-3x Short China Discussion Threads

[galles] 24/8/2010 10:06

Matt,

I note that you have a fair amount of knowledge (with research) on CHNS. I sent through a list of enquiries to CHNS recently hoping they would be able to answer, but the response from them was that they were all covered in their announcements, which to be honest, did not answer any of my questions. And if they have the answers handy, surely they can spend time giving me a direct response!

Would you be able to have a look and see whether you can shed any light on them?

a) What was the primary cause for the closure of the factory operated by Yangzhou Zhenghe? Is it just a case of abundant capacity or the efficiency of the plants? And why pay for the business only a few years ago and subsequently closing it? What is the ROI for this particular deal?

b) Has the cost associated with the closure been included in the revenue and profit reduction figures disclosed?

c) Could you give some indications as to the cash and debt level of the company. A comparison to 2009's results would suffice.

d) How much impact does this increase in taxation have on the future profit margin of the company?

e) What is the saving generated from this cost control measure adopted by the company?

f) What is the direction the company taking now that there is a slowdown in Chinese market? Have you targeted any particular region? How do you intend to gain a foothold in your targeted areas?

g) Any activities in the pipeline that could worsen the balance sheet?

h) Lead prices. What measures has the company taken to tackle the fluctuating metal price?


I look forward to your response.

[mattjos] 23/8/2010 16:17

Riv .. yes i saw that in IC. Same as last year as you say .. lok where that lead.

Not personally bothered about that myself. To me it just reinforces my opinions on Mr. Yang. He's careful with the money & i like that attribute. He's by far the biggest holder of stock and is most impacted by any absence of a divi payment. He'll do what's best for the business.
The bigger picture for me is the rate at which they are developing their IP suite. That's a strong signal of future intent

[arty] 23/8/2010 16:15

riv, "Please don't have a go at GNG because of other twits". I'd hardly do that as I've a small shareholding there, I was merely amused by Mattjos's repost.

Thanks for the info on CHNS, nice to have an up day for a change.

[arty] 23/8/2010 15:58

riv, just out of interest can you post the link to the trade news please. Go on buy back in... we've missed having you around.

[mattjos] 23/8/2010 15:54

Riv .. i took some on the last fall back at under 180 .. on a long term basis i believe that to be a reasonable price, personally & rather hope we might see it under that once again in August but, i admit it is a little speculative at this stage ahead of the HY results. Time will tell

[rivaldo] 23/8/2010 15:51

I (and others) have asked the author of post 806 to change his silly moniker, and I believe/hope he has now done so. I can't guarantee the future quality of his posting content though :o))

Interesting (and surprising) to see CHNS' price rise like this. There is a bit of trade news out today which may benefit CHNS medium-term, but I won't be buying the shares back just yet on such news.

[arty] 23/8/2010 15:36

Mattjos - (o8

[mattjos] 23/8/2010 15:18

wrong thread ... type GNG

[gng geong to hit 100p in 2011] 23/8/2010 15:17

Couple sells, down

[gng geong to hit 100p in 2011] 23/8/2010 10:51

Still hovering around 175p

[gng geong to hit 100p in 2011] 22/8/2010 07:49

Prossie, old tart - fair point here

[pro_s2009] 22/8/2010 07:13

Think you will find its not only tighter rules, its also lots more "local Indian" parts and units to be used.

Just as China screwed the west by demanding for the past 20 years that all sorts of joint ventures must be set up and China must be allowed to make all the stuff by transfer agreement, now India is doing the same back to China...... using the same rhetoric "You want our business of over a billion people, well, you abide by our rules".

What goes around comes around...............

[mattjos] 22/8/2010 00:07

NEW DELHI - India has allowed two telecom companies to buy equipment from China's Huawei and ZTE after the Chinese companies agreed to New Delhi's tighter rules to address security concerns, sources said on Friday.

This year, India barred some local mobile phone operators from placing orders with Huawei and ZTE on security concerns.

A source with direct knowledge said Tata Teleservices, which had applied for government approval to buy telecom gear from Huawei and ZTE, received the go-ahead after the Chinese company accepted all the conditions set by India.

[mattjos] 20/8/2010 17:38

As far as i can tell the tax rates for High New Technology Enterprise remain advantageous and that is why Shoto have been keen to obtain the rating .. + it helps with recognition amongst their target customer base.

I still contend that 180 or below is a good long term entry price. From Sept 09:

"The Company was informed today that Two Stars Invest Limited, a Company
controlled by Chief Executive and Chairman Yang Shanji, has acquired the
Company's previous Chairman, Cao Guifa, shares which are registered under Wit
Invest Limited. The price paid was GBP1.80 per share. Two Stars Invest Limited
now owns 15,384,615 shares representing 65.90 per cent of the issued share
capital of the Company. Wit Invest Limited and Cao Guifa no longer hold any
shares in the Company. "

As i recall that was a £11m transaction at the time. The CEO is best placed to know what is value in his own business and what is not, on a long term basis.

However, given recent events i imagine only the brave or well informed will be looking at taking new sizeable positions here until the H1 results are out and we can all get a better handle on how sales, margins & the lead re-cycling plant are affecting the mix here

[pro_s2009] 20/8/2010 13:42

Do you therefore suspect that the board of directors comment in the past few days may indicate that things have changed considerably and why they had to state there has been a "material increase".

Perhaps those old figures you have are now changed with new regulations or amendments to those old regulations.

[mattjos] 20/8/2010 13:38

well also read the post i detailed on tax rates. Some companies in the group do face higher tax rates but others, & larger co's, tax rates are reducing. the effects will only be known next year i suspect

[pro_s2009] 20/8/2010 13:17

I am just reading the trading update (section copied above) where the Board of Directors say quite clearly that the prior "low taxation rates" have "materially increased".

Double whammy on EPS ahead is possible IMO.

[mattjos] 20/8/2010 12:52

not low enough for you yet Pro? See my earlier posts on tax

[pro_s2009] 20/8/2010 12:39

EPS could actually be hit even harder.

The way I read this there is a 12% drop in profitability, and on top of that they are now paying much higher tax, meaning earnings will be hit by a double whammy of 12% decline in profitability and then higher tax on top.

EPS could be significantly down then, the company is ex-growth and things appears very un-rosy in the garden IMO.


Consequently the Board anticipates the results for the 6 months ended
30 June to indicate a decline in revenue of approximately 11% and profitably of
approximately 12% when compared against the same period in the previous
financial year. The Board has implemented some successful cost control measures
but has seen previously low taxation rates granted as a Foreign Investment
Enterprise materially increase.

[mattjos] 18/8/2010 21:09

SB .... you are as capable of answering that question as i am but i will try to offer you some help:

Look at Johnson Controls 3rd Q Earnings statement from 23/7/10 ... Power Segment .. plenty there to help you i feel.



On a longer term basis ... it is simply impossible for the Asian population to own cars (with i/combustion engine as the power source) on a similar cars-per-head-of-population rate as the West currently enjoys .... we cannot pump oil from the ground and/or discover sufficient oil reserves to support that ... this is well acknowledged.

Battery power will be a significant & growing energy source for cars, motorbikes, industrial vehicles, trains etc going forward.
Alternative energy sources, such as Solar & Wind, will also require surplus energy to be stored in some means & batteries will also feature here.

As for super-capacitors .... that's a whole new sector and very interesting overlapping technology

[sir brainy] 18/8/2010 20:35

How many successful battery companies are currently making it big in the West?

[mattjos] 18/8/2010 20:29

Interceptor ...... good modelling. Thanks & to you Aim11.

On the tax front, please note:

From the FY09 Results:

"Jiangsu Shuangdeng Power Supply Co. Ltd - According to the latest PRC taxation laws which came into effect on 1 January 2008, the actual income tax rate is 20% in 2009."

It is difficult to tease out the individual company sales & what proportion of income & profit comes from each, as figures are reported at the group level however, also from the FY09 results:

"Jiangsu Shuangdeng | China, | Manufacturing, |
| Power Supply Co. | 9 December | sales and |
| Ltd | 1995 | development of |
| | | AGM batteries



So Jiangsu Shuangdeng Power Supply Cp. Ltd. is, i believe either the biggest or, second biggest, contributor to total group turnover ..... it may well follow that it is the biggest or second biggest profit contributor.


Now in their recent market guidance, Shoto have indicated a rising rate of Corporation Tax applying to companies within the group .... "The Board has implemented some successful cost control measures but has seen previously low taxation rates granted as a Foreign Investment Enterprise materially increase."


In the CEO's FY commentary:

"Meanwhile, the Group's facilities have been inspected by the China Intellectual
Property Bureau and approved as a National Class Intellectual Property Trial
Unit, which will enhance market recognition of its independent research and
innovation capability. It will also strongly support the Group's future
application for status such as a High-New Technology Enterprise."

This seems a 'nice to know' so to speak but, if you have a look, Achieving High-New Technology Enterprise' Status comes with the benefit of reduced taxation rates, down to 15%:







Shoto's website was recently refreshed & in that process the CEO's statement contains the revised statement:

"The trademark 'shoto' owned by China Shoto, has been recognized as a 'Well-known Trademark'. Also its fully owned subsidiary Jiangsu Shuangdeng Group Co., Ltd has been given a 'china Environment Friendly Enterprise' award and its subsidiary company Jiangsu Shuangdeng Power Supply Co., Ltd has been awarded the 'National High Technology Enterprise'. These honors have further underpinned our objective of becoming a worldwide green energy solution provider."

So, whilst some of the companies in the group are facing an increase in Tax rates ... this one is going the other way & i think is relevant


All that said ....... It's about the Sales line at present & how they shift their sales focus away form the dominant Telco sector to other sectors ..... imo, these other sectors are actually higher margin sectors too.
Next set of figures will be interesting!

[interceptor2] 18/8/2010 14:57

What is difficult to access is how the lead price will effect H2 profits. It obviously had a large impact on the last H2 results, and was flagged up in January 2010 trading up date as a reason why PBIT would be materially ahead of market expectations.

As I stated when I looked at the historic chart, a lowering lead price hasn't always been followed by a weaker profits. But as last H2 results were so much ahead of forecast, they must have had a much larger impact than expected.

But my estimate for 2011 of PBIT £12.79m and EPS 43.45p is I believe right at the bottom of what I would expect. imo.

ps... The tax rate is due to rise to 25% by 2013 for chns, but with some of the business division still receiving relief for 2011 and 2012, I thought 20% a fair calculation.

Regards ic2.........