C&G Industrial

C&G Industrial

Postby winston » Mon May 12, 2008 2:22 pm

From CIMB:-

C&G Industrial (S$0.32) - 1QFY08 results - Padded by forex gains, again

Within expectations. 1Q08 net profit of Rmb43.9m was 27% of our FY08 forecast and 26% of consensus. The results look strong again, only because of an exchange gain of Rmb12.2m (4Q07: Rmb11m). The gain emanated from a US$20m loan taken out in FY06 and the strong Rmb appreciation over the US$ in the quarter. Excluding the boost, core operating profit would be only 24% of our FY08 operating profit forecast.

Revenue fell 8% yoy, 17% qoq.

Sales weakened due to:
1) snow storms in early 1Q08; and
2) an end in production of normal yarn products since Feb 08.

Lower yarn sales are worrying as management previously warned about a more pessimistic outlook for the downstream yarn market.

On the bright side, a new high-margin compact combed yarn product commenced production in Mar 08. Overall, 1Q revenue was weaker than expected.

Gross margins higher as product mix improved. Gross margins improved 190bp to 30.4% as reduced low-margin yarn sales contributed to a better product mix. Lower sales, however, hurt core profitability. 1Q08 gross profit (Rmb56m) fell 3% yoy and 11% qoq on the back of weaker sales; core operating profit turned out equally weak. EBIT managed to grow 24% yoy only because of the Rmb12.2m gain, attributed to the falling value of US$-denominated debt. Without the forex boost, EBIT would have been 4% lower yoy.

In need of new products. The production of compact combed yarn has commenced and should help prop up margins. Management guides that the construction of a new plant for industrial bi-component fibre has started. The additional 20,000 t.p.a capacity for this new product should kick in from 1Q09. We have built in 45% utilisation for this in FY09.

No change to EPS estimates. Earnings look fairly in line, though artificially propped up by forex gains in the past two quarters.

Ceasing coverage due to lack of institutional interest. A weak S-chip market has depressed sector valuations to 4x CY09 P/E. C&G Industrial has also fallen down to a micro-cap level. Although the stock not expensive, we believe investors would be keeneron the bigger alternatives, especially given the weak outlook for C&G’s downstream products.

We withdraw our previous target price of S$0.78 and Outperform rating, on lack of investor interest. In the near term, we prefer Sino Techfibre for its PMP re-rating catalysts.
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Re: C&G Industrial

Postby millionairemind » Mon May 12, 2008 4:22 pm

Just to add abit on C&G..

I started investing in this stock back in Sep 06 and bot it all the way up till the correction in March 07. After that.. I have been following the story of its expansion.

Forex gains in the past 2Q is what that is making in the earnings improvements.. The SPF Master fund and Value fund have been selling the stock since the beginning of this year.. Unfortunately.. they bot it at much higher price. :(

The amount of cash the company has is high. Total Rec + cash/stock outstanding = 27cts/share.

The amount net cash generated from operations is more than sufficient to cover the current liability. They did a share placement last year at 58cts if I remember correctly.

Financially this company is in a very strong cash position. They are slowly moving up the value chain and this should show up in the results for Q2. Their new plant is oso coming on line in 1Q09.

I got into this company again after follow thro' at around 26.5cts again. Sold it recently at around 3X cents and now holding a small position only.

Hope this helps.
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Re: C&G Industrial

Postby millionairemind » Sun Aug 03, 2008 10:02 pm

2Q results just out.. terrible :(

http://info.sgx.com/webcoranncatth.nsf/ ... penelement

Net profit down 67% as compared to Q2 2007...

Heng ar, never bot it this time around :D
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Re: C&G Industrial

Postby yeokiwi » Sun Aug 03, 2008 10:46 pm

The omission of dividend for FY07 was already a warning to all investors.

The administrative expenses increase more than 300% with some rubbish explanation like R&D, business expansion etc etc. There is no breakdown info on the admin expenses.

This kind of company seems to earn a lot of money and has plenty of cash. But, somehow, the $$$ will never go back to shareholders' pockets.

Normally, I will avoid this kind of companies.
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Re: C&G Industrial

Postby kennynah » Mon Aug 04, 2008 1:13 am

just like serial systems.... take shareholders for a ride ...some more not disneyland rides...more like those pasar malam makeshift ones...
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Re: C&G Industrial

Postby la papillion » Mon Aug 04, 2008 12:14 pm

Haha, didn't know you guys are into this as well :)

-------------------------------

C&G Industrial holdings had a ninja 2QFY08 announcement on 3rd August, yesterday. It is rare to see a company giving its result announcement on Sunday. Caught me off guard, so to speak :) I noticed it when I saw a big drop in % change - around 27% drop - when I checked my watchlist.

Not going to do any detailed analysis. I thought this is a good candidate for pure Graham's play. The big drop is likely due to the bad 2Q08 results. Revenue dropped 7.2% compared to the 2Q07, gross profit dropped 17.4% and net profit dropped 66.5%. What caught my eye is actually the huge administrative expenses chalked up - to the tune of 23.9 million RMB, an increase of 362.4% from 2Q07.


A few factors caused the 2Q08 results to stink:

1. Revenue dropped because sales are affected by snow story in early 2008. But I think the more important fundamental change in their revenue stream is due to the fact that their yarn products are now confined to functional yarn, combed yarn and compact combed yarn. These are products with higher margins and those normal yarn products with lower margins are not longer manufactured or outsourced since Feb 2008. I think this creates a short term drop in revenue, but can potentially bring about greater good in the future.

Selling price were also reduced during 2Q08. This is worth looking closer because if a company had true competitive edge over others, I wouldn't expect selling prices to be cut. Is there a problem with tough competition eroding their selling prices and hence profits?

2. Net margins dropped due to the drop in revenue but no corresponding drop in the cost of sales. From around 19% net margins in 1H07, it dropped to 15% net margins in 1H08 (extraordinary gains are inclusive). 28.8 % gross margin dropped to 27.8% during the same period too.

To me, it's a short term problem. If their plans to manufacture and sell higher margin products succeed, this short term drop in net margins and gross margins will correct itself.

3. Other income - this is due to the exchange rate gains made in 2Q07 to the tune of 4.3 million RMB while there is a exchange rate loss made in 2Q08 around 1 million RMB. Did they do some form of hedging?

4. Administrative expense increases a lot because of an increase in consultancy fee for research and development (14.7 mil RMB). I suppose this is one off and will not recur every quarter. If this 14.7 mil RMB is added to their 1H 08 results, the drop in net profits is only around 8%, and not the 26.6% report in the results.

In other words, this could just be another temporary problem, just like their net margins and possibly revenue drop.


Graham's play?

What is so interesting about C&G is that they are sitting on a huge pile of cash and cash equivalents - 560.873 million RMB. Taking 406,285,715 as the number of shares outstanding, this gives us a cash/cash equivalent per share of 0.234 SGD.

I'm not sure where the cash comes from, but I think it's likely coming from the net proceeds from issue of shares of 218,514 million RMB made in FY07. This amount is just carried over to the current FY.

Let's be really conservative and calculate the total liabilities per share. Total liabilities stand at 228,661 mil RMB, giving us total liabilities per share of 0.098 SGD. Thus, after paying off all liabilities using only their cash/cash equivalents, there is still a cash per share of 0.142 SGD.

Graham recommended using current assets to minus off all liabilities (my calculation is even more conservative since I only used cash/cash equivalents to minus off all liabilities, which is part of current assets). Doing that we have a value of 0.192 SGD per share. Using a margin of safety of 30%, we get around 0.134 SGD per share.

Anyone game to play Graham on this company? :)

------------------------

edited: Mike informed me that I had miscalculated some figures because I used the wrong shares outstanding (I used the 07 figures instead of 08). Re-did my calculations :)
Last edited by la papillion on Tue Aug 05, 2008 12:25 am, edited 1 time in total.
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Re: C&G Industrial

Postby millionairemind » Mon Aug 04, 2008 12:24 pm

I not so good with value investing so don't like to graham this company... pardon the punt :D

I made good money on this company last year... time to look for other growth stocks liao...

This stock failed my screen on Q1 results cos' the rev was flat...

Huat huat 2008 ar...
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Re: C&G Industrial

Postby millionairemind » Mon Aug 04, 2008 12:38 pm

And La Pap, I just checked on SI the PE ratio for this company.. it is now 2.5 :o :o

Here is one score for the Investment Myths Busted - Cheap Stocks do get cheaper :D

Just kidding hor.. :mrgreen: :mrgreen:
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Re: C&G Industrial

Postby amigos » Mon Aug 04, 2008 12:53 pm

Hello folks, is C&G a competitor of sinotech fibre?
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Re: C&G Industrial

Postby la papillion » Mon Aug 04, 2008 1:24 pm

millionairemind wrote:And La Pap, I just checked on SI the PE ratio for this company.. it is now 2.5 :o :o

Here is one score for the Investment Myths Busted - Cheap Stocks do get cheaper :D

Just kidding hor.. :mrgreen: :mrgreen:


Haha, mm :) okay lah, you win!
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