China Essence

[Underdogger]

Net loss of 280mil RMB (compared to profit of 167mil a yr ago)...

Cash on hand of only $35mil RMB.
A/R of $585mil (probably company has difficulties collecting on time...)

Total Debt
1. DBS can demand $38.5mil (242 mil RMB) any time from company....
2. CB loan ($230 mil HK or 188 mil RMB)

Can company pull thru?
probably company has to scale back on its starch production by a large margin ? Will it lose its competitive advantage?
(need $500mil RMB to produce 150kton of starch, assuming potato at 500RMB per tonne)
Animal feed production didnt seem to help to mitigate losses?
Bad debt incurred for first time in history of company? (100mil RMB of impairment recognized for A/R)...

[Stockerman]

i think the share price will drop another leg to 5 cents or even lower...

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Qingmei with zero debt and cash per share of 12.5 cents is trading at abt 7 cents.

Essence with massive debt position is now at 8 cents?

think it has to drop rite? Share price matters as well as underlying business...

I agree that it might go down even more from here...

Or it can just stagnate at less than 10 cents for the foreseeable future like a lot of S chips...once drop never ever see the sunlight again..

Share price can't be investor's number one concern under normal circumstances. It should be the undelying business. IF the company can handle the cash flows in orderly fashion AND if their underlying profitability can recover next winter, everything will be fine regardless of the share price. If they screw up with cash flow, they will find themselves belly up before autumn.

With these prerequisites, they will easily return to EPS at SGD 0,1 or more. If that should ever be reached, dividend yield alone would be up from a cent per share. Way up.

[dzwm87]

Qingmei with zero debt and cash per share of 12.5 cents is trading at abt 7 cents.

Essence with massive debt position is now at 8 cents?

think it has to drop rite? Share price matters as well as underlying business...

I don't think value is based on share price alone... if CESS outstanding shares are very much lower than Qingmei... then yes..

Everybody was already expecting a net loss for CESS.. the question is has the loss been within expectations?

*not vested*

[Stockerman]

I was expecting loss in the region of 200mil RMB but it turned out to be 280mil....

The key thing is are the rest of the starch producers hit as badly as Essence? relativity is important here..

Does the company have problem meeting the CB instalment payment.. the next one is in end June.. $30mil HK...

Are the A/R coming in on time? How bad will the bad debt be?

Qingmei with zero debt and cash per share of 12.5 cents is trading at abt 7 cents.

Essence with massive debt position is now at 8 cents?

think it has to drop rite? Share price matters as well as underlying business...

I don't think value is based on share price alone... if CESS outstanding shares are very much lower than Qingmei... then yes..

Everybody was already expecting a net loss for CESS.. the question is has the loss been within expectations?

*not vested*

[Underdogger]

prospect of ongoing concern is questionable as of now...

cash holding too low....With this level of cash, can the company even sustain its day to day running, let alone repayment of CB in end June... the company might issue trading halt again for delay in payment??

Company has written off bad debt for the first time in history... this is another real concern. How much of its 585mil RMB will become "bad debt"??

[Stockerman]

someone just told me if a company who has not experienced and dealt with crisis before, how would it be able to deal with one NOW?

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too bad for company...had already declared bad debt of 90mil RMB for first time in history...things are looking very bad, with impending CB repayment in end June...

The company does not seem confident to be able to recover the remaining A/R on time for repayment or prepare for new harvest..

There is no chance for better results until Q3 (10-12/2012) and Q4 (1-3/2013). As regards to the results announcement in two weeks, there is one single interesting piece of information to be expected: Have the huge receivables turned into cash or have they not? If they have AND if they don't screw up next autumn, the sky is the only limit. I sincerely hope, that both of those conditions are fulfilled. Interesting dates:
-Results presentation 5/2012.
-Next CB pay date in the end of june.
-Loan negotiations 8/2012.
-First guesses of harvest season 11/2012.
-Results presentation of Q3 (2/2013).

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Coward or shirking from limelight?

Zhao Li Bin quitted as CEO !!!

[Humble]

The FY report projects a number of negatives.

Does Essence bring a young CEO from a smaller company to take the hits?
The growth spin with regards to the management change does not sound logical to me at this point of time.

I will shift my focus until there are more clarities.

[Stockerman]

no official announcement made?

Just to share my thoughts.

There is a married deal of about 2000 lots done yesterday. This shows confidence by another investor to pick up the dumping. I hope it is one of major shareholders that pick up so that it will be reflected in the SGX announcement. Let's wait for another 3 days to confirm this. If that's the case, the price will go up from here and espescially after the much awaited Q4 report.

I am vested in this counter. Are you?

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Does anyone know the background of the new CEO?

Or he is just a scapegoat?

The FY report projects a number of negatives.

Does Essence bring a young CEO from a smaller company to take the hits?
The growth spin with regards to the management change does not sound logical to me at this point of time.

I will shift my focus until there are more clarities.

[jzk]

too bad for company...had already declared bad debt of 90mil RMB for first time in history...things are looking very bad, with impending CB repayment in end June...

The company does not seem confident to be able to recover the maining A/R on time for repayment or prepare for new harvest..

CB repayment is relatively small and should cause no harm (of course, the contrary outcome would definitely be weird). At this stage of fiscal year, the company doesn't use that much cash, and the real test will be the autumn harvest season.

Cash flow problem was originated by two simultaneous drawbacks of the same cashflow-wise scale: 1) Price movements and unsuccessful potato buying and 2) explosion of receivables. The latter tied up 200-300M of cash in unprecedented way. If that pile was to be cashed out, there wouldn't be any problems. Considering the 90M write-down mentioned by Stockerman, I am a bit worried that this might not be the case.

Bad scenario: More write-downs, slow receivables turnover, problems with DBS -> The company will be in serious continuity problems by autumn, and will at least be forced to divest heavily and with unfavourable price level.

Good scenario: Minor write-downs, accelerating receivables turnover, successful harvest season -> The company will free hundreads of millions of cash, they will deal with DBS flying colours, they will have negotiation power to achieve a favourable joint venture in modified starch and eventually have turnover of well above a billion cny with eps of at least sgd 0,10. All this taking place this fiscal year.

[Underdogger]

The company has not changed its model of contracting potato purchase with farmers and this might spell serious trouble ..


If the potato purchase price is fixed based on existing opportunity cost of growing another crop other than potato, the company does not seem to be in a position of bargaining power ...ie at the mercy of government to provide minimum income to the farmers ... Is the company merely a tool for the govt to achieve its social objectives at the expenses of investors ?

Appreciate comments pls

too bad for company...had already declared bad debt of 90mil RMB for first time in history...things are looking very bad, with impending CB repayment in end June...

The company does not seem confident to be able to recover the maining A/R on time for repayment or prepare for new harvest..

CB repayment is relatively small and should cause no harm (of course, the contrary outcome would definitely be weird). At this stage of fiscal year, the company doesn't use that much cash, and the real test will be the autumn harvest season.

Cash flow problem was originated by two simultaneous drawbacks of the same cashflow-wise scale: 1) Price movements and unsuccessful potato buying and 2) explosion of receivables. The latter tied up 200-300M of cash in unprecedented way. If that pile was to be cashed out, there wouldn't be any problems. Considering the 90M write-down mentioned by Stockerman, I am a bit worried that this might not be the case.

Bad scenario: More write-downs, slow receivables turnover, problems with DBS -> The company will be in serious continuity problems by autumn, and will at least be forced to divest heavily and with unfavourable price level.

Good scenario: Minor write-downs, accelerating receivables turnover, successful harvest season -> The company will free hundreads of millions of cash, they will deal with DBS flying colours, they will have negotiation power to achieve a favourable joint venture in modified starch and eventually have turnover of well above a billion cny with eps of at least sgd 0,10. All this taking place this fiscal year.