I have recently went to the AGM of Sinopipe at Lion Industrial Building which is around Paya Lebar area. This counter is one of my "tuition fees" in the equity markets as like many other S-Chips, it is still suspended but at least they do come up with an AGM which I hope it would be a positive signal that it would not be a total write off. The other heavy "tuition fees" in my investment journey is the previous China Enersave which is now called YHM. With the huge dilution from the issue of new shares, it as good as a total write off. You could by now realise that my heavy "tuition fees" are both S Chips (China Enersave is not really a S-Chip but their business are in China) and not surprisingly, I have totally given up hope on this sector.
Just some background of what led to this investment, it is in the pipe making business and with China's urbanisation and infrastructure needs, it seems to be a viable good growth industry to be operating. Moreover, their Price Earnings Ratio was just around 5 and with Net Asset Value of 50 cents. So getting it at around 20 plus cents seems like a good proposition with a margin of safety. Furthermore, one of my clients did mention to me that he is using Sinopipe products in Singapore and find the quality is not too bad.
For those who can recall, the S Chips sector was a value investor's paradise, with counters such as China Hongxin trading at below their cash holdings and many meeting Benjamin Graham stringent requirement of having their current asset more than their total liabilities. Also, many have fallen from their lofty highs of 2 dollars plus to their current price level of below 20 cents. During that period, I was also vested in counters such as China Farm and China Paper which I managed to get out in time with profits on hand.
However, I failed to take into account or did not placed huge emphasis on corporate governance and think this is a situation of at least a "one bagger" opportunity. For Sinopipe, it has given out generous dividend which give me more confidence of the management and their corporate governance structure. It was around 10 percent or 2 cents per share. I was thinking this could be the "Special One" and even the CEO was saying that we should not "Taint all Ships with a Brush". Thinking back, what a Classic!
So my lesson from this is that unless there are really solid institutional investors backing such as GIC or Temasek (China Minzhong), we should avoid S chips as those Top Notch China Companies would try to list in Hong Kong first.
Back to the AGM, the room it was held was sort of a training room. There were around 10 shareholders who attended. As my shares are brought using CPF and am not entitled to attend, so I got a proxy from another investor, Sadly, they did not received the proxy form and so I ended up as an observer and was unable to ask any questions.
I can feel the tension in the air as the shareholders started questioning the directors about the accounting irregularities and the status of their previous CEO who was the cause of the current predicament. Surprisingly, he was still under the director list but as expected, he was not present for the AGM,
I am really stunned that this previous CEO, Chen Lihui, is still conducting business and making deals with his newly formed company. Don't they have laws in china to bring such errant executives to task?
Currently, their new CEO, Dr Pu Weidong, is also one of the biggest shareholder through his investment holding company (Triumpus Capital). So I guess he is trying his very best not to let this investment be a total write off for himself. Their current chairman, Wang Sen, is just 38 years of age which the other directors highlighted that he has the right connections to get things done in China. When i try to google about the companies he is involved in, I don't seem to find anything hmmmm.
With the restated accounts after taking into consideration of the account irregularities, they are making losses for 2010 and heavier losses in 2011. The audited 2012 results will be out by October 2013. Current NAV stands at around 0.12 Sgd from the previous 0.5 Sgd. Ouch!
For those who are interested in the numbers, you can check out their annual reports and learn a lesson or two from "creative accounting": http://www.sgx.com/wps/portal/sgxweb/home/company_disclosure/annual_financial
The current directors plan is to stabilise the ship which should take at least a year and once things are back to normal, they will re-list the company. I certainly hope they are able to do so but chances are slim till I could see they are starting to turn in profits.
I would also like to highlight that that they have actually proposed an increase in director fees by almost one fold from 100k plus to 200k plus giving the reasons that there are more directors and the transition phase is tedious and time consuming for the directors. Really BS!
Nonetheless, I wish Dr Pu and his team all the best in turning over this company.
Lee
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