Haike Chemical Share Discussion Threads

[vatking] 27/10/2011 11:44

The normal way forward would be a convertible bond issue or a private placement, as I don't believe that most shareholders would want to increase their stake or have the liquidity.

The bond issue would be a problem (and costly) as the dividend yield is 6.5%. You may wish to work out what the effective cost % of borrowing is, but obviously with the restricted cash it is probably at a 20% premium over commercial rates.

You must remember that as they pay down their loans they are building shareholder value, so that if they repay $38 million that's a $1.00 per share out of profits in net worth, which really doubles the value of your shares and more, except the market is illogical, and would rather give value to fantasy and bubbles.

[zaksab] 26/10/2011 21:26

Thanks. To be honest I think the fundamentals of this business are terrible and that the capital structure is excessively propagated by debt. The fact that restricted cash is piling up is certainly unhelpful (this was one of the reasons i had sugggested that the banks have them by the balls) - in an ideal world it could have been used to pay down the short term debt and bring the interest costs down to more manageable levels.

To have an investment case based upon a dividend yield would be wrong in my opinion and i would aim off the earnings yield because of the operational and financial leverage, capital structure etc.

Time will tell but I am personally willing to bet you that HAIK will have to go through some sort of capital restructuring over the next 3 years. I would guess that an equity raise would be better for current shareholders than a debt for equity swap. On the off chance that I am right then any distribution made now or in the future pre a restructuring would not be in long-term shareholders interests.

imo, dyor etc

[vatking] 26/10/2011 19:41

You are moving in the right direction in your thinking. Restricted cash is a way of bumping up the true interest rate, practiced by Users. Virtually no interest on deposits and ostensibly the going rate for loans. What they need to do is refinance, but there are obviously reasons why this has not been done. However they have had sufficient credit to double the size of their operation, and they must be tied in for a specified period.

On the value of the business, let's take a house in Greece for example. A house in Piraeus now worth €1 million will certainly sell for less than that when Greece comes out of the Euro, as all local demand dries up. Similarly with a refinery in China, the most obvious buyers would be Chinese players, so if the currency is higher, the value of your shares at take over would be affected by the currency.

As to my accounting knowledge you should see my CV.

The real point about HAIK is that you you should trade the fluctuations, and if you feel it is overvalued sell short before the next trading statement is due. The other reason to hold HAIK is for the yield and upside potential.

These are difficult times for refineries world wide because of fluctuations in feed stock prices, but I believe that HAIK has, with experience, addressed these problems, and will come out with a profit for the year`, albeit less than originally projected.

[zaksab] 26/10/2011 13:20

Sorry Vatking - you do not understand accounting and you make some bizzare statements.

Look at the accounts more closely. I hadn't looked at H1 but have done now. H1 was a good half for them though guidance is clearly for worse to come. EBIT interest cover has improved from 1.5x to 1x.

THe thing to find an answer for is the massive absorption of restricted cash. This is having the effect of draining liquidity out of the business and forcing it to raise more debt for it to meet its cash outgoings once from unrestricted cash balances. It may be that the banks are asking for some sort of a sinking payment fund whereby cash has to be ringfenced to honour the debt upon maturity. THis would not be bad thing - HAIK would be being forced to de-lever - the concern would be that it causes a liquidity drain from the business preventing it from meeting its cash operating, investing or debt refinancing needs in the future. In H1 they did manage to borrow more money to cover these and to increase the gross cash balance.

If trading is set to deteriorate in H2 there are liquidity risks clearly. That is even if you are relaxed about solvency - with an interest cover like that and inherent operational gearing, I wouldnt be.


On the currency, I reiterate my point that in valuing a companies shares it it is the currency that the company earns its revenues and pay its costs in that matters and the relation to the currency in which its stock is traded. For HAIK revenues and most costs will be in RMB and obviosuly the stock is in £ so if you are bullish RMB/£ you will expect a kicker to the HAIK share price all things equal. If the reporting currency changed tomorrow to Brazilian real this exposure will not change.

[krupatel] 26/10/2011 11:31

Forecast revision

We are revising our forecasts downwards for HaiKe post the interims. We now expect PBT of about RMB 110m, which is close to $17m and profit after tax of RMB 85m. The target price is reduced from 150p to 100p, but we are happy to maintain a BUY recommendation. The focus going forward will be more on the unregulated chemicals business. HaiKe did not pay an interim dividend, and has said that it will consider whether a final is paid in light of performance in the rest of this year.

[vatking] 26/10/2011 11:06

Strange questions which do not really provide any useful purpose

1) Yes because they have completed construction of the refinery in 2010. Capex was 2009 $87m 2009 $43.6 M and did several smaller projects 2011 $4M.

Depn was 2009 $13.8M and 2010 $43.6M.

You said earlier that you thought the depreciation rates were too low.

2) Capex is Capex - what is growth Capex? Do you mean new projects? this info is not available

3) Nobody understands what you are driving at - just try and understand the cash flow statements, and if at the end of the year they are in profit and have more cash than at the beginning they have covered their interest costs.

4) China is awash with money and they have more sense than to invest in Bunga Bunga Sovereign debt - that is why they have 10% growth. Plenty of banks willing to lend, but their would be up-front fees.

5) The market values a company in terms of its profits and prospects, so that if the RMB adjusts upwards by 5% and it repots in RMB, it has de facto made 5% more - you must remember that 95% plus of its sales are domestic. Changing the reporting currency does not affect the value, it is just logical. If there were a non domestic bidder for the company and the RMB had appreciated, the bidder would have to pay more.

6) Only if there was a remittance of profits (dividend) and you were based in a Eurozone


Just do your own homework and you'll get your eleven plus.

[zaksab] 25/10/2011 21:52

Ok so just to clarify the way you, the oh so wise brid, actually thinks can you please answer yes (or no )to the following:-

(1) That capex has not exceeded depreciation at HAIK for several years
(2) Or if no to (1), that you believe it is all growth capex
(3) That HAIK do not want their interest cover to look good
(4) THat the banks dont have HAIK by the balls
(5) That changing the currency the accounts are printed in affects the value of the company
(6) That if a company reported a profit for this week of 1 us dollar and then next week euro/dollar went to parity, that reporting a profit of 1 euro in the second week would constitute a profit increase.
(7) That you are the FD of BP

[vatking] 23/10/2011 12:00

Both points wrong, but

Why don't you go and see the Chairman of BP - I'm sure he will appoint you Finance Director, when he comprehends your wisdom, knowledge of accounting and experience in the oil industry.

A wise old owl lived in an oak
The more he saw the less he spoke
The less he spoke the more he heard
Why can't you be like that wise old bird?

[zaksab] 20/10/2011 16:36

THere may be an arguement that little maintenace is needed but capex has significnatly exceeded depreciation for several years and i dont believe it is all grwoth capex. I also think they want the EBIT interest cover to look as good as possible to appease the banks who have them by the balls.

DOnt know what you aret talking about re the currency - of course that would be a profit uplift unless EUR/USD fell to 1. If you change reporting currency ity has jack all effect on the value of your company. Thats what i said.

[zaksab] 20/10/2011 16:36

THere may be an arguement that little maintenace is needed but capex has significnatly exceeded depreciation for several years and i dont believe it is all grwoth capex. I also think they want the EBIT interest cover to look as good as possible to appease the banks who have them by the balls.

DOnt know what you aret talking about re the currency - of course that would be a profit uplift unless EUR/USD fell to 1. If you change reporting currency ity has jack all effect on the value of your company. Thats what i said.

[zaksab] 20/10/2011 16:36

THere may be an arguement that little maintenace is needed but capex has significnatly exceeded depreciation for several years and i dont believe it is all grwoth capex. I also think they want the EBIT interest cover to look as good as possible to appease the banks who have them by the balls.

DOnt know what you aret talking about re the currency - of course that would be a profit uplift unless EUR/USD fell to 1. If you change reporting currency ity has jack all effect on the value of your company. Thats what i said.

[vatking] 20/10/2011 16:24

Zak

You really don't know what you are talking about. Some of the refineries in the Middle East are now 100 years old and many parts of the refinery have not needed replacing. For instance the tank farms and pipework - those last for years - the only parts that need replacing are the valves and with good maintenance these can go on forever. You sneered at the useful life of vehicles, but you have never operated a commercial fleet, where today with new reliable technology and proper maintenance commercial vehicles can last 25 yearsand more, and you will find a lot of CAT equipment much older than that. Processes like special plant (cat crackers (distillation plants) need regular extraordinary maintenance, but these have a good life of 25 years or more.

As to reporting currency and the market currency in which they are quoted, read your own words. If the profit is US$100, then next quarter they repot profit of Euro 100, I and the rest of the world would say their profits have gone up by 25%, but you would say that the Martians don't consider it that way, as their planet is not affected.

[zaksab] 17/10/2011 11:37

Both your comments are quite bizarre. On the currency, if you look back to what i said you will see that i highlighted that the earned currency is important and the currency of the share price. you earlier referred to the reporting currency. As to profit vs cashflow it is more than working capital that skews the two. I think the depreciation charge at haik is understated.

[vatking] 17/10/2011 11:27

Zak

If they made a profit after charging interest, that means their cash flow does cover their interest payments. Additional cash may have been required because of the requirement to increase inventory levels, but that is a different story.

As for the currency, let me give U an example

Let's say I bought a house in France for French Frances 1 million UK Cost £100,000
The conversion rate of FF was Euro = 6.56 so the Euro cost was €152,450.

The Euro now trades at 1.14 (0.8777) so if I sell the house I get back £133,805. so I believe if the RMB was allowed to appreciate, your investment would be worth more.

So if their profit is RMB 20 million (now 0.099) £uk £2million and the currency is allowed to float upwards to £0.11, then the profit would be £2.2 million.
and the share price would reflect this.

I would love to do buseness with you, I could make a fortune on arbitrage

[zaksab] 17/10/2011 10:02

Vatking - please dont consider Haike safer than the UK government. You miss the point about dividends - the yield can only be consideredas such if the dividend is sustainable. Otherwise you are distribting from the stock of equity so you are getting a dividend offset by the share price falling and staying at that level all things equal. In Haike's cause I would argue that the dividend is detrimental to equity value because it increases the gearing from an already stratospheric level. The dividend yield could therefore be argued as being theoritically negative. Last time I looked Haike could not cover their interest with cash flow.

The fact that the accounts are reported in Yuan has no incremental effect on the value of Haik. The reporting currency is irrelevant -they could be reported in Ethiopian Burr for all that mattered. It is the denomination in which they earn their revenues and pay their costs that matters and the denomination in which the shares are traded. So the Yuan exposure (a positive i would guess assuming that they make money) has and is an ongoing factor.

[napoleon 14th] 17/10/2011 09:50

Not all good news in Haike's world: I'll say so even if I hold.



However, there's a silver lining in the cloud too.

"In addition, the government is reducing the supply of cheap credit and has moved to liberalise prices for energy and other utilities. "

[napoleon 14th] 14/10/2011 09:24

Slowly rising again - HAIK is a Chinese & distant Cayman-based coy.
I agree with asking potentially embarasing questions, but boosted industrial facilities can pull this round & employees are such a large part of the equity that I reckon these are at least worth a punt & could, longer term, be a bagger+.
Ya payz ya money & yer takes yer choice!


napoleon 14th - 6 Oct'11 - 12:50 - 9987
"The chart has very low indicators.
IMO 40p-ish is a level one has to watch."

[vatking] 12/10/2011 09:47

Zak

I still believe that the refining business will come thru in the last Q. Don't forget that the older refinery was down for 3 months.

As for specialty chemicals, you are governed by demand, and start with the basics, before investing in more complex processes. You may have noticed that these started out as a JV.

For those dividend cynics, remember that last year Haike paid out a maiden divi of 2.59p. Based on the current share price of 40p that's a yield of 6.5%, so that for a cost of $2 million, there are established support levels because of the dividend.

Which is safer - Bank Haike 6.5% or Royal Bank of Scotland (zero return)?

You may double your capital with Bank Haike, but you can be certain that your capital will lose 5% of its value with a UK depositor, and now that the accounts are in RMB will benefit when the RMB is adjusted upwards against the US$.

[zaksab] 10/10/2011 22:47

You guys still call it speciality chemicals? I thought they tried that at the IPO, got it to a stick for a while but had to change it. All chemicals companies try to dress themselves up, some with some degree of validity (Croda, Victrex). But Haike's chlorine and caustic soda doesnt quite cut it for me.

Vatking I thought you were bullish on the refinery thing? I refer back to my long held view govt controlled market, rich goverment, inflation and soical unrest major concern.

[vatking] 10/10/2011 17:23

The internal sales of gas and diesel are hopefully a break even situation with the additional risk of raw product fluctuations. One hopes that the specialty chemicals will produce profit, together with the increasing exports to India, UAE etc, which are now some 20% (?) of production. They have to continue to increase their lines of specialty chemicals to get profitable products, as their basic refinery production is subject to too much government intervention.

I don't see why there is so much concern about the debt as there is a status quo, and the interest is covered by earnings. Yes they could refinance or do a convertible bond issue, the latter being detrimental to shareholders, and would need to involve the man in the white suit.

There's no real interest in the situation until the next trading statement, which will give us a taste of Q4 results, which is the key Q.

Wake me up near the day!!!

[jwe] 10/10/2011 10:56

I`m surprised that there is no comment on here that the Chinese Govt have today reduced the prices refiners can receive for gas & diesel.The fact that pricing is to some degree outside of HAIK`s control is always going to be a big issue here(along with the size of the debt).The fact that debt is so big gives them little room and makes big swings in the share price always likely

[vatking] 06/10/2011 16:55

Zak

In your dream does the underwriter emerge in a white suit from a glimmering flying saucer? and don't ask the CFO where he gets his smack from!