Tuesday, January 05, 2016

Xinghe A Potential Dark Horse

Supreme Global Group Ltd (SGGL) is a Hong Kong registered company. It has a 91.15% subsidiary known as Henan Xinghe which manufactures and trades edible oil, mainly peanut and other blended oil. SGGL got listed in Bursa via a reverse takeover (RTO) exercise in April, 2014. 

Key West, a GN3 status company in Bursa issued 1.9 billion shares at 11.05 sen per share to take over SGGL valued at RM210m. In a private placement, it also issued 300 million shares at 20 sen per share. Shortly after the RTO, the name Key West was changed to Xinghe. 

On 29 April 2014, Xinghe debuted at 25 sen, moved up to 26 sen and closed at 22 sen. The highest it went up was 29 sen some time later before easing all the way down in a roller-coaster ride to below 7 sen.

Now at 6.5 sen, is this a good stock to buy? Is this another risky and useless China-based stock? Let us have a look at its balance sheet and earnings.

As at 30.9.15 

Paid-up capital : RM234.850m
Par Value : 10 sen per share
No. of shares issued : 2.3485b
NTA : 23 sen per share
EPS for the quarter ended 30.9.15 : 0.77 sen
Non-current assets : 37.732m
Current assets : 549.186m
Current Liabilities : 19.675m
Current Ratio : 27.91 (This is fantastic)
Cash : RM373.27m (Excellent)
Borrowings : RM29.072m
Final dividend paid on 21.9.15 : 0.2 sen

On 25.3.15, 1.17425b bonus warrants of 1 for 2 were issued. These warrants are convertible to ordinary shares at 10 sen per warrant. The expiry date is 22 March 2019.

From the above info, it can be seen that the company has a very strong balance sheet with plenty of cash and little borrowings. If it is not China-based, this stock is easily worth 50 sen a share. 

Other points to note are:

SSGL is 10% owned by the China Government. The Chinese government is very serious in dealing with corruption. So, hopefully, there won’t be any hanky panky in the company.

Henan Xinghe is one the top six edible oil producers in China. It is mainly involved in producing edible vegetable oil as well as peanut protein cake in the China market. 

It is a profitable company with ambitious plan for the future. It intends to produce peanut protein to compete with soybean protein by 2017. According to its MD, peanut protein is a better product than soybean protein. 

It uses lots of palm oil as its feedstocks, and that is the main reason why SSGL wants a listing in Bursa, according to its CEO. Its presence in Malaysia is good for the palm oil industry.

The company has a dividend policy of paying 15% of its earnings as dividends.

At the last traded price of 6.5 sen, I am of the opinion that the stock is a good buy. The stock has been crawling at the bottom for many months. To me, this is an accumulation by savvy investors.

Will this ugly duckling turn into a golden swan someday? The potential is there, but only time will tell. Best action to take is to buy some now at 6.5 sen, and watch the stock closely. Chase only when the 7 sen level is decisively breached. 

Trading or investing is never without risk. You buy at your own risk absolutely.

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