Foreland Fabrictech

[dydx]

However, Q1 and Q2FY10 were very bad quarters for Foreland; if the earning level of Q3FY10 maintains, for the next few quarters, net earning per year will be about 2.32 Singapore cents, giving it a forward PE of 5.6. Is it under-valued?

If we believe Foreland's business as well as the fabric production industry in PRC are poised to recover into 2011 and beyond, then I think there is the potential and a good chance that Foreland could return to a healthy financial state of having an annual revenue of over Rmb400m and a NP of approx. Rmb100m (achieved in both FY07 and FY08) in 2011 or 2012, and beyond. Based on Foreland's 453.639m outstanding issued shares, a NP of Rmb100m/year will translate into an EPS of approx. $0.043 (based on the exchange rate of SGD/CNY: 5.15).

I think it is also relevant to note that Foreland's existing production facility (land area: 29,333 sqm, with built-in area: 22,406 sqm) located at The Second Processing Zone, Dongshi Town, Jinjiang City, Fujian Province, appears to be a piece of valuable property asset with good redevelopment/sale potential, when Foreland eventually relocates its production to the much larger new facility at Andong Industrial Area, Jinjiang City, Fujian Province.

Take a look at the aerial map (do enlarge and use the 'satellite' mode) of Dongshizhen, Quanzhou, Fujian, China, to locate Foreland's facility which is the largest factory located near the town centre at the southeast end .....
http://maps.google.com/maps?rlz=1T4ADBR_...CBIQ8gEwAA
I was shocked when I first noted from Foreland's FY09 AR that this property was carried at a written down BV (for both the property and land use rights) of only Rmb504k as at 31Dec09.

[AAA]

I am not sure if Fireland could make RMB 100m net profit again because that depends on the supply and demand for the functional and normal fabrics produced by Foreland. Looking at Eratat, China Taisan and Foreland, which all operate in Jingjiang of Fujian, the demand is good for now. But for how long the demand will last, I don't know. It appears that the order for the next 3 quarters will still be strong. Beyond that, no one will know if more players will enter the market or will there be over capacity due to those in the sector expanding capacity.

What I saw today is some big purchases, presumably are accumulation by some fund or big boys.

Time Last Vol Buy/Sell
17:05:02 0.135 500 B
16:57:24 0.130 100 B
16:55:22 0.130 34 B
16:44:25 0.135 1,000 S
16:26:01 0.135 1,000 S
16:25:48 0.135 1,000 S
16:20:55 0.130 1 B
16:04:37 0.135 40 S
15:56:52 0.135 30 S
15:54:47 0.135 10 S
15:54:30 0.135 50 S
15:53:43 0.135 58 S
15:52:22 0.135 500 S
15:50:04 0.135 500 S
15:44:49 0.135 1,000 S
15:25:00 0.130 500 B
15:14:07 0.130 3 S
15:13:49 0.130 1 S
15:13:45 0.130 300 S
15:13:12 0.130 80 S

I managed to buy some at 0.13 today.

[dydx]

Interestingly, in a NextInsight report dated 5Feb11, Foreland was ranked "1st" in percentage gain - up 42.1% to-date; computed based on 2Feb11's closing price of $0.135 and using 31Dec10's closing price of $0.095 as the base - among their readers' top stock picks extracted from forum postings in the NextInsight website.....
http://www.nextinsight.net/index.php/sto...op-gainers-

[dydx]

I am amazed by the high volume done - so far over 11.3m shares - on Foreland today.

If the buyers are mostly knowledgeable investors taking a medium-term view on Foreland's current business recovery and further business growth (when the new manufacturing plant is finally put into operation), then I think it will be really good for the company and this stock counter.

[ichiran]

I agree - especially more amazing when taken into context of the 48 points fall of STI today!

[dydx]

Q4 and full-year FY10 (ended 31Dec10) results announcement just out and should be interesting weekend reading for those who own shares in Foreland or are interested in this small, gem-grade PRC-based producer of high-grade synthetic fabrics.....
http://info.sgx.com/webcoranncatth.nsf/V...20027C29D/$file/FY2010_Result_Announcement_final.pdf?openelement [FY10 results announcement]
http://info.sgx.com/webcoranncatth.nsf/V...20027C29D/$file/Foreland-FY2010_Press_Release_final.pdf?openelement [Press release]

Based on the very strong Q4 revenue (Rmb143.0m) and NP (Rmb27.6m) numbers, Foreland has staged an excellent recovery. At the current running rates, it appears that Foreland is poised to out-perform its previous peak in FY08 - revenue: Rmb460.7m; NP: Rmb106.9m - in this FY11.

[dydx]

Foreland has just released the presentation slides for a briefing to analysts and fund managers, in conjunction with the release of the company's FY10 results.....
http://info.sgx.com/webcoranncatth.nsf/V...5002D31ED/$file/Foreland_FY2010_PPT_Draft2_24Feb11.pdf?openelement

Slides #18 to #21 show clearly a very positive rising trend for ASP, GP, NP, and GP/NP Margins - all likely sustainable into FY11.

[dydx]

Following the release of the FY10 full-year results on 25Feb11, SGX has made 4 queries based on the announcement, and today (7Mar11) Foreland released its response.....
http://info.sgx.com/webcoranncatth.nsf/V...C00323732/$file/Foreland-ReplytoQueriesFY2010-Announcement.pdf?openelement

I find the quality of Foreland's response exceptionally good for a PRC company. In particular, I am very impressed with the high-quality of Foreland's customers and trade receivables. As detailed in the company's response to SGX's Query 1, 99.997% of the total trade receivables balance as at 31Dec10 of RMB71.515m has already been settled as at 28Feb11. Very few businesses can have or boast such superb trade receivables collection record. If this is indeed true, Foreland should be a very well-managed and high-quality company.

[BigBang]

Business Times published an article about Foreland on March 8th, I got to say that I am impressed by the amount of technology they have implemented onto their fabrics.

http://www.businesstimes.com.sg/sub/comp...05,00.html

[dydx]

Since BT provies a 7-day archive only, and the 8Mar11 article is a good one, I have re-produced the full text of the article below....

"Published March 8, 2011
Foreland Fabrictech holds the fort well
To bring up profits, it diversified its customer base, reports LINETTE LIM

THE 2008-2009 financial downturn severely impacted Fujian-based Foreland Fabrictech's corporate earnings in 2009 and 2010.

The vertically integrated fabric manufacturer's net profit dipped 70 per cent to 32.6 million yuan (S$6.3 million) in 2009, due to weakened demand for its high grade fabrics.

Foreland - which has been listed on the mainboard of the Singapore Exchange since April 2007 - is principally engaged in the weaving, dyeing, coating and finishing of fabrics used in sports, leisure and business apparel as well as umbrellas.

Instead of slashing prices like many of its competitors, Foreland implemented other strategies to cope with the downturn, said chief financial officer Simon Wong.

'Low end fabric manufacturers sold their fabric at 3-4 yuan per yard, but we were selling ours at about 10 yuan per yard,' said Mr Wong.

'We knew that we didn't want to compete on price, so we actively sought new customers and new markets to enter.'

Around the third quarter of 2009, Foreland - which was then mainly supplying fabric to apparel companies - started to woo umbrella manufacturers.

The efforts paid off - umbrella manufacturers now make up 30 per cent of its customer base.

Mr Wong believes that the diversified customer base would also result in a diversification of risk for Foreland.

He added, 'Apparel companies currently make up 60 per cent of our customers, but we expect this number to be reduced over time.'

Apart from diversifying its customer base, Foreland also emphasized the importance of R&D.

'Two per cent of our revenue is invested in R&D every year,' said Mr Wong. 'This percentage was not reduced during the recession.'

As a result, they continued to bring high-tech fabric to market, with the introduction of water-print fabric in 2009, and thermochromic and photochromic fabrics in 2010.

'When water-print fabric comes into contact with water, its prints will be revealed,' said Mr Wong, as he demonstrated what he meant by pouring water over a blank piece of cloth, revealing a set of flower motifs.

Thermochromic and photochromic fabrics, on the other hand, is fabric that change its colours upon detection of heat and light.

These products, developed in collaboration with technology partners such as Tanatex Chemicals and Huntsman, ensured that Foreland is ahead of the technological curve.

The last, but probably the most important strategy adopted was its investment in capital assets to expand production capacity.

In 2010, Foreland committed some 44 million yuan to replace old equipment in its 29,333 square metre integrated production facility.

'The new and advanced machinery helped increase production efficiency and improve product quality - which had a direct positive impact on gross profit margins,' said Mr Wong.

In 2008, they also started planning and building a second integrated production facility at a cost of about 437 million yuan.

Spread over 76,000 sq m, the facility is expected to commence production in the second or third quarter this year and increase production capacity by a third.

The capital expenditure was funded by a combination of IPO proceeds and internal resources, said Mr Wong.

Foreland's foresight to adopt the right business strategies during the downturn successfully positioned it for growth when the economy recovered, said executive chairman Tsoi Kin Chit.

'By positioning our group for a turnaround from the global slowdown which bottomed out in FY 2009, we are now enjoying the fruits of our labour, with an upward trend for both our top and bottom line in successive quarters since the beginning of FY 2010,' he said.

Indeed, rebounding from the financial downturn, Foreland's revenue for the financial year ended Dec 31, 2010, increased 24 per cent to 348.4 million yuan.

Although its full-year net profit of 45.4 million yuan is still some way off its pre-crisis figures of above 100 million yuan, its Q4 net profit - at 27.6 million yuan - is six times of what was earned in the same period last year.

'We really started to feel the turnaround in Q3 and Q4. If the full-year net profit was calculated based on the Q4 figures alone, the 2010 results would outperform 2008's,' said Mr Wong. In 2008, its net profit hit a high of 106.9 million yuan.

Foreland has proposed a final dividend of two RMB cents for its shareholders.

'Future plans will be focused on building up our high grade textiles business for umbrella manufacturers, as there is still plenty of space for growth in that sector,' said Mr Wong.

'As such, there are no immediate plans to further diversify our customer base or to expand the business beyond Fujian and China.'

When quizzed on the increasing costs of raw materials and labour that is driving manufacturing activities to interior China, Mr Wong said that it would not make sense for them to move production out of Fujian as that is where their customer base is.

'In addition, as we are a high value-added manufacturing firm, we are not so dependent on labour,' he added. 'We can pass the costs to our customers due to our brand name.'"