Fabchem China

[dydx]

Explosives, anyone?

I thought Fabchem China's rather unique and interesting business is poised for an eventual recovery…..
http://www.fabchemchina.com/index.html
http://fabchem.listedcompany.com/newsroo...Y1GR.2.pdf [1H-FY15 result]
http://fabchem.listedcompany.com/newsroo...1114pr.pdf [press release]
, and the counter with last done share price at $0.115 could well be a potential good value investing opportunity.

Any views?

[opmi]

Walao...this one is Singapore-run S-chip. Looking at his track record. All his other listed companies (e.g China Food) up lorry.

[valuebuddies]

It draws my attention when I get to know about an "explosive" stock in SGX.

Being an S-chip, first thing come to my mind is due diligence rather than talking about fundamentals sort of things. I have spent sometime googling over the web to find out more on what the hack this company is.

So let's start with the "famous" Dr. Lim Seck Yeow. This man was also the directors and majority shareholders of various S-chips including China Powerplus, China Food and Zhongguo Jilong, all these already crash bad bad. There was an media interview with Dr. Lim back in 2004 which he reveal that his business base in China is from Shandong, this is where these 4 companies (including Fabchem) came from. This man hold significant stakes in the said companies even he is not the founder of those businesses. Moreover his position in the companies are non-executive directors. With this, how can we conclude that he leads these S-chips? I suspect he is more like a VC, lending a hand to these Shandong corporation to help them to get listed in Singapore. In return, he probably get some rewards yearly by acting as nominee shareholders for the ultimate PRC owners. It is not an accusation but rather some sort of imagination. So does Dr Lim designed the patch for listing at high price and also the patch for delisting at low price? I am not sure on this. Perhaps he is just a failed VC, eyed on wrong companies and brought them for listing in SGX.

Another famous name for Fabchem is Sun Bowen. There is an article dated 2007/2008 on how Sun Bowen brought Yinguang Chemical for listing in Singapore. Article seems to accused Sun Bowen for cheating minority shareholders of Yinguang group (back then as the holding company of Yinguang Chemical) by selling all shares in Yingguang Chemical to Yinsheng Investment for listing in SGX. Minority claimed that they were not called for the shareholder meeting and it seems that the decision is made by Sun Bowen (possibly with few other majority shareholders) alone. Sun Bowen subscribed the shares in Fabchem at $0.029 each, and sell new shares to SG investors at $0.32 each. Right after listing, share price went up more than 1 fold to nearly $0.80 each. Even at current share price of $0.09, Sun Bowen still sitting on nice profit on his shares.

There was also an interview with Sun Bowen years ago and Sun Bowen has stressed that the listing in SGX improved much of the company's reputation and resulting in significant rise in revenue from out-of-China customers. Sun Bowen was also very optimistic over the near 30% holding by Dyno Nobel, who being a world leader in explosive devices and products. Dyno Nobel subscribed the shares in Fabchem at $0.52 each back in 2007.

Talking about the Company. Fabchem is just a shell company, Sun Bowen has stated that the Company maintained a small office in Singapore for administration. The real stuff is Yinguang Technology, the 100% owned subsidiary of Fabchem. Yinguang Technology, who inherits the business from Yinguang Chemical, is one of the top explosive products manufacturer in China. It was a small factory back in the 70ish wholly owned and controlled by the government, then privatised and buyout by its employees and since then Sun Bowen appear as the majority shareholder. Yinguang Chemical was such a profitable business in the past 30 years and it is Hebei Provision West County top 10 enterprises.

Yinguang Chemical was so successful that now it has businesses in textile, property, mining, hotel, metals and etc, in addition to the original explosive business. While visiting the group's website, it came to my surprise that the Yinguang Chemical Group still named Yinguang Technology as part of its group, while actually it is not the top 20 shareholders of Fabchem. So this again raise a question mark as to whether Sun Bowen's and Dr. Lim's shareholdings are in trust of Yinguang Chemical Group?

There are a couple of questions came up to my mind after knowing the above:

i) did Sun Bowen still considering that Yinguang Chemical Group and Fabchem (ie. Yinguang Technology) exclusively owned by him?
ii) couple with Dr Lim, being the majority shareholders of Fabchem, will they try to novate the businesses of Yinguang Technology to someone else without the minority approval?
iii) looking at the current price chart, is Fabchem heading to delisting (possibly as planned)?
iv) Dyno Nobel's stake in Fabchem is not significant to Dyno Nobel, so is that a price to pay for entrance into Chinese market rather than as an investment?
v) Yinguang Technology has managed to catch the world attention with its listing status in SGX, so it seems that there are not much benefits left being a listed entity?

Any comments from the buddies please?

[valuebuddies]

To know more about Dr Lim: http://news.skykiwi.com/world/dl/cj/2005...4335.shtml

To know more about Sun Bowen: http://www.iqilu.com/html/gonggong/fengy...91949.html

[dydx]

Well, Fabchem's explosives business doesn't appear to be a dubious one, as its products are also exported to Australia and sold to prime-name Orica and Dyno Nobel, and its operations are subject to licensing requirement and regular safety inspection by relevant PRC authorities.

Last FY14 (ended 31Mar14) AR.....
http://infopub.sgx.com/FileOpen/Fabchem%...leID=21848

Latest FY15-Q3 (ended 31Dec14) result.....
http://infopub.sgx.com/FileOpen/Fabchem-...eID=334920 [result announcement]
http://infopub.sgx.com/FileOpen/FCC-9M20...eID=334921 [press release]
Q4 and full-year results are due end of this month.

It is also relevant to note that despite its uneven profitability, Fabchem has paid out yearly dividends in the last 5 FY's, since FY2010.

[valuebuddies]

Business in real in my opinion, but we need to analyse if the person behind are honest. It is quite difficult to judge someone that you don't know much, but from the history on how the listing were done, and also based on Dr Lim's track records, what is the level of confidence you have?

http://paper.dzwww.com/jjdb/data/2009070...VA103C.pdf

[dydx]

I suppose Sun Bowen as the MD, and Bao Hongwei as the ED/General Manager, are in-charge of running the business, and Dr Lim Seck Yeow as the Non-Executive Chairman is advising Sun more closely than the other 2 Non-Executive Directors (appointees from Dyno Nobel/Incitec Pivot Group, which holds a 29.9% stake in Fabchem China) and 3 ID's. Quite obviously, the 2 Non-Executive Directors are watching over Sun and his management team, and I don't believe the 3 ID's are pushovers either.

Also, we must not forget the PRC authorities exert tight controls over explosives producers, and as explosives are higher-spec technical industrial products, their customers and ultimate users form another layer of checks.

So I tend to believe Fabchem's business operations are well supervised.

[brattzz]

Valuebuddies focus was not on the product itself, which is internationally exported.
It's the key management that has these types of track records...

If the biz environment is good, maybe it's a good idea to buy into their largest competitors to catch the wave?

imho of cos..

[dydx]

FY15 (ended 31Mar15) AR just out and makes interesting reading.....
http://infopub.sgx.com/FileOpen/Fabchem-...eID=360140

Even though Total Revenue fell 11% YoY to RMB349.77m - mainly due to management's deliberate action to cut production/sales of the loss-making Ammonium Nitrate Div. - overall group's cash generation and profitability, as measured by Recurring EBITDA, PBT and NP, have improved and shown a profit turnaround from FY14. B/S has remained strong and in net cash position, with latest (as at 31Mar15) NAV/share at RMB1.73 (equivalent to approx. $0.378/share). A higher final dividend of $0.003/share (vs. $0.002/share in FY14) declared. This is the 6th year of continuous dividend payment since FY10.

When we compare the last done share price of $0.081 with the latest NAV/share of $0.378, quite obviously Mr Market is underpricing this well-established business by a very big margin.

[dydx]

1Q result out recently....
http://infopub.sgx.com/FileOpen/Fabchem-...eID=362699 [result announcement]
http://infopub.sgx.com/FileOpen/FCC-1Q20...eID=362700 [press release]

Overall, the core products segments - Explosive Devices, Industrial Fuse & Initiating Explosive Devices, and Industrial Detonators - have remained stable and profitable, while the loss-making Ammonium Nitrate segment has been cut.