"The Directors wish to update Shareholders that the Company has had discussions with the
Singapore Exchange Securities Trading Limited regarding the proposed Rights Issue exercise and
understood that as the proceeds of the Rights Issue are intended to be used for a proposed
acquisition for which no agreement has been signed as yet and which when signed, will require
shareholders' approval, it is therefore pre-mature for the Company to carry out the proposed Rights
Issue exercise at this stage.
In view of the foregoing, the Company will postpone its plans for the proposed Rights Issue exercise
and will update Shareholders accordingly by way of announcement when and should it decide to
proceed with the rights issue exercise again."
Showing posts with label Dapai. Show all posts
Showing posts with label Dapai. Show all posts
Wednesday, July 6, 2011
Thursday, June 9, 2011
Dapai International- YET ANOTHER fund raising exercise.
Dapai International, a counter which I used to have and divested at a loss, has had an SGX annoucement here stating the 1 for 4 rights issue.
Dapai will be issuing new shares at $0.080 apiece, and the reason for it is
"the entire amount of the Net Proceeds of S$19.3 million for financing in part the potential
acquisition of a suitable target in the backpack and luggage business segment which the
Company is currently negotiating, or if the potential acquisition being unsuccessful, the entire amount of the Net Proceeds of
S$19.3 million will be used for the Group’s future expansion of sales and distribution
networks and channels as well as general working capital purposes."
I have to thank Heavens that I divested immediately after I felt something not right with this company. My reasons at that time here.
This Rights Issue is yet another reason to be wary of this company.
Dapai has a cash horde of over S$100,000,000, with negligible debt. Yet, it still begs shareholders for a mere S$19,300,000. In the words of Nick: " It is like a man who claims to have $100 in his pocket but need to beg for $19 to buy his favourite bag lol"" "
Look at the part of the SGX annoucement I bolded. Essentially, what Dapai is telling you is, should he fail to secure stock of his favorite bag, he will just keep the money in his wallet, thanks for your generosity :)
I emailed the IR in March 2011 to enquire why they did not pay a dividend. The IR replied they needed the cash for it's working capital. Yet, still need to beg shareholders for money again? Huh? Wu yiah bo?
Dapai will be issuing new shares at $0.080 apiece, and the reason for it is
"the entire amount of the Net Proceeds of S$19.3 million for financing in part the potential
acquisition of a suitable target in the backpack and luggage business segment which the
Company is currently negotiating, or if the potential acquisition being unsuccessful, the entire amount of the Net Proceeds of
S$19.3 million will be used for the Group’s future expansion of sales and distribution
networks and channels as well as general working capital purposes."
I have to thank Heavens that I divested immediately after I felt something not right with this company. My reasons at that time here.
This Rights Issue is yet another reason to be wary of this company.
Dapai has a cash horde of over S$100,000,000, with negligible debt. Yet, it still begs shareholders for a mere S$19,300,000. In the words of Nick: " It is like a man who claims to have $100 in his pocket but need to beg for $19 to buy his favourite bag lol"" "
Look at the part of the SGX annoucement I bolded. Essentially, what Dapai is telling you is, should he fail to secure stock of his favorite bag, he will just keep the money in his wallet, thanks for your generosity :)
I emailed the IR in March 2011 to enquire why they did not pay a dividend. The IR replied they needed the cash for it's working capital. Yet, still need to beg shareholders for money again? Huh? Wu yiah bo?
Monday, February 28, 2011
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.
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.
Monday, February 14, 2011
Dapai International Holdings: Looking to divest
Having thought about it for awhile, I have decided to divest my stake in Dapai International as soon as the price turns up. I was helped along by the many helpful cbox friends in LP's cbox.
My initial reasons for buying Dapai was purely because it was undervalued, I mentioned that it's business model was poor. Original Post here
It's PER is at 3+, and trading at 2/3 of NAV.
Intrinsic value calculated as a function of free cash flow with 10% discount rate and 0% growth is $0.52.
Very attractive right? Definitely. very undervalued.
However, there are many many cons against it.
Let's talk about it's fundamentals first.
- Company is in a growing, but not fast growing, segment of retail, Backpacks and Luggage.
Affluent Chinese can afford to buy highly differentiated retail goods like Samsonite, LV etc. Poorer chinese people probably would not look at Dapai, whose backpacks sell at about RMB 80-100. This leaves the middle class Chinese segment.
-High competition. Low barriers to entry.
-Product differentiation is not there.
Now let's go into the juicy bits:
- Company is a S-chip. Some China plays come to SGX having been rejected first by HKSE. It's financial figures might be...let's just say..."virtual". Lack of corporate transparency.
-Company might never reach it's purported intrinsic value. Why?
1.) Lack of interest in S plays
2.) Poor analyst coverage-CIMB used to cover Dapai, unsure why they decided to stop
3.) Poor institutional demand- BB's drive the market, not us.
4.) Lousy business.
I got the rest from Valuebuddies.com: link here
From member D.O.G. :
"2. Margins & Returns on Capital
Price is the main consideration for consumers since no-brand backpacks have the highest sales. Gross margin of 30% and net margin of 17% (both figures from 1H10) are pretty high for a company with a small market share in a fragmented, price-conscious, low cost-of-failure industry.
ROE for 2008 was 35%, for 2009 it was 21%. ROA for these years was 31% and 19%. These are incredibly high rates of return for a manufacturing business.
The pieces don't seem to fit.
3. Share Placement
The company did a share placement in May 2010. This was at a time when the company had only RMB 24m of debt and was swimming in cash. On 31 Mar 2010, almost 40% of shareholders' equity consisted of cash, RMB 551m. Yet the company chose to issue shares BELOW the reported tangible book value per share.
If the financial statements are correct there was absolutely no need to raise any money, and definitely not at such a low price. The amount raised was RMB 58m, only about 10% of the amount recorded on the books prior to the placement. There was basically no real change in the cash position after the placement, except that the new money was left in the holding company i.e. not injected into China.
The company claims it needed the money for "overseas working capital" or dual-listing expenses. Well, the 30 Mar 2010 balance sheet shows RMB 776m in retained earnings and RMB 551m of cash at the Group level. Surely one of the cash-rich subsidiaries could spare RMB 58m for a dividend to the parent company?
There is no excuse for not being able to get money out of China, since the company was able to do just that for its dividend payment in May 2010. Money left China and was paid to the holding company, and was then paid out of the holding company to shareholders.
===
The placement alone already does not make any sense. Put together with the impressive margins and supernormal returns on capital, the whole thing looks very odd.
Also, the placement proceeds of RMB 58m almost exactly match the money paid out in dividends (RMB 60m). The placement was done in April, and the dividends were paid in May. Maybe it's all just an amazing coincidence and I have an overactive imagination. Maybe.
Maybe the stock is cheap for a reason."
I will err on the safe side and will be looking to divest after FY2010 results release soon.
If there' divided declared, I'll hold till XD.
My initial reasons for buying Dapai was purely because it was undervalued, I mentioned that it's business model was poor. Original Post here
It's PER is at 3+, and trading at 2/3 of NAV.
Intrinsic value calculated as a function of free cash flow with 10% discount rate and 0% growth is $0.52.
Very attractive right? Definitely. very undervalued.
However, there are many many cons against it.
Let's talk about it's fundamentals first.
- Company is in a growing, but not fast growing, segment of retail, Backpacks and Luggage.
Affluent Chinese can afford to buy highly differentiated retail goods like Samsonite, LV etc. Poorer chinese people probably would not look at Dapai, whose backpacks sell at about RMB 80-100. This leaves the middle class Chinese segment.
-High competition. Low barriers to entry.
-Product differentiation is not there.
Now let's go into the juicy bits:
- Company is a S-chip. Some China plays come to SGX having been rejected first by HKSE. It's financial figures might be...let's just say..."virtual". Lack of corporate transparency.
-Company might never reach it's purported intrinsic value. Why?
1.) Lack of interest in S plays
2.) Poor analyst coverage-CIMB used to cover Dapai, unsure why they decided to stop
3.) Poor institutional demand- BB's drive the market, not us.
4.) Lousy business.
I got the rest from Valuebuddies.com: link here
From member D.O.G. :
"2. Margins & Returns on Capital
Price is the main consideration for consumers since no-brand backpacks have the highest sales. Gross margin of 30% and net margin of 17% (both figures from 1H10) are pretty high for a company with a small market share in a fragmented, price-conscious, low cost-of-failure industry.
ROE for 2008 was 35%, for 2009 it was 21%. ROA for these years was 31% and 19%. These are incredibly high rates of return for a manufacturing business.
The pieces don't seem to fit.
3. Share Placement
The company did a share placement in May 2010. This was at a time when the company had only RMB 24m of debt and was swimming in cash. On 31 Mar 2010, almost 40% of shareholders' equity consisted of cash, RMB 551m. Yet the company chose to issue shares BELOW the reported tangible book value per share.
If the financial statements are correct there was absolutely no need to raise any money, and definitely not at such a low price. The amount raised was RMB 58m, only about 10% of the amount recorded on the books prior to the placement. There was basically no real change in the cash position after the placement, except that the new money was left in the holding company i.e. not injected into China.
The company claims it needed the money for "overseas working capital" or dual-listing expenses. Well, the 30 Mar 2010 balance sheet shows RMB 776m in retained earnings and RMB 551m of cash at the Group level. Surely one of the cash-rich subsidiaries could spare RMB 58m for a dividend to the parent company?
There is no excuse for not being able to get money out of China, since the company was able to do just that for its dividend payment in May 2010. Money left China and was paid to the holding company, and was then paid out of the holding company to shareholders.
===
The placement alone already does not make any sense. Put together with the impressive margins and supernormal returns on capital, the whole thing looks very odd.
Also, the placement proceeds of RMB 58m almost exactly match the money paid out in dividends (RMB 60m). The placement was done in April, and the dividends were paid in May. Maybe it's all just an amazing coincidence and I have an overactive imagination. Maybe.
Maybe the stock is cheap for a reason."
I will err on the safe side and will be looking to divest after FY2010 results release soon.
If there' divided declared, I'll hold till XD.
Tuesday, January 18, 2011
Dapai International Holdings: Broke out of multiweek consolidation
One of my value buys, Dapai International, (my FA here) broke out of it's relentlessly tested resistance of 22c to close at 24c today with a high of 24.5c, along with volume of 21.3million shares traded, as contrasted by daily average volume of 0.5 million to 1.5million the past few weeks.
It's unclear why it gapped up slightly today and why volume was so high, since there's been no announcements from the company since November 2010 where they issued a profit warning.
I'll be watching SGX for any corporate announcements on insider buying.
Very curious as to who is buying up this counter, could it be the Big Boys (Institutional Owners) or the retail investors?
When I bought this counter in December, the counterparty was UBS Securities, which likely meant that an institutional owner sold it's shares to me(which actually is not a good sign since institutional players are the ones who control the market, especially with illiquid counters like this), since UBS does not offer retail brokerage services. Contrast that to PohTC(my comments here), where the CP was CIMB and First REIT where the CP was OCBC Securities, which means that it would likely have been retail investors selling.
I still believe in this counter's extreme discount to it's intrinsic value, and I will be holding on to my small position till it reaches my TP of $0.52 (DCF valuation of it's FCF with 10% Discount and 0% growth). However, I will not be accumulating on weakness, as all my calculations and valuations are based on the assumption that the figures are true and accurate. Let's not forget China Aviation Oil, Jurong Tech, Fibrechem, China Milk ad nauseum.
It's unclear why it gapped up slightly today and why volume was so high, since there's been no announcements from the company since November 2010 where they issued a profit warning.
I'll be watching SGX for any corporate announcements on insider buying.
Very curious as to who is buying up this counter, could it be the Big Boys (Institutional Owners) or the retail investors?
When I bought this counter in December, the counterparty was UBS Securities, which likely meant that an institutional owner sold it's shares to me(which actually is not a good sign since institutional players are the ones who control the market, especially with illiquid counters like this), since UBS does not offer retail brokerage services. Contrast that to PohTC(my comments here), where the CP was CIMB and First REIT where the CP was OCBC Securities, which means that it would likely have been retail investors selling.
I still believe in this counter's extreme discount to it's intrinsic value, and I will be holding on to my small position till it reaches my TP of $0.52 (DCF valuation of it's FCF with 10% Discount and 0% growth). However, I will not be accumulating on weakness, as all my calculations and valuations are based on the assumption that the figures are true and accurate. Let's not forget China Aviation Oil, Jurong Tech, Fibrechem, China Milk ad nauseum.
Thursday, December 23, 2010
Bought First REIT and Dapai
As per my post on Dapai, I mentioned I was not too keen on Dapai's business but was impressed at it's financials. Hence I took a small position on Dapai, with 6 lots @ $0.185. We'll see what happens when it releases it's 4Q 2010 results in Jan 2011.
I also vested myself into First REIT @0.700, giving myself a 9.00% dividend yield for 2011, using the 6.4c per unit guideline from the manager.
I will be setting aside a small amount, probably $1k to try CFD's out. IG Markets has a promotion whereby people new to CFD's will be able to pay only $3 in commission their first 2 weeks playing CFD, then $7.50 the next 2 weeks, then $15 the next 2 weeks. After that will be normal $25. (City Index charges $10 only ....)
With my remaining money, I'm not whether to invest in commodities/oil firms here in Singapore, like GoldenAgri, Indofood Agri, Olam or Mewah, or pump it into the American market with Archer Daniels Midland (a dividend aristocrat), ExxonMobil (another dividend aristocrat) or PetroChina ADR. PetroChina's dividend yield is lower than XOM, However there is a 30% withholding tax levied on all American stock dividends. I'm not sure whether PetroChina is liable for ths 30% Tax. Some other blogger posted about him having a Telefonica ADR and paying only Spain's withholding tax. Hmm...wonder what's China's withholding tax rate for dividends? Shall go find out.
I recently found out that PetroChina is the world's largest company by market capacity and ICBC is the world's largest bank by market cap, without having a significant overseas presence...wow! Huge testament to China's might.
In other news, the Pound Sterling has depreciated again vs. SGD. Great!
I also vested myself into First REIT @0.700, giving myself a 9.00% dividend yield for 2011, using the 6.4c per unit guideline from the manager.
I will be setting aside a small amount, probably $1k to try CFD's out. IG Markets has a promotion whereby people new to CFD's will be able to pay only $3 in commission their first 2 weeks playing CFD, then $7.50 the next 2 weeks, then $15 the next 2 weeks. After that will be normal $25. (City Index charges $10 only ....)
With my remaining money, I'm not whether to invest in commodities/oil firms here in Singapore, like GoldenAgri, Indofood Agri, Olam or Mewah, or pump it into the American market with Archer Daniels Midland (a dividend aristocrat), ExxonMobil (another dividend aristocrat) or PetroChina ADR. PetroChina's dividend yield is lower than XOM, However there is a 30% withholding tax levied on all American stock dividends. I'm not sure whether PetroChina is liable for ths 30% Tax. Some other blogger posted about him having a Telefonica ADR and paying only Spain's withholding tax. Hmm...wonder what's China's withholding tax rate for dividends? Shall go find out.
I recently found out that PetroChina is the world's largest company by market capacity and ICBC is the world's largest bank by market cap, without having a significant overseas presence...wow! Huge testament to China's might.
In other news, the Pound Sterling has depreciated again vs. SGD. Great!
Monday, December 20, 2010
My Financial Situation...and stock notes today
I've been reading through many Singaporean investment bloggers. Many people, in their late 20s to early 30s, already have SGD 100k to SGD 300k investable liquid assets. I just turned 20 not long ago and I have...below 20k. Understandable, since I'm an NSF...
Unfortunately...this will dog me through to my early 30s, or even further. Why?
I'm going to England for University...after being rejected by a certain faculty in NUS.
It's going to cost me(read: parents) a bomb...In excess of SGD 300,000.
Obviously there has to be a ROI on that investment...
How long will I take to earn back 300k (with interest!)?
Looks like I'll be a low net worth individual (indeed, a negative net worth) for quite some time...
Back to stocks today:
-I was sorely tempted to pick up KeppelCorp warrants again this morning after they fell back to $0.325 (as KepCorp fell to $10.60). Decided not to, as TA tells me it isn't a good time, and also because I went out with my friends in the afternoon (just came back actually), and ANYTHING can happen...
-First REIT rose to $0.705, which kind of prices me out. I was (still am) looking to enter at $0.680.
-Dapai fell again to $0.190. Will probably buy some (5-7lots) before 4Q 2010 results come in early Jan.
-STI ETF fell to $3.20. Still too expensive for me. STI has formed a head and shoulders formation. Might see some downside. Will be in the sidelines for now.
Unfortunately...this will dog me through to my early 30s, or even further. Why?
I'm going to England for University...after being rejected by a certain faculty in NUS.
It's going to cost me(read: parents) a bomb...In excess of SGD 300,000.
Obviously there has to be a ROI on that investment...
How long will I take to earn back 300k (with interest!)?
Looks like I'll be a low net worth individual (indeed, a negative net worth) for quite some time...
Back to stocks today:
-I was sorely tempted to pick up KeppelCorp warrants again this morning after they fell back to $0.325 (as KepCorp fell to $10.60). Decided not to, as TA tells me it isn't a good time, and also because I went out with my friends in the afternoon (just came back actually), and ANYTHING can happen...
-First REIT rose to $0.705, which kind of prices me out. I was (still am) looking to enter at $0.680.
-Dapai fell again to $0.190. Will probably buy some (5-7lots) before 4Q 2010 results come in early Jan.
-STI ETF fell to $3.20. Still too expensive for me. STI has formed a head and shoulders formation. Might see some downside. Will be in the sidelines for now.
Wednesday, December 15, 2010
Dapai International Holdings Fundamental Analysis
DAPAI int'l is a backpack/luggage manufacturer/distributor in PRC
Is this company a value play?
It recently issued a profit warning for 3Q 2010, with supplier problems, they couldn't deliver on backpacks/luggage.
What the CEO and board decided to ". We had sub-contracted all our luggage
manufacturing to a number of suppliers, of whom two major suppliers were unable to meet
our orders due to their labour shortage problems. As a result, our luggage sales had been
adversely affected.
The significant drop in sales and profits after tax for 3Q 10 was mainly attributable to (i) the
consequential decrease in sales of luggage products ; and (ii) the special discounts on
backpack products given to distributors in order to compensate their loss on luggage
shortage.
The Group has explored other avenues, including sourcing from other new luggage suppliers
and manufacturing a number of our luggage products in house, to reduce the impact of the
current luggage supply issue.
In order to ensure steady luggage supply in the long run, the Board has resolved that the
Group needs to build a new manufacturing facility specifically for luggage products."
Is this a problem that can be quickly solved? Major suppliers with labour problems blamed as the cause of the loss in revenue and profits. The board's solution to the problem is to build a new factory for luggage products. Ermmmmmm........................ am I missing something here?
If McDonald's was experiencing a beef patty shortage due to lack of abattoirs, will building a new slaughterhouse solve the issue? Wouldn't the slaughterhouse be empty due to the labor problems?
hmm.....
anyway....
1.) History of Consistently increasing sales, earnings and cash flow
SALES: sales in 2010 dropped YOY in 1st quarter (no explanation), grew in 2Q, Dropped in 3Q due to the reasons stated in the profit warning.
Profits: Gross profits increased YOY in 2Q, but dropped in 1Q and 3Q.
Net profits: Again, slid during 1Q and 3Q but increased in 2Q.
Ok, net profits, gross profits and sales roughly correspond, which does not lead me to question the earnings quality.
2.) Good competitive advantage
Competitive Advantage: one of the biggest(if not the biggest) backpack/luggage manufacturers in PRC leads it to have substantial economies of scale in production, logistics etc
But other than the economies of scale, I fail to see how it has a wide economic moat. In fact, it seems to have little to no other competitve advantage other than the EOS.
It is a non branded manufacturer, means "DAPAI" doesn't have the cachet that LV, AX has. Not even deuter, nike or adidas. In other words, it's products are in what economists term a "monopolistic competition" as compared to an "oligopoly" in the luxury bag segment. what monopolistic competition means in theory is that firms like dapai don't have much price setting power like Louis Vuitton or even Nike/Adidas has. i.e. If all non branded bags are selling at RMB 100, if it prices it's dapai brand bags at RMB 101, people won't buy it. Whereas Nike can price their backpacks at SGD 50, and Tan Ah Kao brand undercuts Nike by selling at SGD 20, people will still buy the Nike.
3.) Future growth drivers
As an industry, yes, due to the rapid affluence of PRC, people are able to travel more, and buy proper bags like dapai makes. But other than the industry increase, I don't see much growth drivers for dapai specifically. Having said that, it would be good to buy into industries which are in sector rotation now.
4.) Long term debt < 3x per annum profits
Dapai is in good financial shape. other companies have Non-Current liabilities. Dapai has non current liability. yes, singular. RMB22.68mil in deferred tax liability, and RMB 33million in bank loan, which is payable within 12 months. Year to date Dapai's profits are RMB215million . Can easily pay off it's long term debt with just a single quarter's earnings.
5.) ROE above average
Assuming Dapai continues at it's current pace (i simply divided the 3 Quarter earnings by 3 and multiplied by 4), it's ROE is 18.5%
Not sure how impressive is that, I can't find another backpack maker listed on SGX.
6.) Low capital expenditure reqd. to maintain current operations
Well, obviously since the board has mandated that a new facility to be built, a substantial amount of capex is required, but relatively short term. Other than that, can't see much capex required to sustain the business, which is good.
7.) Senior management staff are holding, buying the stock
Chairman Chen Xizhong owns slightly more than 50% of the stock.
When to Buy:
1.) Undervalued
Px less than intrinsic value
Ok, here goes my intrinsic value calculations again.
Discount Rate of 10%
No Growth :RMB 2.66 or SGD 0.52
5% Growth: RMB 3.45 or SGD 0.68
10% Growth:RMB 4.59 or SGD 0.91
Discount Rate of 15% (hurdle rate)
No Growth:RMB 2.16 or SGD 0.43
5% Growth: RMB2.72 or SGD 0.54
10% Growth: RMB 3.49 or SGD 0.69
P/E Ratio: Price: 0.200
Earnings: average of first 3 quarters made up to 1 year: SGD0.0576
which leads to a low low P/E Ratio of 3.47
P/NAV:
NAV RMB 1.5481 or SGD 0.30534
P/NAV or otherwise known as P/book value: 0.667!!!
Stock Price looks very cheap.
2.) Stock price in consolidation phase/ uptrend
Downtrend since the profit warning.
My conclusion:
The business doesn't look very attractive, yet, it's financial position is strong. However, has significant blemishes as it's cash flow dropped from 2009 to 2010. Company is getting poorer.
The stock price is extremely undervalued however you look at it, even when i used a super high discount rate and no growth, the intrinsic value is still at 43 cents.
Trading at 2/3 of NAV.
As for the business side:
most of which i've covered on top; one thing i don't like is that dapai is opening 500 new stores in PRC, by 1H 2011. erm...if you open new stores with lack of inventory...what are you gonna sell?
my opinion: I might enter small , maybe 4 or 5 lots or so. I don't like the business, but it's very cheap. I'll have to think very hard on this. With the supplier issue, it's 4Q results are going to be poor too.
Any opinions?
Disclaimer: I base all my opinions that the books are not cooked. Which cannot be assumed for these S-chips.
Is this company a value play?
It recently issued a profit warning for 3Q 2010, with supplier problems, they couldn't deliver on backpacks/luggage.
What the CEO and board decided to ". We had sub-contracted all our luggage
manufacturing to a number of suppliers, of whom two major suppliers were unable to meet
our orders due to their labour shortage problems. As a result, our luggage sales had been
adversely affected.
The significant drop in sales and profits after tax for 3Q 10 was mainly attributable to (i) the
consequential decrease in sales of luggage products ; and (ii) the special discounts on
backpack products given to distributors in order to compensate their loss on luggage
shortage.
The Group has explored other avenues, including sourcing from other new luggage suppliers
and manufacturing a number of our luggage products in house, to reduce the impact of the
current luggage supply issue.
In order to ensure steady luggage supply in the long run, the Board has resolved that the
Group needs to build a new manufacturing facility specifically for luggage products."
Is this a problem that can be quickly solved? Major suppliers with labour problems blamed as the cause of the loss in revenue and profits. The board's solution to the problem is to build a new factory for luggage products. Ermmmmmm........................ am I missing something here?
If McDonald's was experiencing a beef patty shortage due to lack of abattoirs, will building a new slaughterhouse solve the issue? Wouldn't the slaughterhouse be empty due to the labor problems?
hmm.....
anyway....
1.) History of Consistently increasing sales, earnings and cash flow
SALES: sales in 2010 dropped YOY in 1st quarter (no explanation), grew in 2Q, Dropped in 3Q due to the reasons stated in the profit warning.
Profits: Gross profits increased YOY in 2Q, but dropped in 1Q and 3Q.
Net profits: Again, slid during 1Q and 3Q but increased in 2Q.
Ok, net profits, gross profits and sales roughly correspond, which does not lead me to question the earnings quality.
2.) Good competitive advantage
Competitive Advantage: one of the biggest(if not the biggest) backpack/luggage manufacturers in PRC leads it to have substantial economies of scale in production, logistics etc
But other than the economies of scale, I fail to see how it has a wide economic moat. In fact, it seems to have little to no other competitve advantage other than the EOS.
It is a non branded manufacturer, means "DAPAI" doesn't have the cachet that LV, AX has. Not even deuter, nike or adidas. In other words, it's products are in what economists term a "monopolistic competition" as compared to an "oligopoly" in the luxury bag segment. what monopolistic competition means in theory is that firms like dapai don't have much price setting power like Louis Vuitton or even Nike/Adidas has. i.e. If all non branded bags are selling at RMB 100, if it prices it's dapai brand bags at RMB 101, people won't buy it. Whereas Nike can price their backpacks at SGD 50, and Tan Ah Kao brand undercuts Nike by selling at SGD 20, people will still buy the Nike.
3.) Future growth drivers
As an industry, yes, due to the rapid affluence of PRC, people are able to travel more, and buy proper bags like dapai makes. But other than the industry increase, I don't see much growth drivers for dapai specifically. Having said that, it would be good to buy into industries which are in sector rotation now.
4.) Long term debt < 3x per annum profits
Dapai is in good financial shape. other companies have Non-Current liabilities. Dapai has non current liability. yes, singular. RMB22.68mil in deferred tax liability, and RMB 33million in bank loan, which is payable within 12 months. Year to date Dapai's profits are RMB215million . Can easily pay off it's long term debt with just a single quarter's earnings.
5.) ROE above average
Assuming Dapai continues at it's current pace (i simply divided the 3 Quarter earnings by 3 and multiplied by 4), it's ROE is 18.5%
Not sure how impressive is that, I can't find another backpack maker listed on SGX.
6.) Low capital expenditure reqd. to maintain current operations
Well, obviously since the board has mandated that a new facility to be built, a substantial amount of capex is required, but relatively short term. Other than that, can't see much capex required to sustain the business, which is good.
7.) Senior management staff are holding, buying the stock
Chairman Chen Xizhong owns slightly more than 50% of the stock.
When to Buy:
1.) Undervalued
Px less than intrinsic value
Ok, here goes my intrinsic value calculations again.
Discount Rate of 10%
No Growth :RMB 2.66 or SGD 0.52
5% Growth: RMB 3.45 or SGD 0.68
10% Growth:RMB 4.59 or SGD 0.91
Discount Rate of 15% (hurdle rate)
No Growth:RMB 2.16 or SGD 0.43
5% Growth: RMB2.72 or SGD 0.54
10% Growth: RMB 3.49 or SGD 0.69
P/E Ratio: Price: 0.200
Earnings: average of first 3 quarters made up to 1 year: SGD0.0576
which leads to a low low P/E Ratio of 3.47
P/NAV:
NAV RMB 1.5481 or SGD 0.30534
P/NAV or otherwise known as P/book value: 0.667!!!
Stock Price looks very cheap.
2.) Stock price in consolidation phase/ uptrend
Downtrend since the profit warning.
My conclusion:
The business doesn't look very attractive, yet, it's financial position is strong. However, has significant blemishes as it's cash flow dropped from 2009 to 2010. Company is getting poorer.
The stock price is extremely undervalued however you look at it, even when i used a super high discount rate and no growth, the intrinsic value is still at 43 cents.
Trading at 2/3 of NAV.
As for the business side:
most of which i've covered on top; one thing i don't like is that dapai is opening 500 new stores in PRC, by 1H 2011. erm...if you open new stores with lack of inventory...what are you gonna sell?
my opinion: I might enter small , maybe 4 or 5 lots or so. I don't like the business, but it's very cheap. I'll have to think very hard on this. With the supplier issue, it's 4Q results are going to be poor too.
Any opinions?
Disclaimer: I base all my opinions that the books are not cooked. Which cannot be assumed for these S-chips.
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