Chairman agreed to look into doing share buyback in the coming quarter as the company has already got the share buyback mandate. This is to improve shareholder value.
Company is looking into reducing the debt to zero with the excess cash they have.The independent director Lim Yoke Hean said that in China some loan has to be maintained to maintain good relationship with bank just in case company needs higher capital for diversification.
Company is looking into diversifying into new businesses while maintaining the current business instead of expanding the current business.This is good as the current business will not need large orders to be viable if they have other businesses and the present business requires very little capital. The current resources including the management and facilities can be shared with the newer business for better utilization of resources.
Company is very selective and careful about what other business they want to enter by looking at the risk return ratio.They have already rejected many proposals as they do not want to throw good money into high risk ventures or businesses they do not understand. I believe the independent director Lim Yoke Hean who is the former CEO of Pheim Asset Management is helping the management is selecting the right kind of business.They are not in a rush to throw the money which they have safeguarded for so long into businesses they do not understand but they are actively looking into selecting one.
I think its a good decision about maintaining the current business while looking elsewhere for expansion.Since,the company has much experience in the current business its good to maintain it and at the same time the current management can also manage other businesses putting the money to better use.
When company said the money from the sale of land is to be used for working capital in means it will be kept as current asset which is part of working capital,it does not mean the company needs the new money for running the business. The money will just contribute for future diversification and share buyback.
The difference of RMB 12millio from excess over book value less estimated gain is because of the government tax on the gains made from the sale of land. So the charges are from the government not because management had high transaction cost.
Independent director Lim Yoke Hean reiterated the cash is real and China Fibretech is no Foreland.He said it could be verified with the Senior Financial Manager who was present.
He had personally went to the bank last week to check the balance and the Independent directors and the Singaporean Senior Finance Manager do weekly online check on the cash balance of the company with the bank.
So the RMB408 million cash as reported in the last quarter announcement and the additional cash from the sale of land is very real and the company is looking into share buyback and also diversify the business for better returns instead of expanding a business in a sunset industry. The present business is good but not big enough for the company just to focus on it instead to add other businesses that are more viable so that there will be additional source of income. Many business proposals brought to the company were rejected on the basis of risk and returns. Management with the support of the Independent directors want to choose a business that is stable,there is high demand and a business the management can understand.
The Chairman is also willing to consider changing the name of the company after diversifying into a new business which will be the core.
Summary:
Cash is real
Expect share buyback exercise in the next quarter which is starting October 1.
Company is serious about diversifying for better returns and the company is also careful about what business they want to choose with the help of the independent directors
Independent director Lim Yoke Hean assured the company will not become another S-chips where the Chairman runs away with the money.
Its good thing that the company has most of its assets as cash which gives them an option to diversify instead of being stuck in a industry as the capital being illiquid. Many fabric companies are bleeding because they have invested so much in the fixed assets which cannot be easily converted to cash for them to diversify for expansion instead major write down of assets had to be carried out because of poor returns on fixed assets.
Francis wrote: Don't you think it's very risky to assume such things?
Its not an assumption but it is real.I was assured by the independent director during the EGM held yesterday he had personally verified the cash in the bank and the Independent directors and the Senior Finance Manager have access to online verification of the amount in the bank. So other than physical check they do random online checking direcly into the bank's records on a weekly basis.
Money is placed in a major top 3 bank in China.
With the land sale,net cash probably will reach above 19c per share against the share trading at 3.6c per share plus other assets about 3 centss
NextInsight
a hub for serious investors
