On 20th Dec 2013 Xinquan held its AGM which was the longest AGM I ever attended. All the shareholders were disappointed that the company did not give any dividend while the cash value is about Rm 1.54 per share. Look at this report:
During the AGM, All the shareholders wanted to know why the company was not giving out dividend while the company had about Rm 462 million cash which is equivalent to Rm 1.54 per share. Some even doubted if the cash was really there.
The Chairman gave a long explanation in Mandarin and one of the directors translated the speech into English. I think most of the attendees could not really understand and got more agitated.
I took the opportunity to express my view. I said that 12 of the 30 largest shareholders as shown in the annual report, were members of my family. We still owned about 30 million shares. This was my worst share investment in my life but I still have some hope in Xingquan.
I said that I was willing to keep our shares if you could give us free convertible warrants which could be sold for cash. It was like giving cash to all the shareholders.
The Chairman after consulted with the other officials said that the board would consider my proposal of issuing free warrants.
The Chairman invited me to have lunch with the whole board after the AGM. During lunch he explained that they needed to conserve the cash for the following reasons:
1. Although they have been profitable ever since the company was listed and their cash pile was increasing every year, they needed cash to do business in China because the company, being relatively small, could not borrow money from the banks. Moreover, they also needed cash to purchase raw materials. In China buying on credit or delay payment would cost a lot more which the company wanted to avoid in order to remain competitive.
2. While still maintaining the existing sale system, the company is embarking on a new sale strategy by opening their own shops in new shopping malls. Most of the new shopping malls want only to accept the sales of branded goods so that they can uplift their own image. The company plans to open up about 5 new shops per month and they believe this new sale strategy will improve their bottom line. Besides paying rental deposit, the cost of a new sale outlet includes refurbishment, decorations and stocking up goods for sale.
3. The Chairman’s family being the largest shareholders also would like to have some cash dividend but his primary duty is to make sure that the company remains competitive in China. In the process, he is protecting the interest of all the shareholders. All he asked from all the shareholders is to be patient and understanding. He must be doing something right to be able to accumulate so much of cash profit.
4. He also said that the board would meet and consider my proposal of issuing free warrants which would benefit all the shareholders and when the warrants were converted the company would have additional cash to expand its business.
A few days ago, the price of Xingquan shot up more than 15% in one day after the Chinese papers carries an article about its free convertible warrant issues. I was told that the board of directors will be meeting on 27th Feb and they will make the announcement on 28th Feb.
CIMB were the underwriters at Rm 1.85 for the IPO and Fund Managers have bought most of the shares at the IPO. The latest annual report shows that its NTA is Rm 2.76 while its cash value is Rm 1.54 per share.
To allay your doubt of its cash pile, one of the founder of the Auditors S J Grant Thornton is my cousin who is a Chartered Accountant. His son is now the senior partner.
Would you buy it at the current price of about Rm 1.00?
I am obliged to tell you that my family members own about 30 million Xingquan shares and I am not asking to buy it and if you buy you are doing it at your own risk.