Anchun Holdings

[CY09]

To renew my faith in S-chips and replenish my get-rich list after the suspension of Qingmei and FJZY, I will like to introduce a new company- Anchun Holdings.

The company does fertilizer and whatever environmental technological products. What stands out though is its balance sheet. With cash of 152 Mil RMB and shareholder loan of about 40 ml RMB left, it has a net cash of 112mil RMB or 23.9 SGD Mil. That translates to 4.7 Singapore cents per share. Current price as of writing is 3.9 sg cents.

Its another market cap below net cash. Given the poor market sentiments, its time for private sector employees to stand out and peddle such brilliant idea to buy over SGX-listed companies like anchun. Hey, your boss may decide to save you from the axe or even better! Make you an M&A consultant.

[young_investor]

Hi,

The company currently has approximately RMB 155m of cash and bills receivables as disclosed in the latest financial statements, which is equivalent to about SGD 60c per share.

It is my personal view that the company should return at least RMB 50m to shareholders as the cash is mainly IPO proceeds sitting idle in the bank for more than 8 years already. For this purpose, I would like to gather shareholders with the aim of doing an EGM requisition (if we are able to gather more than 10% of shareholder votes. As of today 15 Jan 2019, I have support totalling about 7+%.)

If you are a shareholder and interested to join, please email me at anchunvote10@gmail.com with your name and number of shares in this company.

Thank you.

[weijian]

hi young investor,
This is interesting. I m just wondering, whether you would be privy to share what are the resolutions your team intends to put to the vote?
I also thought maybe sharing more of your strategies here might give a clear picture to shareholders?

Based on what i see in AR17, vested and concerted parties probably owns slightly greater than 50% of the votes.

AR17: http://www.anchun.com/wp-content/uploads...R-2017.pdf

[young_investor]

hi young investor,
This is interesting. I m just wondering, whether you would be privy to share what are the resolutions your team intends to put to the vote?
I also thought maybe sharing more of your strategies here might give a clear picture to shareholders?

Based on what i see in AR17, vested and concerted parties probably owns slightly greater than 50% of the votes.

AR17: http://www.anchun.com/wp-content/uploads...R-2017.pdf

Resolution: To return RMB 50m of cash (SGD 0.20 per share) by way of capital reduction.

Why I'm proposing the resolution:

The business has been in a prolonged downturn since IPO so the company has not been able to fully utilize the IPO proceeds. As at 30 Sept, there is about RMB 86m of unutilized IPO proceeds and more than RMB 155m net cash and bills receivables. The money was initially earmarked for buying a piece of land for capacity expansion purposes. However, due to the prolonged industry downturn, the purchase was called off. Given that current capacity utilization is barely 50% (personal estimate), there is no reason to keep those IPO proceeds.

Why I'm confident that cash is real and management is made up of "good and honest people":

The management of this company comprises of a team with few individuals rather than 1 single controlling party. The risk of fraudulent activities is much lower as every decision is deliberated through a team rather than 1 guy who can do whatever he wants. Over the years, the lack of dividends is also mainly due to low profits/losses and not because of "shareholder unfriendliness". The company also does not make reckless acquisitions unlike some which do and subsequently make impairments. Last but not least, I have personally visited the company in Hunan twice over the last 5 years and have found management to be extremely down to earth and diligent.

[desmondxyz]

Hmm...a company with 60cts net cash trading at 20cts and it is S-chip.....something not right.....Let's recap....Qingmei, FJZY, Eratat...

[young_investor]

Hmm...a company with 60cts net cash trading at 20cts and it is S-chip.....something not right.....Let's recap....Qingmei, FJZY, Eratat...

As with any company, there is always a risk of fraud or mismanagement. Hence, it is important to identify the risk factors associated with fraudulent companies. 

Given that Anchun is an S chip, it is inevitable that people will think its a fraud, just like those examples you mentioned. It is because people think its likely to be fraud, hence its trading at 1/3 of net cash, not the other way around.

I would argue that value investing is about buying securities which are "wrongly despised" by the investing community. As to whether Anchun is rightly or wrongly despised, time will tell.

[CY09]

Hi Young Investor,

To play devil's advocate, both China Aviation Oil and YZJ are s-chips too. But they are not selling at 1/3 of net cash etc. A few water companies such as China Everbright are s-chips too

[young_investor]

Hi Young Investor,

To play devil's advocate, both China Aviation Oil and YZJ are s-chips too. But they are not selling at 1/3 of net cash etc. A few water companies such as China Everbright are s-chips too

Hi CY09,

You are absolutely right that not all S-chips trade below net cash. Generally, those trading at higher valuations have history of good profitability and dividends. Hence, the risk factors compared to Anchun is more favourable in these instances. 

For Anchun, the problem is that they have not declared dividends since 2011. In my opinion, that is due to poor profitability rather than "wilful mismanagement" of cash. It is my belief that when profitability returns (fertiliser industry recovers from severe overcapacity) , the company could prove the market wrong by paying dividends. 

Delong is 1 example of this. Was trading at 30c when FY EPS was 60c and NAV at $4. The subsequent dividends and share purchase transaction by major shareholder changed the perception of the investing community and the stock went up by more than 20x. Just to clarify, I'm not saying Anchun could go up by the same percentage, but there's always a chance of a huge re-rating when the company changes the perception of the general investing community.

[Chiefdododetective]

Hi Young Investor,

To play devil's advocate, both China Aviation Oil and YZJ are s-chips too. But they are not selling at 1/3 of net cash etc. A few water companies such as China Everbright are s-chips too

Hi CY09,

You are absolutely right that not all S-chips trade below net cash. Generally, those trading at higher valuations have history of good profitability and dividends. Hence, the risk factors compared to Anchun is more favourable in these instances. 

For Anchun, the problem is that they have not declared dividends since 2011. In my opinion, that is due to poor profitability rather than "wilful mismanagement" of cash. It is my belief that when profitability returns (fertiliser industry recovers from severe overcapacity) , the company could prove the market wrong by paying dividends. 

Delong is 1 example of this. Was trading at 30c when FY EPS was 60c and NAV at $4. The subsequent dividends and share purchase transaction by major shareholder changed the perception of the investing community and the stock went up by more than 20x. Just to clarify, I'm not saying Anchun could go up by the same percentage, but there's always a chance of a huge re-rating when the company changes the perception of the general investing community.

Delong stock price went up a lot is because of its exceptional business result. The same cannot be said of Anchun. Furthermore, if Anchun could distribute its cash back to shareholders while its business is still bad then it could have given dividend for past years.

[young_investor]

Hi Young Investor,

To play devil's advocate, both China Aviation Oil and YZJ are s-chips too. But they are not selling at 1/3 of net cash etc. A few water companies such as China Everbright are s-chips too

Hi CY09,

You are absolutely right that not all S-chips trade below net cash. Generally, those trading at higher valuations have history of good profitability and dividends. Hence, the risk factors compared to Anchun is more favourable in these instances. 

For Anchun, the problem is that they have not declared dividends since 2011. In my opinion, that is due to poor profitability rather than "wilful mismanagement" of cash. It is my belief that when profitability returns (fertiliser industry recovers from severe overcapacity) , the company could prove the market wrong by paying dividends. 

Delong is 1 example of this. Was trading at 30c when FY EPS was 60c and NAV at $4. The subsequent dividends and share purchase transaction by major shareholder changed the perception of the investing community and the stock went up by more than 20x. Just to clarify, I'm not saying Anchun could go up by the same percentage, but there's always a chance of a huge re-rating when the company changes the perception of the general investing community.

Delong stock price went up a lot is because of its exceptional business result. The same cannot be said of Anchun. Furthermore, if Anchun could distribute its cash back to shareholders while its business is still bad then it could have given dividend for past years.

I do agree that Anchun's financial results have been very disappointing and totally opposite of how Delong has performed. However, the reference to Delong was made because Delong's share price was also in the doldrums for a prolonged period of time and there were also doubts in the credibility of their management (having not declared dividends for a long time). So my point is that if Anchun's management is genuinely honest, then it should not be trading at 1/3 of net cash. Moreover, if and when the business recovers (i'm not sure when that might be and it could be a long time from now), then dividends could resume and share price would appreciate significantly.

There has to be a distinction made between capital reduction and special dividends. For Anchun, the lack of use for its IPO proceeds is a reason why I'm calling for a capital reduction. Precisely because the business environment is poor, the company cant be expanding production capacity so capex should be minimal until business recovers, hence the justification for capital reduction. Special dividends would apply to companies which have sold assets or reported significant profits resulting in cash balances which are in excess of their working capital and expansion needs, which is clearly not applicable to Anchun at this point of time.