To judge by just looking at China Hongxing Sport latest price chart, people would assumed that this company has suffered big loss from their business or just issued a profit warning. Multiple support lines have just broken with huge transaction volume, at 18 cents, 15.5 cents and 11.5 cents as shown below.



In actual fact, the announced result on 17 February 2009 is within expectation if not outstanding. At least they has the qualification to announce the result under the caption of : CHINA HONGXING RECORDS SOLID REVENUE AND PROFIT GROWTH FOR FY2008. This is because for the full year of 2008, revenue surged 41.2 per cent to 2.89 billion yuan and net profit climbed 7.7 per cent to 448.5 million yuan.

The actual problem is on 4th quarter 2008 which sees higher costs and a dip in profit margin thus pushed net earnings down 29.8 per cent.

Worst still, they did not declare final dividend despite strong cash position.

If this is not enough, there is information regarding the outstanding amount of advances to distributors amounting to RMB 1,155.5 million. This is not a small amount in comparison to their cash position of RMB 1,981.7 million. CHS’s response to SGX queries is here.

CHS has responded to Business Times article (25 Feb 09, page 5) titled “Talk of accounting issues, margin calls hurts S-chips”. In short, CHS intend to “assure the financial community that the Board and management team conducts itself with the
highest standards of corporate governance and transparency”.

However, I found that another more ‘damaging’ article on Business Times is titled: “Is the cash really there?” The name of CHS is not mentioned, but some S-chip is mentioned. Some may find CHS fit into the category in focus: Sitting on a huge pile of cash, but there's still no sign of dividends.

The article basically raises the question: 'Is the cash really really there?' The Satyam Syndrome can be deadly if not treated early!'