Monday, March 25, 2013

How do you smell a rat?

There are reasons why many would want to avoid Chinese stocks. In every few stocks, I am sure there are some decent ones but we just would not know which is good, and which is bad. By the way, all of them on paper looks decently good, in value. There are however stories of accounts and even cash balances are forged - I don't know how but just we have to be careful.

China Stationery is one of the Chinese stocks. Its accounts look good. It has a NTA of RM0.98 per share while the cash balance was at RM0.73 per share as at 31 Dec 2012. No debt. It however is trading at RM0.465. That looks very good? We are buying at substantially lower than cash holding - how fantastic is that?

Just last week, there was a transaction by the major shareholder selling 4.02% of his stocks and guess at what price? RM0.60. If I am the major shareholder, and in my bank balance, I have RM0.73 cash per share, I would not sell at RM0.60. That looks very stupid, isn't it? The sale of RM0.60 was to an unknown party, could be left pocket to right pocket. But yet it is no good. It is not at all transparent.

On top of that, the IPO a year ago was raised at RM0.95. Who again would sell, way below IPO price if on paper it is performing as in the financial accounts?

Anyway, who cares...there are just some people who would still be interested. Much stranger things have happened in Bursa and this is not it.

1 comment:

Ben Gan said...

China-based stocks all looked undervalued on paper not only in Bursa, but in America and Singapore as well. They have all been avoided because of fear. Fear of fraud accounting is the main reason. If one is in doubt whether a snake will bite or not, it is best not to touch it.