Change in perception needed

 

THERE was a lot of buzz in the market when three Chinese companies – Xingquan International Sports Holdings Ltd, Multi Sports Holdings Ltd and XiDeLang Holdings Ltd – listed on Bursa Malaysia in the second half of last year.

However, the weak performance of these stocks since then has disappointed a lot of investors.

Some analysts point out that Malaysian investors need greater awareness of the fundamentals of Chinese companies listed here.

With two more Chinese companies – Sozo Global Ltd and K-Star Sports Ltd – scheduled to list soon, how will investors react?

Private equity banker Sherilyn Foong said investors’ lack of confidence in China companies seeking to list in Malaysia was not due to poor fundamentals or high valuations.

“It is because offerors or promoters are taking the opportunity accorded by the listing to sell out their shareholdings. On the contrary, the earnings performance (of these companies) have been commendable,” she told StarBiz.

She believes this “selling out” behaviour was contributing to the weak share price performance of these China companies listed on Bursa Malaysia.

Foong, who expects more Chinese listings in Malaysia this year, said companies should restructure their initial public offerings (IPOs) to reduce the offer for sale portions; i.e. the portions where the promoters are selling as part of the IPO exercise.

“This will help to allay investors fear that the promoters are cashing out,” she said.

In April, StarBiz reported that a wider moratorium on the sale of shares was being applied on new listings of China companies in Malaysia.

Investment banks sponsoring the new IPOs, in consultation with the SC, have initiated the move that imposes at least a six-month moratorium not only on the promoters of the company – which has been the usual practice – but also on a list of other shareholders who have emerged prior to the IPO.

The move is aimed at preventing a repeat of the heavy selling by a pre-IPO investor in one of the three listed Chinese companies.

According to OSK Research, there is a perception among investors that only weak China companies would choose to list here.

It also said that investors were sceptical of their earnings following accounting irregularities involving several China companies listed in Singapore.

“They (investors) believe that any Chinese IPO will just underperform following the three Chinese listings recently,” it said in a note.

OSK said to dispel these perceptions, China companies listed in Malaysia must deliver good earnings track record and payout dividends to show that they are genuinely generating cash.

“The management should be prudent and give achievable guidance. They should not over-promise and under deliver as it will dampen the market’s confidence towards these Chinese companies,” it said.

OSK said consistent updates and communication with the investment community was also necessary to lift investors’ confidence.

On company developments, Xingquan International, which recently concluded its Autumn/Winter 2010 Sales Fair, recorded a 35% rise in sales orders to about RM323mil compared with orders received at the same event last year.

The company plans to further expand in inland China during the next financial year ending June 30, 2011.

For the second quarter ended Dec 31, 2009, Xingquan International posted a 34.1% jump in net profit to RM30.6mil while revenue surged 61.3% to RM179.7mil from a year ago.

The company’s share price closed at RM1.15 last Friday, up 1 sen. Xingquan International’s offer price was RM1.71 for retailers and RM1.80 for institutional investor.

On May 6, Multi Sports proposed a one-for-four rights issue, which will raise up to RM36mil for the construction of a new plant in Jinjiang City, China.

The company plans to undertake a subscription of 54 million right shares at a price to be determined later.

The Chinese shoe sole-maker intends to increase its production capacity to 79.6 million in 2011 from 24 million in 2009 to meet growing demand.

For financial year ended Dec 31, 2009, the company posted a net profit of RM56.7mil, 22.7% higher than a year before. Its revenue rose to RM237.9mil from RM193.3mil in the previous corresponding period.

Multi Sports share price shed 1 sen last Friday to close at 41 sen. Its issue price was 85 sen during the company’s IPO.

XiDeLang posted a net profit of RM68.4mil on revenue of RM385mil for the financial year ended Dec 31, 2009.

The company is expected to benefit from the growing sports wear industry in China.

The first phase of XiDeLang’s plant expansion exercise is expected to be completed by the third quarter of this year. The second phase is expected to start in mid-2011 and would be completed by end-2012.

XiDeLang’s share price closed unchanged at 35 sen on May 7. Its IPO price was 58 sen.


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