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Sino Grandness

Maybe Not So Grand

Sino Grandness price peaked at 0.71 in Jun-2016, falling sharply thereafter to 0.20 and again in Nov-18 to 0.146. 

On 14-Jan-19 share price fell from 0.132 to 0.117 and was queried by SGX, followed by subsequent trading halt.

On 16-Jan-19, the company announced it was served a letter of demand by lender Soleado Holdings Pte Ltd on Tuesday 8-Jan-19 for about US$21.2M.

It is disconcerting that the company made the announcement only after a sharp fall in prices and on query by the exchange a week later. 

From the perspective of revenue growth and margin, the company looks attractive. Rising gross margin and double digit net margin. 

However, it is clear that revenue growth was driven by debt which grew exponentially since IPO in Nov-2009.

 

Debt funded growth, in a growing market may not be a bad thing. What's worrying about the business is that receivable turnover have increased from about 100 days to almost 200 days based on 4-quarters average trend line.

A search on revenue recognition policy in their Annual Report did not yield much clarity. Most likely, the company is recognising revenue based on shipment of goods to channels (PoA) and not actual sale to consumer (PoS).

Regardless, much of these debts are now used to service receivables; instead of recycling back to the company for reinvestment and to reduce loans.

The first debtor knocking at the door could trigger a herd effect and 3Q18 cash of RMB 416M may not be sufficient to cover the short term debts of RMB 956M. 

Whatever the outcome, it is wise to exercise some caution.

Hopefully, the company narrative will not follow that of Beauty China in 2008/9. 

UPDATE 22-Jul-2019

Independent Auditors' Report - Material uncertainty related to going concern.