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Wednesday, September 18, 2013

Restoring lustre of China stocks on Bursa


PETALING JAYA (Sept 18, 2013): Slumping share prices have turned off investors' appetite from buying into Bursa Malaysia-listed companies from China even at current depressed valuations, forcing firms like Maxwell International Holdings Bhd to consider relisting their stocks elsewhere.

It is easy to understand their frustration being a hapless bystander, dragged down by scandals involving their counterparts in Singapore, even as the FBM KL Composite Index has gained 7.64% year-to-date.

The Minority Shareholders Watchdog Group (MSWG) suggests that these cash-rich China-based companies consider putting in place a "consistent, decent dividend" policy to attract new investors.

Most of these firms are known to be less generous about their dividend payouts, preferring to save their cash for future use.

It seems that there is no quick and easy way out from the current conundrum.

"Delisting and going elsewhere may or may not necessarily solve the problem. It also depends on which markets they are able to fetch a higher premium or higher price-to-earnings (PE) ratio to multiply their share price," MSWG CEO Rita Benoy Bushon told SunBiz via email.

A quick check by SunBiz last week showed that all of the nine China-based companies listed on Bursa Malaysia, namely XingQuan International Sport Holdings Ltd, XiDeLang Holdings Ltd, Multi Sports Holdings Ltd, Maxwell, K-Star Sports Ltd, HB Global Ltd, China Stationery Ltd (CSL), China Ouhua Winery Holdings Ltd and China Automobile Parts Holdings Ltd were trading well below their IPO price.

Only one company traded above its net assets value (NAV) per share.

"We note that most of the share prices of China-based are lower than their IPO price and NAV. But this should not be the reason for major shareholders to privatise the company. In fact, on the contrary, they should carry out their business to the best of their ability," Bushon said.

She opined that investors valued these companies not just based on their financial well-being, but more importantly how they perceive the company.

The IPO price, she said, needs to price-in the risk premium associated with these companies.

Maxwell, for example, made a net profit of 19.47 sen a share for the financial year ended Dec 31, 2012 and has a cash pile that is equaled to 79 sen a share. The company did not pay any dividend last year.

In an interview with SunBiz, Maxwell COO Tan Swee Song made it no secret of the shoemaker's founder Jenny Li Kwai Chun's plans to take the company back to Hong Kong.

"Jenny Li is a citizen of Hong Kong and this is exactly where she wants Maxwell to be listed. It could happen during her tenure or after her son inherited the business," said Tan.

Others, however, is staying put in Kuala Lumpur.

"As mentioned during our IPO, we are here for the long term investment. The group has just listed in February 2012, it's too preliminary to talk about dual listing now," CSL's executive chairman Chan Fung said in an email interview with SunBiz.

"Share price is a function of the market and is subject to many factors that are not within our control. I believe CSL is a stock with strong fundamentals yet to be recognised by investors," he said.

He blamed the poor performance of China-based stocks to bad publicity associated to the S-Chips accounting fraud scandal in Singapore, but lamented that investors should not paint with broad strokes and assume all Chinese companies are bad.

A fund manager at a local bank said he won't be surprised if some of these Chinese companies decide to call it quits on Bursa Malaysia. So far, none has taken that route.

"These China-based companies might be easily taken private and de-list from Bursa Malaysia. But I think they will face difficulties at a later stage when seeking for other listing destinations and probably end up going nowhere," John Teoh Cho Min said.

He also said that going to bigger stock markets such as Singapore and Hong Kong may not be the best option for these companies, which are still relatively small.

He concurred with Bushon's point that these companies should continue to slug it out and deliver on potentials.

"You either be a big fish in a small pond or be a small fish in a big pond." Teoh said.

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