to its April 2006 market debut here, the firm was constantly being persuaded by its initial public offering (IPO) consultants in China that Singapore was a good destination.

Although chief executive Shao Jian Jun admitted that he knew very little about Singapore at that time, the prodding eventually worked, and he agreed to bring the firm here.

'Also, we felt that maybe there would be more and larger Chinese firms in Hong Kong, so it would be easier to shine in Singapore,' said Mr Shao.

So, the company listed here as Bright World Precision Machinery, though the name was changed to World Precision Machinery earlier this year in line with the names and corporate images of its units in China.

World Precision makes precision metal stamping machines which are used by manufacturers in the auto, hardware, electrical appliance and electronics industries in China. It has achieved much exposure due to its listing here, but it suffers from the malaise that plagues many Chinese firms listed here, or S-chips as they are called.

Valuations have been unimpressive, as a series of high-profile scandals at other Chinese firms have eroded confidence in the sector as a whole and sent investors scurrying.

The counter closed last Friday at 52.5 cents, giving it a historical price-earnings ratio of only 6.8.

By contrast, Jiangsu Yawei Machine Tool, which competes with World Precision in some aspects of its business, last traded at 33.49 yuan in Shenzhen, giving it a price-earnings ratio of 28.1.

The price-earnings ratio is a commonly used method to value shares - the higher the ratio, the stronger the share price.

World Precision says that its stock is undervalued here, and points to a list of investors and funds that have stayed invested in it since its listing, as they believe in its business. It has also attracted research coverage from some broking houses.

In fact, in 2008, a United States-listed firm saw an opportunity in its low valuations and tried to take over the firm. But the deal fell through after the financial crisis ripped through global markets.

Now, World Precision says it is committed to doing the best it can in Singapore to gain investor recognition, and adds that it has no immediate plans to seek another listing elsewhere.

It says that investors are free to contact its chief financial officer or investor relations firm in Singapore, who gave their contacts with the firm's press releases. The Singapore independent directors are also available to speak to investors to provide clarity on the firm's operations.

The company gets a number of queries, especially from fund managers and analysts and typically the day after any corporate announcement.

World Precision also points to its dividend payout history, though there is no set corporate policy on this. It paid out an 11.9 fen dividend for last year, while dividends were 15 fen for 2009.

That added up to more than 100 million yuan (S$19 million) in dividends paid out over two years, leading non-executive director Cheng Hong to quip that 'while other companies boast of their cash balances, we demonstrate them by paying out dividends'.

Corporate governance efforts include chief financial officer Samuel Ng spending about half of his time in China to check on the accounts and internal processes there, while the chief executive and chairman roles are separated. World Precision's non-executive chairman is majority shareholder Wang Wei Yao.

Mr Shao, who has since become a Singapore permanent resident, said philosophically that the financial crisis and tough times for S-chips have been good for the sector as a whole.

'Good S-chips will shine over time,' he said. 'The headwinds will unveil problems in bad companies which will be forced out. Those with short-term views may also leave and those who seek to cash out (after the listing) will also not want to come here.'

That has not stopped some investors from getting jittery over various announcements made by the firm over the years, though it says that it was eventually shown that there was nothing to worry about.

For instance, speculation was rife that something was wrong when, in 2009, the company disclosed that it was assisting in a probe by the Commercial Affairs Department.

But investors later found out that the authorities had merely asked World Precision for documents to help it investigate a lawyer suspected of insider trading of World Precision shares. The lawyer was eventually fined this year.

Some eyebrows were also raised when World Precision held a shareholder meeting last year to vote on the change of its auditors. After all, some scandal-hit S-chips changed their auditors just before trouble erupted.

But World Precision said that changing the auditors was really good corporate governance, as the previous audit firm had been with the company for five years.

On the business front, World Precision concentrates on larger-scale production and controlling the supply chain to keep costs down. A team specially tracks feedback for the products they sell, so they can constantly improve on quality and cost-effectiveness.

In-house teams also work on research and development, and the company has technical alliances with foreign companies, so that it can meet the increasing demands of the market.

jonkwok@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.

[Musicwhiz]

For this week, it is Bio-Treat or HanKore!

The Straits Times
Sep 5, 2011
EYE ON... HANKORE ENVIRONMENT TECH GROUP
Starting with clean slate after crisis
Former Bio-Treat Technology wants to put debt problems behind it

By Jonathan Kwok

TROUBLE came thick and fast for HanKore Environment Tech Group over recent years, straining the company's finances and corporate governance.

The water treatment firm, formerly known as Bio-Treat Technology, hit the headlines in 2007 and 2008 when its former chairman charged that the company had committed disclosure breaches and defrauded him of his stake in the firm.

Then in the financial crisis in 2009, the firm defaulted on its convertible bonds after bondholders wanted to cash out, triggering a host of other money problems.

HanKore Environment has been re-writing the slate since those dark days. Its entire top management - chief executive, chief operating officer and chief financial officer - is new. HanKore's board was virtually replaced this year. New major shareholders also came in this year.

The radical makeover also involved a name change in May so the firm could distance itself from its old troubles.

'I've been in the water business in China, so I understood Bio-Treat's business,' said new chairman and chief executive David Chen, who was in Singapore on a roadshow last week to meet the media, fund managers and analysts.

'It has an established foothold, and there's a lot of space to expand in this industry in China... Of course, we had to deal with the debt issues, but we got a reasonable price to buy into the firm and I believe in value investing.'

Mr Chen said he did not know the previous management team and there has been only very little communication with them since the takeover.

Another change since the takeover has been the move of the company headquarters from Shenzhen to Beijing.

The old location was more convenient for the previous management team, which was from Hong Kong. But the headquarters was moved to the Chinese capital for the management to stay in closer contact with the government authorities in charge of water-related policies.

HanKore Environment also said it is putting in more effort into detailed disclosure of its financial announcements.

'Our quarterly announcements give a lot of information about operations and the company,' said Mr Chen. 'Our shareholders should know about the business and the disclosure has reflected our commitment to share such information with shareholders.'

The new team said it has tackled the firm's biggest problem - concern over its debts.

Proceeds from a rights issue late last year and capital injections from new investors have allowed it to pay off all the bonds and secured debt, leaving only bank loans on its books.

It owes banks 480 million yuan (S$90 million), compared with net assets of 1.43 billion yuan.

That makes a debt to equity ratio of about 0.34, although Mr Chen reckons a more 'reasonable' ratio would be 0.5 to 0.6 based on industry norms.

He added that HanKore is open to 'all methods' of funding, including bank borrowing, equity capital such as rights issues and placements, and debt capital methods like bonds.

'We will carefully consider any option to ensure that it is compatible with the business model,' said Mr Chen.

HanKore will also be 'responsible' and take care of shareholders' interests, he promised.

Mr Chen declined to say if the firm will again issue convertible bonds and did not say if he would have issued the bonds that almost brought down the company had he been at the helm when the programme began.

'I don't know what factors they considered at that time. Maybe the market was very good before the crisis, I can't speak on behalf on them,' he said.

The bond problem was exacerbated in the financial crisis when creditors chose to redeem the debt early amid disappointing financial results.

Observers also said that Bio-Treat, like many other S-chips, did not adequately control the risks when it took on its debt in the plum years and was caught unawares by the crisis.

Regardless of that fiasco, the firm believes that its business remains stable as it focuses on developing markets in central and western China.

The firm recently set up a Singapore subsidiary to tap into the water-related expertise available here and will open an office soon - moves it expects will strengthen the relationship with shareholders.

Mr Chen said the firm plans to hold roadshows, similar to the one last week, in Singapore at least twice a year to meet the media and investment community.

The management team will also come here for annual general meetings.

jonkwok@sph.com.sg

[Musicwhiz]

The Straits Times
Sep 12, 2011
EYE ON... SUNPOWER GROUP
Riding on China's 'green' wave
Firm expects greater demand for products with Beijing's boost for environmental sector

By Jonathan Kwok

Companies in China's energy and environmental sector are rubbing their hands in anticipation of more business in the wake of the government's strong commitment to 'green' industries.

One such firm is Sunpower Group, which makes environmental-protection and energy-saving products.

Executive chairman Guo Hongxin (right) told The Straits Times: 'The government has expressed that it is prepared to inject more than 3 trillion yuan (S$569 billion) into the energy-conservation and environmental-protection industries in its 12th Five-Year Plan, with the aim of increasing their economic contribution.

'We expect to see a greater demand for our products going forward.'

He cited his firm's branding in China as well as strong technical and research expertise as factors that will help it to secure more orders.

The firm also has a good working relationship with the local government of Jiangsu, where it is based, as Mr Guo once represented the province in a Communist Party conference.

Sunpower's investors could be in line for some of the benefits, with Mr Guo saying the firm will 'consider giving out dividends if company finances allow', though it does not have a dividend policy.

After listing here in 2005, Sunpower paid out its maiden dividend of 0.3 cent per share for last year.

'This dividend was declared as we believe that we have reached a point of sustainable growth and would like to share the benefits with our loyal shareholders,' said Mr Guo.

He pointed out that the firm has not raised additional funds from the share market since that 2005 listing, yet has managed strong growth.

Revenue has had a compound annual growth rate of 31.3 per cent since the listing while net profit has experienced annual growth of 36 per cent.

It remained profitable throughout the global financial crisis, and in fact saw earnings growth through those dark years.

Net profit was 32.7 million yuan in 2007 and rose to 40.1 million yuan in 2008. Earnings for 2009 were 64.2 million yuan and grew to 86.6 million yuan last year.

'Our company is responsive to changes in the business environment,' said Mr Guo, explaining how the firm kept in the black when many others were bleeding losses.

'For example, at the peak of the crisis in 2008 and 2009, we were more stringent in our evaluation of new contracts and abstained from high-risk projects. Despite this, our net profit rose due to improved margins in the contracts chosen, and more stringent internal controls.'

He said that with this 'careful strategy and planning', Sunpower is confident of riding through the next crisis, whenever it may arrive.

Corporate governance efforts include having three independents on the six-member board, although Singapore Exchange rules state that only one-third need to be independent.

The company has also outsourced internal audit duties to an external professional service firm to review processes such as interested person transactions, said Mr Guo. 'The internal auditors have unrestricted access to the audit committee. The audit committee has also met the internal auditors without the presence of management,' he added.

Mr Guo noted that the company holds board meetings in Singapore three times a year, giving directors the opportunity to reach out to investors.

Sunpower has recently expanded to markets outside China, and wants to continue this growth trajectory.

Over the past year, overseas contracts include titanium heat exchangers for an oil refinery expansion project in Peru and a flare gas recovery system for a fertiliser plant in Vietnam. Last year, it also started a Middle East office to get more business from the vast market.

Sunpower shares closed unchanged at 22.5 cents last Friday.

jonkwok@sph.com.sg

[Musicwhiz]

For this week, it is Foreland Fabrictech!

The Straits Times
Sep 19, 2011
EYE ON... FORELAND FABRICTECH HOLDINGS
Firm seeks new frontiers with fabrics
Growing product range key to weathering global crisis, moving forward

By Jonathan Kwok

DONGSHI town may not ring a bell to most Singaporeans, but many probably own a vital personal item from the Chinese city without realising it.

Dongshi, located in Fujian province, is known as the 'umbrella capital' of China, and its factories produce a whopping 25 per cent of the world's umbrellas.

'We probably all own an umbrella which has originated from there,' mused CIMB analyst William Tng in a recent note on Singapore-listed Foreland Fabrictech Holdings.

Foreland, which produces fabrics used to make apparel, shoes, bags and umbrellas, is certainly benefiting from the thriving industry in Dongshi. The company has one factory operating in the town and another soon to start production there.

It has clinched supply contracts at several large-scale umbrella producers in the town, including Susino Umbrella and Fulong (Fujian) Umbrella, which makes the well-known 'Jin'ou' brand.

The introduction of Foreland's high- end umbrella fabric in 2009 was 'not by chance' due to the location of the company, Foreland's founder and executive chairman Tsoi Kin Chit told The Straits Times last week.

Umbrellas require a higher quality fabric than that used for clothes, as the material must be waterproof and more resistant to wear and tear.

Through the firm's regular communication with potential customers, and observation of market trends, it had decided to expand its product range beyond fabrics for clothes, he added.

The new product range could not have come at a better time for Foreland. Introduced amid the financial crisis, the umbrella fabrics helped the firm stay in the black throughout, though profits dropped dramatically in 2009. Foreland's finances recovered strongly last year.

Mr Tsoi also credited the firm's broad range of functional fabrics for helping it weather the last crisis. Demand for higher end, more expensive fabrics was eroded in the crisis, but its basic product ranges cushioned the impact.

Foreland's growth plans include focusing on its research and development efforts - a long-running focus of the company - to develop and introduce new and higher-grade fabrics and to expand the product range.

It will also continue to focus on its sales and marketing efforts to reach out to more new customers, while production capacity will be expanded with the upcoming opening of its second plant.

In terms of corporate governance, Mr Tsoi said that Foreland's board has put more focus on internal controls. These include internal control reviews on different business cycles, to be conducted from time to time to make sure that controls are in place and appropriate.

Foreland's senior management regularly meets shareholders and people from the investment community, such as analysts, fund managers and dealers, in order to provide them with updates.

'We have been holding regular results briefings each quarter, after the release of our quarterly results,' said Mr Tsoi. The firm also has an investor relations manager who is based in Singapore and can answer the queries of investors or analysts.

Mr Tsoi expressed one grouse: the valuations that Foreland is getting in Singapore. Based on this year's first half net profit, the firm's annualised earnings per share is about five Singapore cents, and it closed trading on Friday at 10.4 cents.

That gives a price-earnings ratio of only about two. This ratio is a widely-used measure of share value - the higher the ratio, the better the valuation.

'Naturally, we hope to have a better valuation,' said Mr Tsoi. 'What more when we are one of the few S-chips that have been paying regular dividends to our shareholders.'

Foreland does not have a fixed dividend policy, but has been paying dividends to its shareholders every year since its 2007 listing, except for 2009 owing to the global financial crisis.

For last year, Foreland paid a dividend of 0.4 cent per share, and for the first half of this year, the interim dividend was 0.5 cent per share.

'Future dividends, if any, will depend on our working capital needs and market situation,' said Mr Tsoi.

In April, Foreland said it was exploring a possible dual listing in South Korea. Mr Tsoi said the firm still has not made any definitive decision or formal application to the authorities and is still monitoring market conditions.

The company said that a dual listing would allow it another platform for potential fund raising and help it to broaden its shareholder base, possibly enhancing trading liquidity and valuations.

In June, Mr Tsoi sold some of his shares to 'strategic and sophisticated investors'. They included the owner of a company which is a large customer of Foreland.

'Although this investor does not have any official or direct role in our company, we believe the placement will enable us to forge a closer business relationship with his company,' said Mr Tsoi.

The company has attracted coverage from some analysts, including from CIMB. After a visit to Foreland's China premises, CIMB's Mr Tng said that the firm is 'making lots of headway in terms of its research and development' of fabrics, where it already holds some patents.

jonkwok@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.

[Musicwhiz]

The Straits Times
Oct 3, 2011
EYE ON... HU AN CABLE HOLDINGS
Power cable firm all wired up for growth
Company banking on China's focus on energy infrastructure

By Jonathan Kwok

CHINA'S rapid economic growth and demand for ever-more energy and infrastructure development are proving a bonanza for Singapore-listed Hu An Cable.

Hu An, which supplies wires and cables throughout the mainland, has seen demand for its products from power plants and distribution grids, coal miners, shipbuilders and real estate developers grow strongly in recent years.

'We maintained a steady growth in our wire and cable business from 2007 to 2010, riding on China's increasing focus on power generation and transmission infrastructures,' chief executive and chairman Dai Zhixiang told The Straits Times recently.

'We foresee an even stronger demand for our products under the Chinese government's 12th five-year plan, and chances are China will invest more heavily in the power infrastructure sector to boost economic growth and employment in a recession.'

That potential prompted Hu An to use the proceeds from its share listing last year to expand aggressively in the space of high to ultra-high voltage power cable products, which offer better profits and a less crowded market.

'Two new production lines of mid-voltage power cables and one production line of high-voltage power cables were completed recently and will start operations soon,' said Mr Dai.

'Two more production lines of ultra-high voltage power cables are scheduled to start manufacturing by the end of this year. These five newly added production lines will collectively double the group's capacity in high-end products.'

But he quickly added that Hu An grows its business in a 'cautious manner'.

It seeks out new customers from state-owned enterprises or companies with reliable track records. The firm also maintains its net gearing ratio, which measures the ratio of its debts to its assets, at below 35 per cent.

Nonetheless, Hu An raised a few eyebrows in April last year when it sought a listing of Taiwan Depository Receipts (TDR) in Taipei, barely two months after its Singapore initial public offering (IPO).

Mr Dai said the funds raised from the listings were all used to grow separate parts of the business.

The Singapore IPO's net proceeds of about $44.6 million provided the firm the cash to move towards high-end wire and cable manufacturing. Its NT$816 million (S$34.6 million) proceeds from the TDR issue were used mainly to expand the copper smelting business.

The firm believes in the benefit of having more control over the supply of raw materials like copper, said Mr Dai.

'In view of the attractive valuation of our peers in Taiwan, the costs of capital raising through the Taiwan market are lower as compared to bank borrowings in China and the equity market in Singapore,' he added.

Hu An has obtained approvals from the authorities to raise NT$587.5 million in a second TDR issue, which is now being finalised. The funds will be used to pay down bank borrowings.

The firm said the dilution effects of share issue will be reduced.

In terms of corporate governance, Hu An has appointed three Singaporeans as independent directors since its listing. It has also appointed law firm Shook Lin & Bok to advise on corporate governance matters.

The firm maintains frequent interactions with investors through timely corporate announcements and actual meetings, said Mr Dai.

He comes to meet Singapore investors on a quarterly basis and the chief financial officer is also based here.

The company expanded net profit by 29 per cent to 172.3 million yuan (S$34.8 million) last year. Earnings for the first half of this year rose by 12 per cent to 62.2 million yuan.

But like many other S-chips, the share price has been sliding, with investor confidence in the sector being hammered by a series of high-profile corporate scandals at other Chinese firms.

Hu An's share price for its IPO here was 42 cents but the stock closed at 21.5 cents last Friday.

A large part of the fall was due to the dilution effect from Hu An's issue of bonus shares in May.

But Mr Dai said the share price does not reflect the firm's earnings growth and the potential profitability of its new production lines.

'We don't have comparable peers in Singapore, but the average price-earnings ratio for our 12 mainland China-listed peers was above 50 times in September,' he said. Price earnings is a popular measure of share value - the higher the ratio, the stronger the valuations.

The price-earnings ratio for Hu An's stock in Singapore is about 4.7, though the TDR valuations are about 25 per cent higher. The firm's market capitalisation in Singapore is $185.2 million, though it is valued higher in Taiwan.

Hu An does not have a fixed dividend payout policy but has paid two final dividends, of one cent each, since its listing early last year.

jonkwok@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.

[Musicwhiz]

For this week, it's Yanlord Land Group.

The Straits Times
Oct 10, 2011
EYE ON... YANLORD LAND GROUP
Developer calm despite market turbulence
Firm has resources and good fundamentals in place, says its chairman

By Jonathan Kwok

IT HAS been a roller-coaster ride over the past few years for investors holding stock in China-focused property developer Yanlord Land.

The counter, which listed here in June 2006 at $1.08 a share, rose quickly, exceeding $4 within a year. Then the 2008 financial crisis dragged the price down, to as low as 50 cents.

The stock rebounded as markets fought their way out of that downturn, but recent market troubles and worries over China's property dampening measures have dragged it down once again. It closed at 85 cents last Friday, which gave it a market capitalisation of $1.66 billion.

Yanlord is still a billion-dollar company, but at its peak, it had a market value of around $8.2 billion and was included in the blue-chip Straits Times Index (STI). It was dropped from the index in March 2009 following a regular review of the index components.

Remaining calm through all these ups and downs is Yanlord chairman and chief executive Zhong Sheng Jian.

'The stock's price is not something we can control,' he said in Mandarin at an interview in his Suntec City office last week. 'It's best to let investors decide as this is a measure of their foresight and the firm's ability. What we can control are the way we run the company and its fundamentals, which have not changed.'

Mr Zhong believes that China, because of its growing population, will need plenty of homes in the years to come, and that economic growth there will boost demand for high-end real estate.

As a result, he hopes Yanlord - which focuses on high-end residential and commercial projects, and has built up a track record in 10 cities across China - will become a '100-year enterprise'.

In terms of corporate governance, independent directors make up half of Yanlord's eight-member board - more than the one-third required by the Singapore Exchange. Mr Zhong said the company's directors had the relevant professional experience and a sound understanding of corporate governance practices.

In addition, the company has put in place internal processes and regulations that employees must abide by, and it has an investor relations department to handle shareholders' queries.

'If we didn't have clear processes and transparency in the company, I would pay the highest penalty as I'm the majority shareholder and boss,' said Mr Zhong, who holds about 65.5 per cent of Yanlord.

At the same time, he stresses the 'softer' side of governance, which involves cultivating a culture of honesty and responsibility. Yanlord's Chinese name means benevolence and perseverance, and its mission statement emphasises integrity.

The company has been recognised three times at the Investors Choice Awards, organised by the Securities Investors Association of Singapore. In 2007, 2009 and last year, Yanlord came in runner-up in the foreign listings category for the Most Transparent Company Award.

A recent spate of property dampening measures imposed by Beijing, including restrictions on the number of homes that Chinese residents can buy, has affected Yanlord, but sales are still healthy as demand for its high-quality products remains resilient, Mr Zhong said.

The company's projects are just taking longer to sell out, he said. For instance, when it launched the inaugural batch of apartments at a new project in Shanghai, Yanlord Sunland Gardens, it sold about 60 per cent of the units on the first day. Previously, such a project would have been completely sold out in half a day, said Mr Zhong.

Nevertheless, he remains confident that all of Yanlord's projects will be completely taken up eventually.

'Our projects are smaller and more upmarket than those by some of the larger developers, so we need to reach out to well-to-do buyers. They are in good locations and high-growth areas.'

With economic storm clouds gathering, Mr Zhong stressed that his company is well buffered against a recession.

'The danger for a company in a slowdown is if its debts are too high or if it can't sell its products,' he said. 'In terms of debt, we have reduced our gearing, from 50 per cent before the 2008 crisis to about 45 per cent now.'

Gearing is the ratio of a company's debts to its assets, and measures how comfortably it can service its debts.

Mr Zhong said that in the property sector, many companies have gearing levels of 80 per cent or higher.

Further, he noted that Yanlord should not have problems selling its units, in view of their attractive locations and their appeal to upmarket buyers.

Indeed, the company might even benefit from a downturn as it could acquire land on the cheap for future developments, he said.

Although Yanlord is no longer part of the STI, the firm is still recognised by local investors as one of the largest S-chips, or Singapore-listed Chinese companies, alongside giants such as Cosco Corp (Singapore) and Yangzijiang Shipbuilding.

Yet, Mr Zhong argues that Yanlord should not be considered a Chinese firm. The operating company was incorporated here in 1989 and grew larger using Singapore as its base, unlike other S-chips that incorporated a holding company here only for the purpose of listing.

In addition, Mr Zhong gave up his Chinese citizenship almost 20 years ago to become a citizen here, so the company is Singaporean-controlled.

'It is more accurate to call us a China-focused Singapore company,' he said.

jonkwok@sph.com.sg

This is a weekly series of interviews with the head honchos of Chinese companies listed here.