- They are either IPOs or just listed for a year or so. Chances are they might cook the their earnings
- Why of all places they pick Malaysia when listings Hong Kong or Singapore generally tend to get better valuation (higher PE)
- Chinese companies are known for fraudulent accounting
And I have no answer to any of this question. So it is Unrated. But it is hard to ignore the cheap valuation they are getting: XingQuan (PE 4.62) and Multi Sports (PE 1.92) as the time of writing. XiDeLang is just listed, so I don't have much interest on this one. Sinotop is what we called back door listing, so I'm even more skeptical on them. Multi Sports is pretty much covered ahYap's Blog, so I'll turn my attention to XingQuan who looks to me have a little more history.
If you read The Edge cover story a year back (You can still find it on Google), this business started with initial capital RM255 producing 20 pairs of shoes in the early days. Then blah blah blah..it has grown to what it is today, listed in KLSE and pretty sizable for Malaysian market as well. XingQuan's factory is located in the province of JinJiang who according to Mr Wu Qing Quan a "City of Shoes" in China which is also known for its sweatshop factory condition. Then the listing story goes blah blah blah...but one thing to take notice though "
Let's compare XingQuan's fundamental versus their almost direct competitors Multi Sports and against the likes of Nike, Adidas and Li Ning. A look at the sales and earnings growth the Chinese companies do look to live up to their "explosive" reputation. All three of them manage not just double digits growth over the last 4 years but are above 30% while Nike only manages a single digit growth despite its exposure to China's market and Adidas....dismal.
Brand name does seem to play a part on the gross profit margin where all three well-known brands manage higher margin as compare to those two. However when it comes to net profit margin, the little XingQuan and Multi Sports go back to the top by having more than 20% margin over the years. I would guess the "Big Three" despite having a better brand, they are using a lots of money to promote their brand (except for Adidas which seems to have management problem). Another reason why XingQuan has a stronger net operating income ratio is because it has better cost management through its integrated model where
On the balance sheet, Nike prove to be stronger and more prudent over the years where it gets more than 1 on the super stress test (Current Asset - Inventories - Receivables: Current Liabilities). However, product based companies like these have wider diversification so it is unlikely they'll have too much trouble collecting most of their receivables. In this case, XingQuan has an >1 ratio an even in the Super Stress it is close to 1 in FY2009. So liquidity wise they look okay to me.
I would have thought all these half sport half fashion company could struggle to turn their inventories into sales especially the lesser brand ones. But I am proven wrong. They turn out better than expected. Both XingQuan inventories turnover take roughly a month and Multi Sport could do it in less than a month where as the Big Three take roughly a month or two. I am guessing their OEM business makes them able to manage their inventories better and whatever they produced would go straight to their customer. That's the reason why we could see Multi Sport takes shorter time than XingQuan because the latter have the brand and products of their own while the Big Three who fully owns their product takes even longer.
On receivables turnover, if we were to take these 5 as industry standard, XingQuan does look slower than industry average and high on receivables. It is not particularly worrying but it does raise a little bit of concern. They are few reasons that might have contribute to XingQuan quick inventory turnover 1) bi-annual sales 2) they don't operate any retail store. I'm not sure how they are able to do by annual sales without operating a store but what I know is, if they don't do retailing, they don't have the problem of inventories pile up. They just past it to the retailers.
So all in all, financial wise, Xing Quan is okay. From its gross profit ratio, its management has prove pretty resilience considering they have not just maintain the profit ratio but increase it as well in FY08 when raw material prices hit historical high that time (XingQuan FY ends in June). But all these figures are pre-listing figures except for FY09. Are these a fraud? I'm afraid I can't answer that..