China Essence

[happyharvest]

This is a piece of walking zombie company .... Very surprised that the company has enough cash to pay farmers for their potatoes .....

Is there news mentioning that?

[happyharvest]

Just checked the chart and I am surprise by the high volume trade last Friday. Any news that caused this?

[Curiousparty]

Any chance of the company recovering?

(not vested)

****************
Revenue
The Group’s revenue dipped 92.4% from RMB138.6 million in 1H FY2013 to RMB10.6 million
in 1H FY2014. As a marketing strategy, the Group stockpiled the inventory and did not make
any sales in 2Q FY2014.
Potato harvest occurs once annually from August to November in Northeast China where the
Group’s production facilities are based. Due to the limited working capital available, coupling
with the low potato yield and low starch yield caused by the heavy flood, the Company
purchased lesser potato for production in FY2014 as compared to FY2013.

[specuvestor]

We had this discussion already a year ago. It is not unforseeable. Their operating cashflow is not going to be able to maintain their working capital needs. It is a vicious cycle.

Only thing to look out for is if PRC banks will support them. Otherwise the assets may not even be worth much.

^^As discussed earlier, they are killed by 2 things: their capex expansion which will hurt their ACCOUNTING PnL for years to come. But that is sunk cost and shareholders since then had paid the price.

2ndly is their high OPEX to support their enlarged capacity. That is the real killer in cashflow as operating leverage bites the other way. Company can give up on the new plant and lay it waste, or continue to be burdened by the OPEX. Whether they can do so politically is another question.

Assuming they are still the largest starch manufacturer, local banks will likely to support their working capital needs up to a point. But paying off foreign creditors or adding value to shareholders are unlikely to be a priority.

CESS is likely to lose money on a PnL basis for years to come due to depreciation cost. That should not be a focus for investors now. The focus should be on whether their Operating Cashflow post AR write-offs, jump in labour costs etc will be positive on an ANNUAL basis because their cashflow is extremely lumpy.

FY2012 end March it was -RMB678m negative operating cashflow. Their peak season is now, 3Q end Dec, if they can't get positive operating cashflow this quarter, you can forget the other quarters.

http://www.valuebuddies.com/thread-830-p...l#pid38904

[Curiousparty]

Why don't the company just wind up? No point to continue reporting loss after loss for more than 2 yrs?
This is no chance that the company might recover..

http://chinaessence.listedcompany.com/ne.../id/390835

(not invested)

[Curiousparty]

The interest rate per annum is about 50% of that obtained via a typical credit card in Spore...
How long can the company keep itself afloat?

******************
The Board of Directors of China Essence Group Ltd. (the “Company”, or together with its subsidiaries,
the “Group”) wishes to announce that the Company’s indirect wholly-owned subsidiary, Elunchun
China Essence Co., Ltd (“鄂伦春嵩天薯业有限公司”), has obtained a loan of RMB100 million (the
“Loan”) from Daqing City Jinxin Micro Credit Co., Ltd (“大庆市金信小额贷款有限公司”) (the “Lender”),
for the period from 3 April 2014 to 3 May 2014 at an interest rate of 12% per annum and an arranger
fee of 1% of the total loan amount.
In return of the Loan, the Company’s wholly-owned subsidiary, Heilongjiang China Essence Co., Ltd.
agreed to pledge and charge the entire issued and paid up capital of Elunchun China Essence Co.,
Ltd amounting to RMB145.8 million to the Lender as collateral.
The proceeds from the Loan will be utilized for repay banking borrowings obtained from Bank of
Communications (“交通银行”) maturing 22 April 2014 to avoid downgrade of bank credit ratings.

[Curiousparty]

Mr market is very interesting. For a company with negative equity ( -ve $0.06), there are still people willing to pay 1 cents for such company..

Consecutive losses in the last three FY had destroyed shareholders' value and reduced the book value from $0.67 to -ve $0.06.

http://financials.morningstar.com/ratios...ture=en_US

We had this discussion already a year ago. It is not unforseeable. Their operating cashflow is not going to be able to maintain their working capital needs. It is a vicious cycle.

Only thing to look out for is if PRC banks will support them. Otherwise the assets may not even be worth much.

^^As discussed earlier, they are killed by 2 things: their capex expansion which will hurt their ACCOUNTING PnL for years to come. But that is sunk cost and shareholders since then had paid the price.

2ndly is their high OPEX to support their enlarged capacity. That is the real killer in cashflow as operating leverage bites the other way. Company can give up on the new plant and lay it waste, or continue to be burdened by the OPEX. Whether they can do so politically is another question.

Assuming they are still the largest starch manufacturer, local banks will likely to support their working capital needs up to a point. But paying off foreign creditors or adding value to shareholders are unlikely to be a priority.

CESS is likely to lose money on a PnL basis for years to come due to depreciation cost. That should not be a focus for investors now. The focus should be on whether their Operating Cashflow post AR write-offs, jump in labour costs etc will be positive on an ANNUAL basis because their cashflow is extremely lumpy.

FY2012 end March it was -RMB678m negative operating cashflow. Their peak season is now, 3Q end Dec, if they can't get positive operating cashflow this quarter, you can forget the other quarters.

http://www.valuebuddies.com/thread-830-p...l#pid38904

[specuvestor]

If it's any solace at least their numbers are more real than some other s-chips

[Curiousparty]

yes, at least China Essence has the "honesty" to report 3 straight years of massive loss that wiped out its entire equity base plus the massive "write-down" in assets (including A/R, inventory, etc)

At its golden age, it was trading at $1.00. Now, it is trading at 1 cent...

If it's any solace at least their numbers are more real than some other s-chips

[Curiousparty]

China Essence is one classic example of a S-chip, which many investors thought had a "competitive advantage" (or economic moat). Current book NAV = - ve 30 cents.

And some people are still trying to buy at 0.5/0.6/0.7 cents. This is really "punting".

http://www.chinaessence.com/index.html

If u visit its website, u can still see the logo flashing " China Essence named one of Forbes China's most promising company in 2010"
( a somber but now irrelevant reminder of its former glory...)