-3x Short China Discussion Threads

[mattjos] 21/9/2010 11:18

marty .. sorry been busy elsewhere.
Their batteries for the solar market are well offered already.
On the car side .... i can't comment to be honest. I did learn something in my trip last year that is not in the public domain & to which Shoto have made no public reference. I felt at the time it was a slip-up & so not comfortable repeating it. Will have to wait and see if news emerges

[martylangan] 20/9/2010 23:24

Matt,
Do you have any info on the progress on their solar storage or the car batteries?
Believe these could be massive catalysts to the price once they are out there.

Thanks in advance
Martin

[evaluate] 20/9/2010 15:57

Feels like we have had the nadir here.

The spike down on the results bought buyers in.

Think we should see a gradual climb now up to confirmation that H2 is an improvement on H1 - then a leap up as everyone realises this year is a breather after last year's exceptional results.

[edmundshaw] 19/9/2010 10:33

welcome back :)

[jtcod] 18/9/2010 22:35

Yes Edmund. Been buying over recent weeks. Very thin market though, so only a 'lower small' weighting on my portfolio at this point.

[mattjos] 18/9/2010 22:34

curiously the biggest global players, Johnson Controls & Exide both seem to disagree with you hiq & predict increasing demand

[hiq] 18/9/2010 22:14

But patently not needed in the West hence not needed in the future China

[mattjos] 18/9/2010 22:07

The site generally is an excellent source

[hiq] 18/9/2010 21:13

Maybe I did not make that point very well - sorry!

Batteries - China - not really required in the dream hopes - demand not there.

Of course batteries are needed in China but not in the wishful thinking scenarios posted here from time to time.

[hiq] 18/9/2010 21:10

Matt, you are a man of good will and I thoroughly respect that - but why will China need more of CHNS's batteries in the years to come than the West needs XYZ'z batteries?

Compare the demands.

It is clear that the West is ahead of China in many ways esp economy/ industry.

It needs proportionately fewer batteries than you hope China will need and CHNS will partly supply.

[mattjos] 18/9/2010 21:02

Potential Demand.

As a start point one might take the time to read Shoto's list of Patents .... given the costs involved, protecting ones innovations is usually a good sign of an intent to commercialise them in the future:



From here there are several indicators of the industrial sectors where future demand may be anticipated

[hiq] 18/9/2010 20:20

Nobody's told me where the demand will come from.

The West does not have a particularly interesting market for batteries as per the CHNS model so why should fast-Westernising China turn out any different?

[edmundshaw] 18/9/2010 19:23

Great to be back from hols (which were also great). Nice debate on the results here, seems pretty reasonable points being made.

over 300p as I got greedy (but well done Matt!), but current price is a bit crazy imo.

Nice to see the interest from The Cod here. Have you invested JT?

[yump] 18/9/2010 19:01

I'm now finding this thread very, very interesting.

[3taz] 18/9/2010 18:59

I think he won a wooden spoon on an ebay bid but he received access to the "handle"

I'll get my coat....

[yump] 18/9/2010 18:49

Pro

Forgive me for asking but have you just bought the Pro_S2009 username from the previous owner ?

[jtcod] 18/9/2010 16:35

You're not wrong there Pro.

[mattjos] 18/9/2010 15:25

Pro - one's timescales for judgements are probably pertinent to the debate &, as ever, time will tell

[pro_s2009] 18/9/2010 15:22

JTC has made some right clangers over the years, as we all have :)

[mattjos] 18/9/2010 15:17

jt .. you seem to have established a sufficient enough standing in this investment micro-community to cause others to sit up and take note. i don't feel the need to say much more with regards to Shoto. I've been there & seen the professionalism of the company & quality of the product, met the CEO, used the product & am fortunate enough to have perhaps an 'above average' understanding of the sector as a result of my own commercial activities (although anyone that cannot see the role that batteries will likely play in the future seems a bit short-sighted).

I'm quite happy with my investment here & I'm sure your analysis will add more weight to the investment case for others to see. I look forward to it.

[jtcod] 18/9/2010 14:16

John
"I have worked for companies with bad cash flow, they still managed to post profits."

The quality of a company's earnings can only really be assessed over a reasonable time frame. Short term trading figures are unreliable at best and misleading at worst. The DNA can only truly be seen over a period of 3-5yrs imo (longer is better). The problem for investors is that the DNA can't tell how long or how deep a negative trading cycle can run. It only gives the 'seal' of a company. That's why serious investors normally have a barometer on 'Net Debt' and it's relationship to balance sheet assets. High gearing being an added risk in this area. Low or zero gearing against high tangible assets allows for greater ability to cope with trading stresses.

Bad companies have high debt of course. Their receivables and payables tend to grow even when the company has no record of growth over time. I don't wish to pre-empt some of my research (which I will post next week for those interested) but CHNS has improved Revenues (allowing for a reduction this year) by 1100% over the last 8yrs and Operating Profit by more than 1100% over the same period. In the last 4.5yrs they have increased Tangible balance sheet assets by 373% (£60m) with less than £10m net proceeds from equity issue and £3.25m of that was paid out in Dividends and £2.9m on intangibles.

Net Debt has also gone from a debt position to a cash positive position over the same period.

This would be a pretty good set of figures for any service company but for a manufacturer it makes for more impressive reading imo.

[mattjos] 18/9/2010 13:45

chns have just enjoyed a period of what one might call 'over-trading' .. H2 09 was a significant leg-up from the norm. Such a step-up puts pressure on the cash in any business .. ill-disciplined mgmnt often then get tempted down the dark side of factoring of CID or talked into it by greedy bankers/finance organisations. Thankfully not the case here.

A small period of consolidation for them now will be no bad thing, imo. They can focus on bringing in the receivables and continuing to expand the product range and the sectors to which they sell that are outwith the telco sector.


MJ - the alternative scenario to the one you put forward is that chns have used the cash from this period of over trading to buy-in raw materials and pay COD for the materials, thereby achieving a discount on the price ... a tactic i employ at times. COD can often achieve a discount bigger than the interest achieved were the cash left in the bank.
The nervousness here seems more related to perceived lack of clarity with a chinese company compared to an european equivalent. I'd suggest it goes with the turf of investing in chinese stocks but chns are improving in this regard .. aka, they have listened to their investor base.

[yump] 18/9/2010 11:19

Nice to see some discussion from some folks who actually understand the way business works.

I love the change to 'reasonableness' here though:

Pro_S2009 - 18 Sep'10 - 09:36 - 915 of 917

"One of the reasons I have been bearish on CHNS, through no fault of their own they could end up with a receivables problem with lots of delayed, deferred and also eventually non payment of invoices."

Brilliant !
That applies to rather a lot of companies at the moment if you live in the real world at what we hope will be the tail end of a recession. Hence the low p/e's around, the people working on reduced hours with pay freezes in the private sector, etc. etc.

"bearish" is just a tiny understatement. "bashish" more like.

You're been waiting to see what will happen, trooping out the same old stuff for ages now. What on earth is the point ?

If you do the 'warning signs' stuff on enough stocks that have already shown signs of not being as good as people thought they were, eventually you'll be right and then all hail the messiah. Or not probably.

[melton john] 18/9/2010 10:35

----------------------------------------H1 2010-------H12009-------y/e 2009
+-----------------------------------+-------------+-------------+-----------+
| Net (decrease)/increase in cash | (35,247) | (12,876) | 17,084 |
| and cash equivalents | | | |
+-----------------------------------+-------------+-------------+-----------+

Thanks for your replies chaps, I do like to get some discussion going. Past performance is not the only factor, but very relevant.
I have worked for companies with bad cash flow, they still managed to post profits. The first signs are that suppliers put you on stop because of unpaid bills, you try to find new suppliers who want money up front. Suppliers can read accounts and see how cash flow is going and the word gets around. It appears to my far from expert eye that chns are having to pay up front for inventory and this combined with increase in receivables accounts for the big change in cash level h1 2010 compared to h1 2009. A switch from supplies on credit to pay on the nail. The accountants I've talked to say they can't pay suppliers if they aren't being paid.

[jtcod] 18/9/2010 09:51

I am not sure Receivables are going to "build and build" as you say, not at least more than the current % of say revenues going forward when the problem relates to Telecoms, a sector that has a falling % of overall CHNS business. I do agree Pro that there could be the odd bad apple in there and a falling sector will tend to out them. We will find out in due course.