Foreland Fabrictech

[cosmic]

Hi Greenrookie,

I had been to the Foreland AGM today morning and had very meaningful one to ones with

1. Mr. Tsoi Kin Chit (Executive Chairman)
2. Mr. Simon Wong (CFO)
3. Mr. Lim Siang Kai (Independent Director)
4. Ms. Susan Foong (Partner at Baker Tilly-Their auditors)

They were well prepared with answers to the queries I had sent them. I will just list out the responses to them out here. These responses have come from the above listed people:

(1) They plan to move the machinery from the existing plant to the new plant. The existing plant will not be used once the moving is completely done. The land the current plant is on can now be used for residential purposes. So they plan to either:

- Sell the plot of land
- Get into construction of residences on that plot with some development company

They have not yet finalised on what would be the final course of action because there is still some time before the production moves completely into the new premises.

(2) Simon had brought along photographs of the new production facilities. The plant is indeed up and so is the staff dormitory.
- They have installed some machinery in the plant but more work can only be done once they receive the environmental clearances which is now the main reason for stoppage of work.
- They will build the water treatment facilities once they know the new environmental regulations and requirements. Once they get the necessary environmental clearances it will take between 3-6 months for the water treatment facilities to be constructed and for actual production to start.
- In terms of timelines they expect prodution to start at the new facility in Q4 of this year. It will take about 6 months to move the entire production from the existing factory to the new one. BTW the new land purchased is on a 50 years lease acccording to Mr. Lim Siang Kai.

(3) (4) (5) Current production capacity is 60.8 million yards and the new enhanced capacity will be about 80 million yards (30% increase). This is expected to happen after the move to the new plant. Consequently the financial numbers for 2012 will not differ greatly from those of 2011. I would expect things to really look up from 2013.

(6) They made the share placements at S$0.1235 in June 2011 to some major shareholders to increase the liquidity and the price of shares. But 9 months down the road nothing seems to have improved. Liquidity is still low and the share price keeps going lower still (It ended the day at S$0.091). It was my suggestion to Simon that if they really want to reward shareholders they should keep increasing the dividend payout on a regular basis as the business keeps growing and their cash requirement for new construction goes down and of course their cash balance keeps balooning ( :

Simon took the inputs in the right spirit. Now we have to wait and see if they do increase dividend payments in times to come.

Inputs from the Auditors (Ms. Susan Foong):

They carry out regular checks on the cash balances and the numbers reported by Foreland are all above board. Interestingly Baker Tilly are also the auditors for World Precision Machinery. They currently audit around 20 companies listed on the SGX.

Suggestions:

(1) They did bring across photographs of the new facility
(2) We all had the joy of watching the products manufactured by Foreland. That I guess is one of the main reasons I am invested in them and they did not disappoint.

We saw umbrellas with prints coming on them as water was poured. There were other samples where colors filled up the designs on the umbrellas as water was poured. These products are mainly sold in the Japanese and Korean markets. Interestingly I have never seen one of these umbrellas in Singapore till today.

This was one of the most fruitful AGM's that I have attended and hopefully Foreland will not disappoint in the years to come. Management is very open to getting shareholders to visit their plant. If we can form a group to go down to Jinjiang City, Fujian Province, management would love to host us out there for a couple of days. We just need to inform Mr. Lim or Simon about our planned timelines and they will make necessary arrangements for us to stay there.

Last but not the least, I got an umbrella from management. This is a perfectly plain lavender coloured umbrella when dry. But pour water on it and beautiful flowers appear all over. Will keep it as a treasured memento (:

Do let me know if there are any other questions you have or any other information you need.

Regards,

hi sgmystique,

Any updates on foreland AGM? Appreciate your input, especially on the status of new production facilities. Many thanks.

Hi Sgmystique

Thanks for sharing. Looks like this is a better run run S-Chip. If the 2012 results will be same as last yr, the forward PE is only 2. Assuming same dividend, the yield is 8%.

[Greenrookie]

Thanks sgmystique,

Appreciate it. I am not too concerned with the lack of capacity at this point of time, its already a bonus if they can maintain their earnings and dividends this year. =) Peers of processing/ dyeing companies are very badly hit from Q4. Foreland also has slower QoQ, but in much better shape and strength than many others. waiting early for Q1. Guess since there is no profit guidance till now, there should not be any shellbombs.

Thanks again.

Regards

[bb88]

I was there for a short while before running back to office. I think there were only 9 shareholders attending. Had a rather brief conversation with Lim Siang Kai and the staff who brought along the products which I didn't get his name.

Clearly, Tsoi Kin Chit is not exactly conversant in English (not sure how much he understands, but Lim Siang Kai is effectively responsible for the communications and hence the chair for the AGM). Simon Wong was seen to be translating to him.

Tsoi Kin Chit comes across as a person with a calm demeanour, hard worker, down to earth, steadfast, prudent and quite important, not flashy or flamboyant. He speaks Hokkien and gives the impression that he is "on top of things", and clearly knowledgeable of the business. Given the track record, it supports that he is strong in operations and execution. If I have to use DISC, he is likely a dominant S with secondary C. Perhaps a bit of D and not so much I.

I am inclined to hold the view that his leadership and development style is cautious, taking incremental steps to expand the business. Nothing disruptive, transformational, or major leaps. No major surprise to expect from the business.

Simon Wong should be a Hong Konger. He didn't appear as prepared as I thought would be. Figures weren't straight from his head. He didn't come across as sharp as I would imagine. I think Lim Siang Kai had more of the key figures at the tip of his tongue.

Lim Siang Kai on the other hand, gave me the impression that he is sharp, possesses strong analytical skills, and would be extremely skilled in dissecting issues. From the information that he shared, I would extrapolate that he had a strong understanding of the business landscape, company operations, and had done his own work in analysing the company. I am convinced that he had discharged his duties as Lead ID well. He had dedicated time and effort into this company.

Cai Fengquan, Tsoi Kin Chit's son, was rather reserved. He didn't come across as engaged and had the same level of ownership as his father. I would have imagined him to be the right hand. Looking at his profile, can imagine somewhat. He's trained in and had past experience in IT. He was probably persuaded to help his father and not out of passion.

I think the BoD lacked someone with drive and progressive ideas to take the business to a different level, which I think the company do have the potential in a bigger way.

I noted that Cai Lian Yong and Cai Zhi Meng both being DGM and in the same salary band but had very different compensation structures. The former have a 93% basic opposed to the latter at 50%. Wonder why but didn't pose this question though.

I took a look at 2 umbrellas, both which had water changing properties. One had a silkscreen type of imprint on the umbrella fabric where you can see white-yellow design patches. These patches when in contact with water changes colour. This is something interesting which I've not seen. I asked and was told that this is printed onto the fabric and not part of the fabric manufacturing process.

What this means that this technology and the setup could possibly be shifted into other application areas. They can license or create a job shop to offer this service as a revenue source.

One limitation which I see is the colour limitation. I didn't ask further but from what I see, it is probably limited to 8 colours or so. The resolution and colour spectrum is not a the level of fashion or more professional purpose. I think that if the colour gamut could increase to hundreds of colours, the application areas would be interesting and perhaps open a blue ocean.

Another area for improvement would be the tactile feel of these patches. If it can blend into the fabric or have a more sensual or softer feel, it could be used for fashion pieces. Immediately, I think it could be used for outdoor banners, tentages, etc. Now if instead of being water reactive but sunlight or temperature reactive, it could be a great replacement for billboards, etc. showing different information at different times of the day. Cheaper than electronic or mechanical multi-ad bill boards and more interesting than those giant building posters.

The other umbrella, instead of having the obvious patches which felt rough had the water reactive imprints "invisible" until wet. Didn't ask if this is an imprinting overlay like the white-yellow patches though.

They also brought a few "swatches" of the fabric they produce. Unfortunately, I wasn't overly impressed. Perhaps I was bought into Uniqlo. Uniqlo was what opened my eyes to fabric technology. Uniqlo have very interesting fabric technology. The velvety smooth feel and all. It's no longer just cotton, polyester, nylon, microfibre, etc. Run your hands through the various Uniqlo apparel and feel it for yourself, especially their new Airism and the Quick Dry (or similar fabric). Recently there's a sports oriented fabric developed with Tokyo Uni. They also have a raincoat that is really thin and lightweight.

Foreland's fabric tend to be thick, and have a rough feel. Waterproofing may be one thing, but we all know why Goretex is THE material to go for in apparels like raincoats, shoes, and all for a good reason. Why should high quality umbrella fabric be any different? I might be setting a wrong benchmark but I was expecting a similarly high quality finish for a top umbrella fabric maker. Umbrella fabric should also be sell-able to raincoat manufacturers no? Motorcycle raincoats, trekking raincoats, etc.

I probably missed mentioning earlier that their revenue diversity comes from 55% umbrella fabric and 45% functional fabrics. Margin for all fabrics are similar. I think there should be greater diversity by riding on their distinctive core competency. A differentiating factor that can give them a competitive advantage instead of just manufacturing quality umbrella fabric which does not provide high barrier of entry to the segment.

They do have patents on their fabric treatment or manufacturing processes. Leveraging on their fabric technology knowhow, patents, etc. they can create a moat and a high barrier around their product line and target market segment.

I asked Lim Siang Kai about their R&D investment. There's no fixed guidance but generally 50% on improving current fabric technology for existing characteristics like UV, water reaction, memory effect, etc. The other 50% is on developing new technology/characteristic (maybe mosquito repelling? haha which would be great for Tekong usage).

On the note of competitors, there are a few from ROC. Whatever fabric characteristic Foreland fabric has, their competitors have the same. They are certainly not unique. They differ in the manufacturing process. Foreland's current advantage over the ROC is in cheaper COGS. The question here is with ROC's track record, when will they have better technology that will allow them to create better characteristics or lower their COGS, eventually displacing Foreland? How well is Foreland doing in this regard?

Foreland currently operates a lean model. Cost control gives good margin. Very industrial style. Remember though that wages are rising in PRC. Honda and Hon Hai increased substantial wages of their workers within a short time period. How is this affecting Foreland? Didn't ask this question at the AGM. Going forward, how would the margin be affected?

Interestingly, Foreland exports their fabric to ROC where they competitors are also exporting into PRC.

After attending the AGM am I more assure of company? Yes, I think they're not a fly-by-night company. My comfort level of an accounting fraud happening has improved. They have strong fundamentals (both finance and business wise). I feel more assured of the management of the company.

However, I'm not too certain how this will ride out. Am I sufficiently confident to increase my holdings and average down? Maybe I'll take a few days to digest and process.

[dydx]

1Q results just out.....
http://info.sgx.com/webcoranncatth.nsf/V...7001529D4/$file/2012Q1resultannouncement.pdf?openelement [results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...7001529D4/$file/2012Q1ForelandQ112ResultsPressRelease.pdf?openelement [press release]

1Q's Revenue at RMB161.9m and PBT at RMB40.4m are higher by 5.5% and 3.1%, respectively, vs. 1Q-FY11's numbers. Against 4Q-FY11's Revenue at RMB192.1m and PBT at RMB46.3m, 1Q's Revenue is 15.7% lower and PBT is 12.7% lower, qoq. I guess this is due to the CNY slowdown in production in Jan. It looks like Foreland's production capacity at Dongshi Town is now very much maxed out, and allocating the limited capacity to higher price/margin orders is probably the only way to maximise profits in the short term, pending the start-up of the new factory located at nearby Andong Industrial Area.

Based on Foreland's latest (as at 31Mar12) 530.735m issued shares, NAV/share now stands at RMB1.289 (or $0.255), and Nett Cash/share at RMB0.516 ($0.102). When we compare these numbers against today's (7May12) closing share price at $0.093 - which is cum a RMB0.015/share (or $0.003/share) Final dividend for FY11 - Mr Market is clearly missing the mark!

Assuming Foreland is able to run the business as well in the next 3 quarters, it is conceivable that FY12's NP could hit RMB150.0m (vs. RMB140.6m in FY11), which will translate to a full-year EPS of RMB0.283 (or $0.056). By rational thinking, a modest PER of 5x will give a share price of $0.28.

[cosmic]

1Q results just out.....
http://info.sgx.com/webcoranncatth.nsf/V...7001529D4/$file/2012Q1resultannouncement.pdf?openelement [results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...7001529D4/$file/2012Q1ForelandQ112ResultsPressRelease.pdf?openelement [press release]

1Q's Revenue at RMB161.9m and PBT at RMB40.4m are higher by 5.5% and 3.1%, respectively, vs. 1Q-FY11's numbers. Against 4Q-FY11's Revenue at RMB192.1m and PBT at RMB46.3m, 1Q's Revenue is 15.7% lower and PBT is 12.7% lower, qoq. I guess this is due to the CNY slowdown in production in Jan. It looks like Foreland's production capacity at Dongshi Town is now very much maxed out, and allocating the limited capacity to higher price/margin orders is probably the only way to maximise profits in the short term, pending the start-up of the new factory located at nearby Andong Industrial Area.

Based on Foreland's latest (as at 31Mar12) 530.735m issued shares, NAV/share now stands at RMB1.289 (or $0.255), and Nett Cash/share at RMB0.516 ($0.102). When we compare these numbers against today's (7May12) closing share price at $0.093 - which is cum a RMB0.015/share (or $0.003/share) Final dividend for FY11 - Mr Market is clearly missing the mark!

Assuming Foreland is able to run the business as well in the next 3 quarters, it is conceivable that FY12's NP could hit RMB150.0m (vs. RMB140.6m in FY11), which will translate to a full-year EPS of RMB0.283 (or $0.056). By rational thinking, a modest PER of 5x will give a share price of $0.28.

From your EPS est., cash/share can increase by 5cts every yr. They also have decent dividends. Unfortunately, many investors have been burnt by S-Chips and are shunning them even if they have strong financials.

From bb88 recent AGM post, Mr Tsoi looks like a conservative CEO who is unlikely to venture into other business recklessly. This can be viewed as positive as its better to focus on the business they know best.

[freedom]

2q2012 would be an interesting period. Its dividend in 2010 and interim dividend was funded by its placement rather than dividend from its china subsidiaries. Using its company balance sheet end 31 Mar,2012, there wasn't enough money to fund its final dividend in 2011. And all these years dividend from subsidiaries has been accruing to more than rmb 51 mil, if I am not wrong. To fund its final dividend in 2011 and declaring an interim dividend, dividend accured from subsidiaries should be settled, otherwise the company need to find money for its dividend.

[cosmic]

2q2012 would be an interesting period. Its dividend in 2010 and interim dividend was funded by its placement rather than dividend from its china subsidiaries. Using its company balance sheet end 31 Mar,2012, there wasn't enough money to fund its final dividend in 2011. And all these years dividend from subsidiaries has been accruing to more than rmb 51 mil, if I am not wrong. To fund its final dividend in 2011 and declaring an interim dividend, dividend accured from subsidiaries should be settled, otherwise the company need to find money for its dividend.

bb88 did say in his last post the CFO is not very sharp haha. Seriously, in their 2011 report they have Rmb228m cash and no borrowings so why can't they pay the div.? Some S-chips have hundreds of million Rmb cash but has high borrowings " to maintain bank relationship etc" which makes me laugh.

Well, the CEO said 1Q will be ok in the 2011AR and now said 2Q will be ok too. Will take his word for it.

[freedom]

2q2012 would be an interesting period. Its dividend in 2010 and interim dividend was funded by its placement rather than dividend from its china subsidiaries. Using its company balance sheet end 31 Mar,2012, there wasn't enough money to fund its final dividend in 2011. And all these years dividend from subsidiaries has been accruing to more than rmb 51 mil, if I am not wrong. To fund its final dividend in 2011 and declaring an interim dividend, dividend accured from subsidiaries should be settled, otherwise the company need to find money for its dividend.

bb88 did say in his last post the CFO is not very sharp haha. Seriously, in their 2011 report they have Rmb228m cash and no borrowings so why can't they pay the div.? Some S-chips have hundreds of million Rmb cash but has high borrowings " to maintain bank relationship etc" which makes me laugh.

Well, the CEO said 1Q will be ok in the 2011AR and now said 2Q will be ok too. Will take his word for it.

I don't think you got my point. 2Q is interesting because it could be a sign whether their cash is real or not and how much of its cash is real.

[cosmic]

2q2012 would be an interesting period. Its dividend in 2010 and interim dividend was funded by its placement rather than dividend from its china subsidiaries. Using its company balance sheet end 31 Mar,2012, there wasn't enough money to fund its final dividend in 2011. And all these years dividend from subsidiaries has been accruing to more than rmb 51 mil, if I am not wrong. To fund its final dividend in 2011 and declaring an interim dividend, dividend accured from subsidiaries should be settled, otherwise the company need to find money for its dividend.

bb88 did say in his last post the CFO is not very sharp haha. Seriously, in their 2011 report they have Rmb228m cash and no borrowings so why can't they pay the div.? Some S-chips have hundreds of million Rmb cash but has high borrowings " to maintain bank relationship etc" which makes me laugh.

Well, the CEO said 1Q will be ok in the 2011AR and now said 2Q will be ok too. Will take his word for it.

I don't think you got my point. 2Q is interesting because it could be a sign whether their cash is real or not and how much of its cash is real.

Duh !!! The 1Q report has even higher cash Rmb273m and still no bank borrowing. If you don't trust Q1 report , why do you trust Q2 report?

[freedom]

2q2012 would be an interesting period. Its dividend in 2010 and interim dividend was funded by its placement rather than dividend from its china subsidiaries. Using its company balance sheet end 31 Mar,2012, there wasn't enough money to fund its final dividend in 2011. And all these years dividend from subsidiaries has been accruing to more than rmb 51 mil, if I am not wrong. To fund its final dividend in 2011 and declaring an interim dividend, dividend accured from subsidiaries should be settled, otherwise the company need to find money for its dividend.

bb88 did say in his last post the CFO is not very sharp haha. Seriously, in their 2011 report they have Rmb228m cash and no borrowings so why can't they pay the div.? Some S-chips have hundreds of million Rmb cash but has high borrowings " to maintain bank relationship etc" which makes me laugh.

Well, the CEO said 1Q will be ok in the 2011AR and now said 2Q will be ok too. Will take his word for it.

I don't think you got my point. 2Q is interesting because it could be a sign whether their cash is real or not and how much of its cash is real.

Duh !!! The 1Q report has even higher cash Rmb273m and still no bank borrowing. If you don't trust Q1 report , why do you trust Q2 report?

please learn some accounting knowledge before coming back. otherwise, you will never get what I am saying.