Divested of Dapai International: Am I Paranoid?

I have just divested of Dapai International at a $200 loss.
While I do not deny that panic was a factor, I think I do have legitimate reasons to "panic sell".

Today, many small and mid cap S-shares are in the red.

On Friday and then Sunday, 2 small cap S chips applied for a trading suspention, China Hongxing Sports, a shoemaker, and subsequently Hongwei Technologies. Both have had audit issues regarding their financial positions.

Many S shares on SGX look undervalued, with large cash hoards and extremely low PE Ratio, and Dapai is one of them. Dapai sits on 13c cash per share and has low PE Ratio of 2+, and is trading at less than NAV.

Why did I divest of Dapai?

1.) Management during the IPO promised at least 20% of profits to be paid out as dividend a year. They did not fulfil this for FY2010, saying

"Our Board decides not to declare dividend for FY 10 so as to retain reserve for the capex of the
new Anhui luggage plant and for future business development. The Board will consider
recommending a steady dividend policy of the Group at the end of next financial year."

They have already declared a dividend policy and  reneged on it. 20% of profits this year adds up to a mere S$10 million.

2.) They are sitting on a large cash horde of S$130 million ($110 million last year) and YET did a placement exercise at LOWER than the market price at that time.

There was no need to raise money, about S$10 million worth, since they already had $110 million in the bank at that time

The kicker: They paid out dividend of the same amount just a couple of months later.

3.) Regarding point number 1, the board decided to withhold dividend as they said they have to retain capital to build the 500 stores and the new luggage facility.

-Unless I've read the financial statement wrongly, I believe they have already factored in some payment for both the facility and shops, as seen by the S$13 million spent on PPE.
-They are STILL swimming in cash with S$130million and negligible debts.

4.) Interest payment for their cash is at RMB 561,000, silhouetted against total bank balance of RMB 659,535,000.

That's 0.08%. Again, I'm fairly sure the interest rates in PRC are higher than those offered by POSB. Even then, POSB offers 0.125%, and a higher amount if you have more money.

I find it hard to believe that Dapai can earn such a miserable amount of interest on their cash balance.

5.) Profit Margins. Dapai has a whopping 21.2% net profit margin. Contrast this to Nike, Inc, which despite having huge branding power achieves only 7% net profit margin, and adidas AG with 2.4% net profit margin.

Either Dapai has a monopoly over it's market (which it doesn't) or it can manufacture stuff SO cheaply or it's so high quality that people are willing to pay a premium for it, or ....

Average selling price per backpack is RMB 75, which is S$ 15. Pretty cheap.
Average selling price per luggage is RMB195.9, roughly S$ 50. Also pretty cheap.

Since Nike manufactures most of it's stuff in Vietnam and China, I assume that both Nike and Dapai's average cost price to be similar.

Dapai's figures then show that they can manufacture a backpack for S$ 11.50 and a luggage for S$ 38.50.

If Nike/adidas is able to sell a backpack for around S$ 50 (I saw at Queensway), and Dapai at S$ 15, I fail to see how Dapai can exceed Nike/adidas' margin. Of course, Nike/adidas make other things other than backpacks and 7% / 2% includes these other things. So I might be wrong here.

Hence I decided to divest of Dapai. When you can't trust the financial reports, you can't do accurate judging.
Not to say that Dapai is definitely cooking the books, but I have some doubts. I also did mention that I did not like Dapai's business.

Never should have invested when I was in doubt. An expensive $200 lesson made.

I will steer clear of the S-chip segment from now on, unless the parent or SSH are government owned.