Saturday, March 5, 2011

Nothing seems to be right

XDL was registering 16% EPS growth(2010 0.1983 vs 2009 .1705), paying 2.5 sen dividend, paring down debts, no big increase in account receivables, and having about the same level of account payable. In other words, fundamentals are looking good. Share price however remained under water.

What is wrong with XDL in specific and Chinese companies in general? The biggest problem is stigma/INTEGRITY. There have way too many scandals that leave a very bitter taste on investors' tongues. Here is the most recent case of China HongXing listed in Singapore exchange. The CEO was buying back shares. The company was paying dividend. Order booking was strong and etc. The engaged reputable audit firm like Ernst and Young. In other words, we should consider it as a well managed company but unfortunately they still encountered dishonest management siphoned out money out of the company(shareholders). See below on their announcement that they cannot finalize their financial statements due to accounting irregularities.

Incident like this will surely shake the confidence of investing community. The CEO, Board of Directors, Security Exchange have put in place of strong control yet they are still unable to detect fraud. I doubt we can detect problem like this too even we have access to the management or talking to them regularly. Cheap it may sound(selling at 2X PE like XDL) but I think it is too dangerous to put hard earned money on the line. It is too difficult to tell whether these guys are building houses on the sand.


Kris said...

The china company integrity issue is not only bounded to Singapore. In the US, these issues is still happening even though with reputable auditors as you mentioned.

davors said...

all the IPO holders crying now...