Xinquan: How Low Can It Go?

XingQuan held its 3rd annual meeting on 2rd Dec 2011. Immediately after this day, XingQuan's share price has tumbled 23% in just 7 trading days!

If we look at the financial results, XingQuan is a very attractive company. Its revenue and profit keep on increasing each year since being listed. It has a lot of cash and little debt. It is expanding its business well in China. However, like all other China stocks in Malaysia & Singapore, the share price does not perform like it should be.

XingQuan was listed in Bursa back in mid 2009 with a retail IPO price of RM1.71. Yesterday, it closed at RM0.68, down 60% from its IPO. How can this happen to such a "great" company?

As most of us know, Malaysia's Warren Buffet Mr KYY also holds 11% of XingQuan's shares.

Why XingQuan's share price suffers sudden fall recently after the AGM? If we check the announcement made that day, we can see that its 2 non-executive directors age 61, who are also members of audit committee retire, replaced by 2 young bloods. Are those 2 new fellows notorious for something? We can also learn that the CEO is ambitiously talking about the great financial performance and expansion plan of  XingQuan.

Is it because of fraud in its account?

     Can we trust this face?

Like all China based companies, the accounting fraud issue is a real concern. XingQuan is known for its low dividend payout, which is only 10-20% of PAT. For such a cash-rich company, this makes investors puzzled. Perhaps China-man are all "kiam siap"? In Aug 2011, it even proposed new issue of security to raise more fund. Money not enough? From XingQuan's most recent quarterly report, it has cash of RM400mil and bank borrowing of only RM38mil!

With the current share price, XingQuan's PER is well below 2. Cheap isn't it?

With such a sharp fall, I think its share price will rebound to some extent, and may continue to drop if bad news emerge. Speculators may want to catch this falling knife, but don't catch the blade and hurt yourself. Timing is key.

Anyway, what is the actual reason for its recent drop?