agm_logoTime: 9 am, 30 April 2013.
Venue: RiverView Hotel

SOME SHAREHOLDERS have voiced their frustration with a number of aspects of China Fibretech, as is abundantly clear in our forum (click here).

The same grouses were made loud and clear at the AGM two days ago (and in the AGM a year ago) by a handful of shareholders present.

Shareholders are mainly unhappy that China Fibretech stock is in the doldrums and trading at around 4 cents although the company has net cash of 17 cents a share. The company's market cap is just S$18 million although its net cash in the bank is S$79 million.

Strange as it sounds, despite its high cash position, the company is not paying dividends nor intends to buy back its shares.

After the management and board had engaged the shareholders' concerns (with mixed success), someone spoke up, saying he was a new shareholder, adding: "I've seen hundreds of companies, many of them from China. I'm a professional investor and have been in the market for 30 years.

"What drew me to the company is its conservatism. I accept that cash, share buybacks and dividends are a key consideration for shareholders but if the management doesn't run the company well, those become secondary. After analysing this company, I realise this management understands business cycles. What I read in the prospects section of the annual report indicates that the trend has turned positive. Can we look forward to the company going back to where it was at its IPO in 2008?"

fibretech_Wu_XinhuaChina Fibretech chairman & CEO Wu Xinhua. He owns 50.4% of the company. Photo: annual reportWu Xinhua, the executive chairman and CEO of China Fibretech, which provides dyeing and treatment services that impart special functionalities such as water-resistance and UV-protection to fabrics, replied in Mandarin: "Thank you for appreciating the company.

"I see a pickup in business and expect it to continue for the next three years. But it will be difficult to go back up to the peak achieved during our IPO as there are structural changes in the economy -- manufacturing costs have gone up a lot, GDP growth is slower, and manufacturing competitiveness is not as strong as before."

A structural change that could work in China Fibretech's favour is China's tightening on environmental pollution.

Said Mr Wu: "The local authority is not issuing new licences for this industry and existing operators have to comply with more stringent anti-pollution regulations. Many small ones will be weeded out and this will be beneficial to our company."

Commenting on the company's FY12 results, Lim Yoke Hean, currently the CEO of Pheim Asset Management, who became an independent director of China Fibretech in July 2012, noted that revenue had gone down last year (by 63.5% to RMB 48.6 million) but the net loss (RMB 11.6 million) was not a big one and the operating cashflow was in fact positive.

"It's quite a big achievement," he said.

Shareholders ask: "Is the cash really there? What will it be used for?"

As at end-2102, the company had RMB444.5 million cash, up from RMB439.4 million a year earlier.

But a shareholder noted that while the previous auditor (Foo Kon Tan Grant Thornton LLP) at the previous AGM had confirmed the existence of the cash, the same auditor had since resigned in Sept 2012 and so has the CFO, Kek Poh Hean, in April 2012. 

Could the new auditor (Mazars LLP) and the new senior finance manager of China Fibretech explain how they verified the cash is indeed real?

A representative from Mazars said the Singapore Exchange has guidelines on how auditors should do cash audits. Mazars auditors have personally gone to the banks in China to collect the bank confirmation of the account balance in Nov 2012 and January 2013, and checked the bank statements. This is unlike audits for Singapore-based companies whereby auditors obtain the bank confirmation by post.

Giving an account of his work, Raphael Liew, who was appointed China Fibretech's senior finance manager in April 2012, said every month the company gives him the bank statement which is also circulated to the directors.

Every month, he reviews the transactions to make sure they tally with the accounts, and "so far there has not been any inconsistency."

To increase the level of transparency, Lim Yoke Hean, the independent director, revealed that the company is exploring with its bankers in China for a way for the company's key management and directors to be able to check the balance online. They would not, however, be able to make any cash transfer online.

C.Fibretech.chart.4.13China Fibretech stock has declined since its IPO in 2008 in tandem with its yearly decline in net profit. In 2008, net profit was a lofty RMB119 million, falling to just RMB7.2 million in 2011 and dipping into a loss of RMB11.6 million in 2012. Will 2013 see a cyclical rebound? Chart:

As for what the cash might be used for (and the company has not been paying dividends), Lim Yoke Hean said the management is exploring business opportunities, such as expanding the existing business, setting up a processing plant in another city, and diversifying upstream or into a different business altogether. 

Pending the firming up of the business plan, and the Board's endorsement of it, the company will park some of the cash in fixed deposits of varying periods of maturity to earn a higher interest income -- instead of leaving all the cash in current accounts whose interest rate is paltry.

As for the glaring absence of any significant share buyback, there was a lengthy debate between some shareholders and, in particular, independent director Low Wai Cheong.

The latter gave reasons for the company not buying back its shares after an initial purchase of 100,000 shares in April 2012. It didn't seem like he won anyone over with his views. (Personally, I'm also not won over by his and Lim Yoke Hean's views on why the company would not buy back its shares -- but let's not get further into that in this article).

Recent story: ERATAT dividend's coming, CHINA FIBRETECH gets new ID (Pheim CEO)

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#5 Samon 2013-07-30 06:43
Is cash really there? there are 442M cash while other income only 1.4M.
which means the full year interest is 1.4*4=5.6M/442M = 1.27% per year.
#4 CY 2013-05-02 09:14
I just did relative comparsion to other S-chip textiles/appare l firms who have lots of money but still take bank loans from their banks

Here are what i among SGX listed peers
China Taisan: 395M RMB cash /30M RMB loan taken
Fibretech: 442M Cash/ 50M RMB loan
Foreland 336M cash/ 0 loans

China Gaoxian was another suspect where in their FY 11/12, the company maintained short term loans of 62/77M despite having 600M and 1Billion cash in the respective years

Not saying they are a fraud, but if the management is wise, they would have reduced the loan they took with thier banks like what china taisan did. this would help them reduce finance cost and yet maintain banking relationship
#3 Eva 2013-05-02 08:34
CY, how do you conclude that the loans are 'big"? They are RMB50.4 million or about S$10 m. I agree that the interest cost is high (compared to SG loans) of about 8% p.a. What is really unfair of the company is not to use its cash to buy back shares and to pay a dividend. Just look at the no. of companies that have done share buybacks in the past year when the stock price was weak. I salute these companies. I think China Fibretech needs a re-set of its mindset to be more shareholder friendly and to be more financially savvy.
#2 CY 2013-05-02 06:54
What i find strange is that the company takes a big loan from banks. It is true that these loans help maintain relationship but the amount it is taking is relatively larger than other S-chips e.g china taisan's loans who are bigger mkt cap than Fibretech. And these loans are charging 6-7% per year
#1 Reader 2013-05-02 06:36
The cash is likely to be real given tighter audit requirements.

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