Stock Watch Share sale in China Automobile raises eyebrows

by **Cals** Fri 25 Apr 2014, 02:11

Stock Watch Share sale in China Automobile raises eyebrows

Business & Markets 2014

Written by Kamarul Anwar of theedgemalaysia.com

Thursday, 24 April 2014 16:06

THE sale of shares in Bursa Malaysia-listed China Automobile Parts Holdings Ltd (CAP) by its founder in the last two weeks has once again turned the spotlight on the financials of China-based companies listed here.

Last Wednesday, CAP announced to Bursa that three of its directors had "intentions to deal in the company's shares during the closed period". They are founder and non-independent non-executive vice-chairman Ong Juan Tee, managing director Li Guo Qing and executive director Wang YuYun.

According to Bursa's listing requirements, the "closed period" is one month prior to a company announcing its latest quarterly results. CAP, a vehicle chassis and component manufacturer, is scheduled to release its financial results for the first quarter ended March 31, 2014, sometime in May.

Bloomberg data shows that a block of 60 million shares or 10% of CAP's outstanding shares were transacted off market at 35 sen each or a total of RM21 million on April 16. Then, on April 18, another five million shares were sold at 34 sen apiece or RM1.7 million in total.

Earlier on April 11, Ong had sold 60 million shares, equivalent to 10% of the company's current share base, to Cayman Islands-based Bridge Global Growth Fund. The transacted price was 35 sen per share - a 2.94% premium to the stock's average price on the open market that day.

Ong also sold two blocks of 24 million shares at the same price on April 11. However, the buyer of these shares was not disclosed.

The April 11 transactions were disclosed on April 16, on the same day Ong and his fellow CAP directors announced their plan to deal in the company's shares and warrants during the closed period.

Prior to the April 11 sale, Ong held 326.25 million shares or a 54.38% stake in CAP indirectly, via China Automobile Parts (BVI) Co Ltd. He also had an indirect interest in 98.57 million or 32.86% of CAP's warrants.

Based on information disclosed to Bursa, Ong is now left with about 36% equity interest in CAP.

There was no announcement on any changes in Li and Wang's shareholdings as at press time. They each hold 63.75 million shares or a 10.63% stake in CAP, and 31.88 million of the company's warrants through GuoTai International Holding Ltd.

Senior officials of CAP could not be contacted for comments.

As at end-FY2013, CAP held RM210.46 million in cash or 35 sen per share based on its outstanding shares of 600 million. It is worth noting that this is the transacted price between Bridge Global Growth Fund and Ong for the latter's shares in CAP. The shares were traded at below the company's net tangible assets of 58 sen per share as at Dec 31, 2013.

CAP was also free of debts and borrowings as at end-FY2013.

Ong had also sold 60 million of his shares via a private placement during CAP's initial public offering exercise. The company was listed on Jan 30 last year, when it held the record for the highest intraday price of RM1.248 sen or 11.62% above its issue price.

Nevertheless, CAP - like most Chinese companies listed on Bursa - is now trading below its listing price, even though it is cash rich. It also has low interest income despite its high cash pile.

CAP's interest income for FY2013 was RMB1.65 million (RM857,571 based on current exchange rate). Based on its latest reported cash and cash equivalents, the implied interest rate was a mere 0.4% per annum.

The company had also announced another round of private placement last October to enlarge its share base by 10%, but it aborted the plan a month later. It, however, issued bonus warrants on the basis of one warrant for every two shares held.

CAP's warrant holders are still out of the money based on the strike price of 35 sen, one-to-one conversion ratio and average mother share price of 30.9 sen this year. Year to date, the counter's highest intraday price was 38.5 sen on Jan 2, before the warrants were listed.

The highest traded price for the warrants was 12 sen when they were listed on Jan 3. The warrants closed at 8.5 sen last Friday.

In FY2013, CAP's net profit improved by 11.04% year on year to RM78.9 million. Revenue rose 12.19% to RM426.02 million. It also had a commendable gross margin of 32.15%.

Surprisingly, of the 31 comparable companies based on Bloomberg data, CAP's FY2013 gross margin was the third highest. Averaging at 19.68%, the gross margin of the comparable companies ranged from 2.47% to 33.75%.

For Japanese vehicle parts manufacturers, their gross margin averaged at 17.61%. The lowest came in at 7% while the highest was 37.68%, which was held by Sumitomo Rubber Industries Ltd. However, it should be noted that Sumitomo, which manufactures tyres under the Dunlop brand, also produces industrial rubber products and sports equipment.

CAP's 4QFY2013 net profit fell to RM20.07 million on revenue of RM109.98 million after reaping a RM25.81 million net profit and RM111.61 million revenue a year earlier. This was due to higher administrative and selling expenses incurred, the company says.

However, its gross margin rose during the quarter to 33.63% from 31.33% in 4QFY2012.

This article first appeared in The Edge Malaysia Weekly, on April 21 - 27, 2014.