Time & date: 10 am, 29 Sept 2014Venue: Riverview Hotel, Singapore.
Reader Nava shared the following in the NextInsight forum after the EGM where the company sought shareholders' approval to dispose of a piece of land in Xiamen for RMB48.689 million.
China Fibretech (stock price 3.6 cents, market cap: S$16.1 million) provides dyeing and treatment services that impart special functionalities such as water-resistance and UV-protection to fabrics.
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China Fibretech chairman & CEO Wu Xinhua. He owns 50.4% of the company. Photo: annual reportThe company's Chairman, Wu Xinhua, 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.About 15 shareholders were present. All of us were clamouring for a share buyback by the company and an independent director, Low Wei Cheong, said that they tried before but we told it was just a token amount. He said at that time, the trading volume of the stock was low and thus the company could not buy more.
We shareholders said the buyback should not be a token number of shares but a number that could help to change the sentiment in the market about the company's commitment to improve shareholder value. The independent director Low Wei Cheong agreed and I also reiterated that the volume of shares traded in China Fibretech is much higher lately, so there is plenty of liquidity. So, there is no excuse for not buying back shares and it should not be a token amount.
I told them that in their ciricular for the last AGM, the company explained the benefits of share buyback to get the share buyback mandate. Yet, it has not exercised it.
Lim Yoke Hean, lead independent director since July 2012. NextInsight file photoDuring the meeting, lead independent director Lim Yoke Hean checked with the Chairman and he indicated that he was seriously considering buying back the shares in the coming quarter but did not commit on the amount. We told them it should not be like before just a token amount which is not going to change anything.
We shareholders said the buyback should not be a token number of shares but a number that could help to change the sentiment in the market about the company's commitment to improve shareholder value. The independent director Low Wei Cheong agreed and I also reiterated that the volume of shares traded in China Fibretech is much higher lately, so there is plenty of liquidity. So, there is no excuse for not buying back shares and it should not be a token amount.
I told them that in their ciricular for the last AGM, the company explained the benefits of share buyback to get the share buyback mandate. Yet, it has not exercised it.
Lim Yoke Hean, lead independent director since July 2012. NextInsight file photoDuring the meeting, lead independent director Lim Yoke Hean checked with the Chairman and he indicated that he was seriously considering buying back the shares in the coming quarter but did not commit on the amount. We told them it should not be like before just a token amount which is not going to change anything.Company is looking into reducing debt (RMB12.9 million as of end-June 2014) 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.
China Fibretech is a service provider, adding colours and functionalities to the raw fabric of customers. Photo: CompanyCompany 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, the former CEO of Pheim Asset Management, is helping the management in 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.I think it's a good decision to maintain the current business while looking elsewhere for expansion. Since the company has much experience in the current business, it's good to maintain it and at the same time the management can also manage other businesses, putting the money to better use.
When the company said the proceeds from the sale of land is to be used for working capital, it 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 to future diversification and share buyback.
The difference of RMB 12 million from excess over book value less estimated gain is because of the government tax on the gains from the sale of land -- not because management had high transaction cost.
China Fibretech (share price: 3.6 cents) has net cash of about 18 Singapore cents a share. It reported a net loss of RMB1.8 m in the 1H2014 and does not pay dividends. Chart: BloombergIndependent director Lim Yoke Hean reiterated the cash on the balance sheet is real. He said it could be verified with the Senior Financial Manager who was present.He personally went to the bank last week to check the balance and the Independent directors and the Singaporean Senior Finance Manager do weekly online checks 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.
Mangement wants to add other businesses that are more viable so that there will be additional sources of income. Many business proposals brought to the company were rejected on the basis of risk and return. Management with the support of the independent directors want a business that is stable, enjoys high demand and the management can understand it.
The Chairman is willing to consider changing the name of the company after diversifying into a new business which will become the core.
Independent director Lim Yoke Hean assured the company will not become another S-chip whose Chairman runs away with the money.
It's a 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 downs of assets had to be carried out because of poor returns on fixed assets.
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