Dongyue Group (189)

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(30-10-2018, 02:03 AM)zzxiaoboizz Wrote: Personally don't think its a bad company, however the risk associated with the company is high at the moment.

Having a history of a scandal in 2016 with cash going missing to begin with is never good. The fortunate thing however is that they initiated a law suit which might indicate that its not just money gone missing but could be stolen etc.

1)Moving on 'are the numbers real?' I guess the spin-off will most likely distinguish things better and if things are fake there is a good chance the spin-off will not carry out

2) Does the board work in best interest of all shareholders? The dividend payout in FY 16, 17 is about 30-40%. If there is something not in interest it could be the lack of share buyback or management buying. In terms of driving profit i would say they have tried to recover from the bad times in 2014 even though some plaudits is attributed to a good industry outlook

3) 'What is going on in these connected transactions?' That's a very good question. Dongyue/macrolink/ New Silkroad Culturaltainment Ltd was not in the 'friday diagram by webb' however it was flagged out as 55% of CMBC's pro forma NTA was exposed to a single person in the form of the owner Mr Fu which most would agree its really high exposure to an individual. Dongyue then subscribes 1 billion dollars worth in an equity investment and assets management arm of CMBC. But as of End 2017 there has not been impairment yet which is so far so good but we never know what happens if CMBC does burst. (the exposure would be about 48 cents nav)

As for the industry, after looking at China companies that operate in different segments of dongyue group business, i would say their 3Q is strong especially with the spin off announcement shedding some light on its Organic Silicone business in 2 months of 3Q.

4Q and beyond however will need more research etc.

Only 746 bears some similarity to Dongyue group. 2341 does scent related chemicals while 3983 does chemical fertilizers.

Most of its similarity companies are listed in china instead.

Thank you, good informaton.

I would just add 2 points:

They lost the law suite, I think because board members signed that transaction and putting all blame on a single individual and a bank did not work out at court. So we wil never know, if there was anything fishy with it.

Regarding the listing in Shenzhen, there was another connected transaction in 2016 (I think) allowing 2 individuals to purchase a stake in the Organic Silicone business at a low price. It did not look so low back then, because Dongyue itself was/is valued so low on PE basis, but in the year after that transaction the Organic Silicone business took off and now there is that Spin Off, which would allow these individuals to take profit.

In sum, the company may say these connected transactions are win-win or in the best interest of the comapny, but I would say instead they are the main reason Dongyue's valuation is where it is.
Mason made an interesting comment this week about supply side control by the Chinese government. Its not only about air quality. Topic was steel maker China Oriental 581, but the argument should be valid for other industries as well:

"We also mentioned that Chinese government is likely to keep the supply-side tight in order
to achieve goals of deleveraging, reducing financial system risks and improving air quality. We do not expect the reform policy to be reversed until these goals are achieved."
(27-10-2018, 05:12 AM)bmann025 Wrote: Webb extends stocks blacklist

Sadly, another company with (if true) great fundamentals on the black list.

I'll regard 'connected transactions' as a major red flag for future investments.

Webb was spot on, Dongyue's 'investment' in CMIG could wipe out another RMB 1.567 billion:

More about that default:

Most troubling perhaps, that Dongyue increased its stake in CMIG only last year.

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