China Essence

[Stockerman]

let's see how many shareholders turn up tomo at 2pm Pan Pacific Hotel, especially the top 20....

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extract

"However, the directors of the Company have been unable to provide us with any documentary evidence regarding the status
of their negotiations with the banker in Singapore and the bondholders to satisfy ourselves that the defaults will be remedied
and the terms of the bank loan and the convertible bonds will be revised as ongoing negotiations are conducted verbally and
no agreement has been reached as at the date of our report. Owing to this limitation on our scope of work, we are unable
to obtain sufficient appropriate audit evidence to assess whether the Group has the ability to settle its liabilities that are due
for repayments, and therefore whether it is appropriate to use the going concern basis in preparing the consolidated financial
statements."

[Curiousparty]

the current business model might be fundamentally flawed and not sustainable at all due to the high raw material price (potatoes) and low selling price (starch = approx 7000 rmb per tonne now), which render it impossible for company to breakeven at all...

[Stockerman]

Company only had abt $20mil (RMB) as of end June 2013. Can it even start the upcoming harvesting cycle in mid-Aug?
very unlikely.... Will the 10,000 farmers revolt?

[potatolover]

With this new ruling, some S-chip chairman/CEO might be "cornered" and "stoned" to death by angry shareholders....
Essence will be one of them...

Probably, these cowards will run away before holding the next AGM in Spore...


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SGX introduces new rules on poll voting and general meetings in Singapore

Singapore Exchange (SGX) is pleased to introduce new listing rules to promote greater transparency in general meetings and support listed companies and trusts in enhancing their shareholder engagement. These new rules include (i) holding of general meetings in Singapore, (ii) voting by poll for all resolutions, and (iii) disclosures of relevant details on voting outcomes. Respondents from our earlier public consultation expressed strong support for the initiatives. The proposed rules were refined to take into consideration the constructive feedback received from the public as well as in consultation with the Monetary Authority of Singapore. The new rules apply to both Mainboard and Catalist companies and trusts.

[Stockerman]

Even if the starch price recovers, Essence would still continue to make losses from the high fixed cost base. Essence is constrained from producing high volume of starch because of low cash on hand, and slow collection of A/R.

With the low level of production, unit cost of starch will be very high, way beyond the selling price of starch.
Indeed, it will take some stroke of miracle for the company to recover..

Essence might enter SGX watch list soon and be a prime candidate for delisting in the next few yrs ahead...

[happyharvest]

Rights issue possible?

[Stockerman]

Possibly at 1 cents
Take up rate might be poor..

why would existing shareholders want to subscribe to a company that might have lost its leadership?
With a production level of 60,000 tons (potato starch), Essence might no longer be the leader..

Rights issue possible?

[happyharvest]

Possibly at 1 cents
Take up rate might be poor..

why would existing shareholders want to subscribe to a company that might have lost its leadership?
With a production level of 60,000 tons (potato starch), Essence might no longer be the leader..

Rights issue possible?

Who might be the next leader should China Essence lose the leadership?

I guess the potato starch price crisis not only affect CE, but also other companies in the same industry in China. So all should be more or less on even ground?

[Stockerman]

This is my take.

Other producers seem to be able to retrofit and produce starch from other cheaper raw materials.
Also, these smaller producers might not have locked in so many contracts to buy potatoes at higher prices (unlike Essence)....
So when potato price spiked, Essence paid sky high prices for their raw materials...
When potato price dropped, all the opportunistic producers came in to buy the cheap potatoes and then produced starch to compete with Essence's more expensive starch...
These smaller producers were fine because their breakeven selling prices were much lower.

During normal times, of course, Essence's reliance on such contracting with local farmers will work to their advantage, by ensuring that the company has a adequent supply of potatoes for the production of starch. But the company were caught pants down by the crisis two years ago, which seemed to have done them in until now...

Possibly at 1 cents
Take up rate might be poor..

why would existing shareholders want to subscribe to a company that might have lost its leadership?
With a production level of 60,000 tons (potato starch), Essence might no longer be the leader..

Rights issue possible?

Who might be the next leader should China Essence lose the leadership?

I guess the potato starch price crisis not only affect CE, but also other companies in the same industry in China. So all should be more or less on even ground?

[Stockerman]

Hi Specuvestor

Do u think Essence will turn around this year? Starch Price seemed to have improved to 7000 RMB (per tonne) level.

tks.

^^ Correct, and sometimes even interest expense. To a business, cashflow is most important, not PnL income.

net income +depreciation is roughly EBITDA, and EDITDA is actually a quick and dirty way of trying to standardise operating cashflow comparision across companies and industries.

Intrinsic value investors should pay more attention reading cashflow statements, including financing and investing cashflows, as we assume we are looking at the company as a business, not just a stock. It gives you a much better idea of how the balance sheet and PnL statement interact, and clues on certain discrepancies. For eg high cash company issuing debt.

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Hi Humble

Are u still vested?

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?