Fujian Zhenyun Plastics Industry

While Deloitte's special audit should not be relied on to verify the financial statements (of 2010), it is not true that nothing can be relied on after the 2010 annual report.

The authenticity of the financial statements rests on 2 layers of scrutiny: Internal and External.

For internal audit and controls, we have Mr. Lim Cheng Kee. He is appointed since 2011 (following the 2010 saga), as the Independent director and Chairman of the Audit Committee. He even personally came to chair the AGM of 2012 to reassure shareholders. You may find his wealth of experience in the following:
investing.businessweek.com/research/stoc...P99%20HOLDINGS%20LTD

The company's external auditor, Mazars LLP, also gave a stamp of approval in its 2012 annual report. It is very plausible for Mazars to undertake additional due diligence, knowing very well that the company previously had an audit incident.

It is also interesting to note that Fujian Zhenyun's biggest 'S' shareholder is Ee Hock Leong Lawrence, who has the expertise in corporate governance and practices of listed companies in Singapore.

The current shareholders would likely know about the value of the company and hence do not rush to the exit even when other stocks tanked, as inspektordi has observed.

I remain bullish on the company and am patient to wait it out. The near term earnings should improve slightly as the company place additional focus on marketing and 'reaching out to well-established customers that have business operations across China'. I did not, however, add into the valuations as I prefer to remain conservative.

In response to inspektordi's last qn, as mentioned, the cash is discounted because the company did not put it to good use. The other reason is due to its internal controls. While it is difficult to make a comparison with other S-chips, I believe that the internal controls of Fujian Zhenyun has improved. For example, Deloitte's special audit mentioned about the "Absence of formal customers’ credit assessment procedures resulting in inadequate credit control". Since then, in its annual report, Fujian Zhenyun has recognised receivables as its main source of credit risk and has elaborated in detail on the credit evaluations. It is also noteworthy that its receivables has since improved.

Ok, very likely a big bargain but the market is not going to push it up. No fund mgr wants to buy into this, retail investors are generally not aware of this stock or have the appetite to sink their $ in it. Who are left? Value investors willing to stay invested for a long time in exchange for opportunity to make 100% or more.

Rough analysis by HL Tiong, a famous blogger:
reaching4financialfreedom.blogspot.com/2...astics-industry.html

Except just to point out that a lot of the existing cash came from FJZY's operations (instead of IPO) as the cash balance grew significantly over time.

Look at their balance sheet...

Look at their cash.....what is the return on their 'cash hoard'

Look at their debt....what is the interest rate.... compare it with the return on their 'cash hoard'

Why does they need to increase their debt level(1h2013 vs FY2012) when they are having positive cashflow. Debt is not cheap esp when they are having lower profits. If you look at the P/L for the past few years, they are piling on debts while 'cash hoard' increases....

Why does the loan needs personal guarantee since there is such a huge 'cash hoard' and the borrowings are only RMB20m


Not vested.....

Wong: U post saying the cash is accumulated from business growth. The blogger wrote at length that it's from IPO. Who is right?

behappyalways: We singaoreans will never get it but in China, apparently you need to take loans (even when you don't need them) in order to maintain biz relationship with the bank.

or they were made by some subsidiary/subsidiaries as each of them is/are required to be independent when it comes to funding. Also, note that there are subsidiaries that Fujian Zhenyun does not own 100% of. (source: www.nextinsight.net/index.php/story-arch...5259-fujian-zhenyun- )

Yes I agree. Some form of biz is required in order to keep the biz relationship going......

by the way San Te h is also in the PVC biz helmed by Mr Kao whom I view as a shrewd businessman. The company has been in the biz for many years but barely profitable partly due to high oil price.

not vested