02 May 2013

China listed Companies in Bursa Malaysia: HB Global (5187) - Cash is not KING

Logic, logic and logic. Logical thinking is very useful to avoid most of the traps. Logically speaking, none of investment is 100% risk-free with attractive guarantee return. In this post, I am going to record the lesson I have learnt from China listed companies in Bursa Malaysia based on my observation and experience since last two years.

Assumption - Cash is KING

All investors have their own assumptions. All the investment will provide positive returns if these assumptions are fulfilled. One of these assumptions is "Cash is KING". This is understandable because if even amount of Cash that stated in an annual report is doubtful, I think nobody has a reason to invest hard-earned money in that kind of companies.

The Worst Case of an Investment

Suspension. Yes, I believe the worst case of an investment is suspension. When a particular company is suspended by authority (such as Bursa Malaysia in Malaysia stock exchange), investors have no chance to cut-loss or sell out. It will be a nightmare. Therefore, as a retail investors, we really should not put all our EGGs in a basket. Diversifying our portfolio, even though, may reduce our return. Nonetheless, with proper portfolio management, we should still able to maintain a return rate of 10~25% annually.

Recent Case - HB GLOBAL LIMITED (5187)

HB Glogal, formerly Known as Sozo Global Limited, one of typical cash-rich China companies that listed in Bursa Malaysia. Insignificant borrowing or debts will be another attractive area of this company. Nonetheless, does it sound too good to be true?

Cash flow statement - reveal the flow of cash - CAPEX 

I think HB Global (5187) is a typical high risk company. Firstly, its CAPEX (capital expedition) is much higher than its cash that generated from operating activities. This is a very risky activity and a red flag. Because we, outsiders, have no idea what kind of PP&E (property, plant and equipment) and other assets have been bought. Thus, I always get rid of this kind of companies.

Where is our Cash

Yes, as shareholders, I think we should at least be given the information about where is our cash, don't you? What do you think if your CEO decide to put 500 million at bank(s) instead of fixed deposit? With 3% interest per annual, 500million in fixed deposit will at least provide 15million interest, that approximately equals to the dividend payout last year of 1.8cent per share or 16.8million.

Interest rate - 0.3% or 3.0%

However, I feel very disappoint when the group put 500million at bank(s) for 0.3% interest rate per annual. One simple action to earn 15million instead of 1.5million, I think even child know which is the better choice.
Well, I am not auditor. I cannot tell you whether the financial statement is false or what. But I am pretty sure their shareholders should change the CEO because such silly loses.

Logical Action

Yes, MAYBE, the management teams is going to use that cash for the next CAPEX. Logically, what we will do to most of our cash even we are looking for the next investment -  a short term fixed deposit (one month). The interest rate for one month fixed deposit is still around 3%. (Does China bank not provide one month fixed deposit?)

Final Count Down

Now, latest announcement shows that IF HBGLOB is still unable to submit its annual audited accounts for financial year ended 31 December 2012 before 8th May 2013, HBGLOB will be SUSPENDED. What should shareholders do not. I really no idea. But I am pretty sure that we should always avoid this kind of CASH suspicious companies in the future.
That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage for latest sharing.

Written by: Xaivier Chia


P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.


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