CSL: Too Good To Be True?

China Stationery Limited (CSL) share price plunged into a new low of 24sen, down 73% from its IPO price of 90sen in Feb 2012, or down 87% from its peak of RM1.80 in April 2012. And it may go lower.

Is CSL really so bad? It just makes plastic files and plastic tapes. It does not even make pencils or eraser. 

Nevertheless, it does make money. 

For its FY2011 ended Dec 2011, CSL registered a net profit of RM219.0mil from a revenue of RM836.6mil. The figures improve slightly a year later (FY2012) to RM226.7mil net profit out of RM964.6mil revenue. It has just released its FY13Q2 results in which it achieves its highest revenue of RM259.7mil since listed (grows 17% QoQ). Its net profit increases almost 9% QoQ to RM61mil. It stays on course to at least maintain its earning for FY13.

Besides index or blue chips stocks, not many company actually makes more than RM200mil a year in Malaysia stock market. A random check at a few companies reveals that for the latest full financial year, Mahsing earns RM230mil, Top Glove RM200mil, Aeon RM210mil, QL Resourse RM130mil, Kossan RM100mil & Globetronic RM40mil. Most of them are record high profit.

Perhaps there are 2 problems with CSL. First, being a China-based stock which is notorious for accounting fraud. Remember Sozo (HBGlobal)? Secondly, its founder and largest shareholder Mr Kwan Wing Yin continues to sell his shares like selling vegetables since early this year, with its shareholding drops from 72% to less than 45% now. Recent 12.8% shares traded off-market at 30sen in mid August was also believed to involve Mr Kwan as well.

Why did an executive chairman dispose his shares in the company substantially, especially if he expects the company to keep on earning more money? Too much money? Too generous? He said he wants to attract more long term investors.

       CSL: All over the world

Currently CSL's PE ratio is at a mere 1.26x and its net asset per share is RM1.06 which is more than 4x more than its current share price of 24sen. It has cash amounting to RM1 billion and its total borrowing is just RM26.6 million. With so much cash on hand, it may diversify into non-core business in the future.

CSL gave a total 3.4sen dividend for its FY2012. If its earning trend and dividend payout remain the same for FY2013, the dividend yield will be an unbelievable 14%!

Why is CSL at 24sen?