XINGQUAN INTERNATIONAL SPORTS HOLDINGS LTD, which has a net cash position of RM822.3 million, has plans to open more points of sale (POS) or outlets and is also on the lookout for mergers and acquisitions (M&A) opportunities, says its former non-independent non-executive director Ooi Guan Hoe.

“Currently, we have 127 POS, working with 14 out of the 20 largest department store groups in China, including Chongqing Department Stores, Dalian Dashang, Parkson, Wanda, Wangfujing, New World, Rainbow and Golden Eagle. We hope to open 200 POS within the next three to five years.

“Our cash will be used to open additional POS and for long-term working capital. Part of it will act as reserves in case of a sudden drop in business as it is difficult to get financing in China. We are always on the lookout for good M&A proposals,” Ooi tells The Edge.

The plan is to open the POS or outlets in middle to high-tier department stores in China, he says. The cash fund will fund working capital for six to eight months.

On its balance sheet, Xingquan (fundamental: 1.95; valuation: 3.00) had RM833 million cash as at March 31, 2015, an increase of 21.4% from June 30, 2014. It has only RM10.7 million in short-term borrowings, giving the group a net cash of RM822.3 million, almost five times its market capitalisation of RM175.79 million.

It is common for China-based companies to hoard cash because their business is usually cash-based, analysts say.

An analyst who covers the stock says most of the time, suppliers require cash payments upon delivery, without any credit term as practised elsewhere. “Their (Xingquan) cash position allows them to service one year of supplies,” says the analyst.

While the Fujian-based shoes and apparel distributor is sitting pretty on its cash pile, its stock price has been falling recently. Its share price dropped 22.39% to 52 sen between June 4 and 12. Trading volume during the period was between three million and seven million a day — above its 52-week average of 701,021.

“The drop in its share price is just a function of the overall market sentiment and perception of China-based stocks,” says an analyst who covers the stock.

Xingquan’s share price had been steadily climbing over six months since slumping to its lowest level of 34.1 sen on Dec 16, 2014. On June 3, the share price reached 67 sen, the highest since Aug 8, 2014.

China-based stocks listed on Bursa Malaysia have not always been appreciated by the market. All of them are trading below initial public offering prices. Xingquan was listed in July 2009 at RM1.71. Last Friday’s price of 52 sen constitutes a drop of 67.6% from the IPO price.

On June 3, Xingquan announced on Bursa Malaysia’s website that Xie Zhidong, its second largest shareholder then, had disposed of five million shares or 1.5% of the group’s share base on May 29.

Following the disposal, Xie’s shareholdings in Xingquan dropped to 4.85%, behind Stichting Effectenbewqarbedrijf Hof Noorneman. The largest shareholder of Xingquan is still Tai Zhen Xiang Holdings Ltd with 53.13%.

Xie first emerged as a substantial shareholder in the group on May 15, 2014, following a private placement exercise with 30.73 million shares or a 10% stake. He has been disposing of the shares since then.

On June 5, Ooi resigned as non-independent non-executive director. Replacing him is Datuk Ramly Zahari, a four-term Barisan Nasional assemblyman in the Perak legislative council.

Ooi says he resigned because he is taking up a position in a company in China, which requires substantial time as it is preparing for a listing soon.

The analyst who covers Xingquan says Ooi’s resignation was to give the company better corporate governance, as he was a non-independent director. Ramly will be an independent non-executive director of Xingquan.

Xingquan’s earnings grew 30.4% to RM106 million during the nine-month period ended March 31, 2015 (9MFY2015). The better performance was attributed to overall increases in sales volume of shoes and shoe soles, and higher average selling prices (ASPs) of its apparel.

In 9MFY2015, Xingquan sold 11 million pairs of shoe soles, compared with 9.5 million pairs in the previous corresponding period, and 1.8 million pairs of shoes compared with 1.4 million pairs previously. The ASP of its apparel increased to RMB203 per piece, compared with RMB183 per piece previously.

Xingquan used to manufacture shoe soles and shoes for multinational brands and distribute sports apparel in China. However, it has since rebranded its products as “Gertop” to cater for the casual outdoor apparel market.

According to a report by Mercury Securities, the rebranding leads to higher ASPs for Xingquan’s apparel business. “The substantial increase in the ASP of apparel is due to the group’s successful brand upgrade to Gertop, which is in the outdoor casual wear segment, compared with the previous outdoor sports wear. Outdoor casual wear in general tends to have higher selling prices compared with outdoor sports wear.

“The group’s efforts in growing its Gertop brand as an up-and-coming outdoor casual wear brand in China have been encouraging. Gertop is said to be one of the top three most popular outdoor casual wear brands in China,” states the analyst in a report dated May 27, 2015.

Whatever the case may be, the sequence of events that have occurred from June 3 to 12 has surely raised eyebrows in the investment fraternity.

Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on June 15 - 21, 2015.

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