Ace Achieve Infocom

[Liubei]

any comment on this???? one big brother say this will cheong..but wait now instead is deterioting

[psolhawk]

Bro, I think you are in the wrong forum.

[Liubei]

no.right one

[buaypangsai]

anybody understand the latest report?

[buaypangsai]

heard it's planning for some mega projects...

[Liubei]

so it was surging at one time and reverse sudden due to the 3 king kong.

[beau]

One of the cheapest net-nets on the SGX at the moment.



Source: https://www.fool.sg/2017/07/17/here-are-...ght-now-2/#

[beau]

Consistently profitable every year since 2013. Trading at  0.1x NCAV, P/E 2.5. 

Does anyone know why AAI is trading at such low valuations? Am I missing something? Has there been a scandal in the past?

[barneyonline]

Consistently profitable every year since 2013. Trading at  0.1x NCAV, P/E 2.5. 

Does anyone know why AAI is trading at such low valuations? Am I missing something? Has there been a scandal in the past?

I could be wrong, but it could be due to the following reasons:
1. Company is from China, and it's headquarter is located in China. There is no office here. So in term of risks, how would you know the company actually existed?
2. The nature of its business doesn't seem attractive. It looks likes a IT servicing company to me instead of a tech company such as AEM holdings or UMS holdings.

[d.o.g.]

Consistently profitable every year since 2013. Trading at  0.1x NCAV, P/E 2.5. 

Does anyone know why AAI is trading at such low valuations? Am I missing something? Has there been a scandal in the past?

There are some obvious red flags to anyone bothering to read the financial statements.

Trade Receivables

The trade receivables represent over 100% of the company's equity. This has been the case since at least FY08. Any difficulty in collecting these receivables would have a huge impact on the company's net worth.

Yet, the receivables are being collected very slowly. For FY08-FY12 the days sales outstanding averaged 1.5-2 years of sales. From FY13-FY17 collections were even slower, at 2.5-3 years.

This means that a fake sale (and the fake profits thereon) might not be exposed as uncollectable for as long as 3 years. This makes it incredibly tempting for employees or the company itself to create fake sales and fake profits. In fact, as long as reported sales are increasing, the old orders need never be collected, as new orders will dilute the impact of old orders.

Why would anyone report fake sales/profits? Obviously, such "fake news" can drive up the share price, which would allow options to vest, cash bonuses to be paid, shares to be sold etc.

Unbilled Receivables

To make things worse, the annual reports disclose that most of the trade receivables have not actually been billed to customers. In other words, one channel for disproving fraud - confirmation of the order by the customer - has been eliminated.

In theory, the company can fabricate an order, book the sales and recognize the profit, and simply not bother to collect the money. Since the purported customer has never received the fake order, the company classifies this order as an "unbilled receivable". The auditor goes along with this fiction and everyone is happy.

Other Receivables

The annual reports also reveal that the company has lent money to suppliers owned by directors and former directors. The management claims that the directors and former directors are holding the shares of the supplier entities in trust for third parties, and therefore these loans do not count as related party transactions. Nonetheless these advances to suppliers were RMB 54m in FY15 and RMB 89m in FY16, or 3.5 times and 4.7 times the company's reported profits in FY15 and FY16. It seems strange that the company is lending so much money to suppliers when it is itself short of cash.

Debt

So if the cash from sales is being collected so slowly, how does the company pay its normal operating expenses like salaries and rent, or make loans to its suppliers? Answer: bank borrowings. The current debt is RMB 150m, or about 8 times FY17 profits. It is debatable whether the company will ever be able to pay back all the debt.

Debt levels were higher in the past, peaking at RMB 236m in FY14, so it appears that at least some of the business is real, since they could generate some cash to reduce the debt levels somewhat from the peak.

Conclusion

If the business is 100% real then the shares seem to be a bargain at the current price. However there is clearly a risk that some of the trade receivables and the loans to suppliers will never be collected. If one believes that some of the business is fake, what is the appropriate discount? As an analogy, how many cockroaches will you accept in the restaurant kitchen before you decide not to eat there?

As usual, YMMV.