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This article first appeared in The Edge Malaysia Weekly on July 10, 2017 - July 16, 2017

China Automobile Parts Holdings Ltd

THE company was established in 2004 as a manufacturer of steel pins and chassis bolt and nut components. It was listed on the Main Market of Bursa Malaysia in January 2013.

In April this year, China Automobile announced to the stock exchange that it was unable to release its annual report together with the audited financial statements for its financial year ended Dec 31, 2016 (FY2016), because additional work had to be done by its external auditor PKF Malaysia Sdn Bhd.

The company also failed to submit its quarterly report for the financial period ended March 31, 2017 (1QFY2017) to Bursa for public release within the stipulated time frame.

As a result, trading in China Automobile shares was suspended until further notice effective June 8.

A week later, Bursa directed China Automobile to have its financial results for 1QFY2017 reviewed by its external auditor as it felt that the quarterly report may not be accurate or reliable.

 

China Stationery Ltd

Established in the southeastern Chinese province of Fujian, China Stationery Ltd (CSL) is an integrated plastic stationery manufacturer with its own brands and proprietary products.

It is noteworthy that the net cash held by CSL is significantly higher than its market capitalisation. Unfortunately, the company has not paid any dividends since 2013.

To illustrate, if companies were compelled to pay dividends of at least 30% of profit after tax of the financial year, CSL would have to pay out RM5.55 million based on its net profit of RM18.5 million in its financial year ended Dec 31, 2016.

Recall that China Stationery applied to Bursa Malaysia to extend the due date to submit its audited accounts for 2013 by two months to June 30 due to a fire at its facility in China that destroyed its financial records and legal stamps.

The fire reduced its cash pile to RMB1.8 billion in 2014 from RMB2.4 billion the year before as it had to spend RMB408.5 million on property, plant and equipment, and advance RMB187 million to its suppliers.

 

Kanger International Bhd

Listed on the ACE Market of Bursa Malaysia in December 2013, Kanger International is one of the few China-based companies here that have avoided negative publicity.

The company, whose business operations are based in the coastal Chinese province of Guangdong, started out in the trading of bamboo flooring and related products in 2004. It ventured upstream into manufacturing in 2008.

In February this year, Kanger International entered into a memorandum of understanding with Forest Research Institute Malaysia to jointly cooperate in developing bamboo into building materials in Malaysia. The MoU is in line with its objective of diversifying its earnings base and exploring fresh markets by developing new bamboo-related products and plantations.

In its financial year ended Dec 31, 2016, Kanger International’s net profit almost halved to RM5.07 million from RM9.75 million in FY2015 mainly due to the recognition of an unrealised foreign exchange gain of RM5.1 million in 4QFY2015.

 

China Ouhua Winery Holdings Ltd

Incorporated in Singapore in January 2009 as a private limited company, China Ouhua Winery was registered in Malaysia as a foreign company in October that year.

The group produces and distributes international wines sourced from various wine-growing regions in France, Australia, Spain, Chile and Germany through wine traders in China.

In 2013, two new members of China Ouhua Winery’s audit committee left and the company changed its auditor to Helmi Talib & Co, which expressed a qualified opinion on the 2013 accounts.

Specifically, the auditor was unable to determine the collectability of trade receivables amounting to RMB44.9 million. It also could not determine the recoverability of deposits of RMB118.8 million, representing 90% of the purchase price of a factory. The issue of the deposits remains unresolved.

In April, Helmi Talib & Co expressed a qualified opinion on China Ouhua Winery’s accounts for a fourth straight financial year.

 

HB Global Ltd

Previously known as Sozo Global Bhd, the company is a gourmet convenience food maker that specialises in ready-to-serve duck meat products.

HB Global was classified as a Practice Note 17 company in May 2013 after its auditor issued a disclaimer opinion on its 2012 accounts. The auditor was not able to satisfactorily substantiate the bank balance of the company’s subsidiary and receive reliable confirmation on 56% of its trade receivables and 48% of its trade payables.

In 2014, HB Global restated its 2012 accounts with a net loss of RMB27.3 million due to a RMB59.8 million impairment on fixed and intangible assets. Two years later, it said it was considering ceasing its loss-making duck farming business and procure suitable investors to inject assets into the company to address its PN17 status.

In a filing with Bursa Malaysia on July 3, HB Global said it was, together with its advisers, still in the midst of procuring and assessing suitable investors to inject new capital or businesses into the group, which may involve a reverse takeover or rights issue.

 

K-Star Sports Ltd

The loss-making sports footwear manufacturer’s target to return to profitability by its financial year ended Dec 31, 2017 (FY2017), looks a long way off.

In January 2015, K-Star’s executive chairman and CEO, Ding JianPing, said the group would turn around in 2017 as it expanded its sales points and distributorship to raise market share. He also said the rejuvenation of K-Star would hinge on China’s manufacturing dynamics.

The company saw its net loss widen to RM59.47 million in FY2016 from RM49.67 million the year before mainly due to higher finance costs and sales rebates incurred.

Established in 1992, K-Star is principally engaged in the design, manufacture and distribution of sports footwear, sports apparel and accessories under proprietary brands Dixing and K-Star. It is also an original equipment manufacturer and original design manufacturer for international sports brands, including Umbro, Diadora and Kappa.

 

Maxwell International Holdings Bhd

Early last year, audit firm Baker Tilly Monteiro Heng (BTMH) dropped a bombshell on Maxwell International when it questioned the authenticity of the cash held by the China-based sportswear manufacturer.

It was revealed on Feb 17 that BTMH, Maxwell’s statutory auditor, had yet to obtain any documentary evidence of the placement of RM103.7 million as short-term deposits in Jinjiang Jin Chuang Private Capital Management Co Ltd.

To recap, Maxwell reported a significant net loss of RM46.25 million in its third quarter ended Sept 30, 2015 (3QFY2015), mainly due to a jump in advertising expenditure. It had made a net profit of RM12.18 million in the previous corresponding period.

In 3QFY2015, it incurred selling and distribution expenses of RM42.59 million, which was a sharp jump from RM1.09 million previously. In an audit of the company’s financials, BTMH highlighted the surging advertisement expenditure for the quarter.

   

XiDeLang Holdings Ltd

The company’s beginnings can be traced back to 1993 when HongPeng Footwear was founded in Jinjiang City, Fujian, to manufacture sports shoes.

In view of the rapid growth in e-commerce in recent years, the group embarked on an online-to-offline marketing strategy after communication and coordination with the authorised distributors.

Like its peers XingQuan International Sport Holdings Ltd and Multi Sports Holdings Ltd, XiDeLang made cash calls despite sitting on large cash reserves. Under scrutiny, these companies often said the rationale for their rights issues was to raise fresh capital for business expansion while maintaining a healthy cash balance at all times.

XiDeLang is negotiating two orders worth RMB200 million (RM125.6 million) each for the next 24 months. One of the original design manufacturer orders is related to Spanish fashion brand Zara.

The company has the capacity to make 6.6 million pairs of shoes per annum and according to its managing director and CEO Ding PengPeng, it has allocated up to RM30 million to expand its production line.

 

XingQuan International Sport Holdings Ltd

The first China-based company to list on Bursa Malaysia, XingQuan completed a one-for-two rights issue with free warrants in April last year, raising RM44.1 million for business expansion. The cash call was undersubscribed by 13%. Investors questioned the company’s rationale as it was sitting on a huge cash pile.

In its 2016 annual report, XingQuan executive chairman Datuk Wu Qingquan said the board of directors believes it is prudent to conserve the available cash to ensure the group had sufficient funds to finance its working capital requirements. “In addition, the global and China economies are uncertain and it is currently difficult to obtain reasonable funding from the capital market and borrowings from the financial institutions,” he added.

XingQuan’s factory in the South China Industrial Zone in Huian, Fujian, started operating in February 2011. Its production capacity is about five million pairs of shoes per annum. The company’s factory in Chendai, Fujian, has the capacity to produce more than 30 million pairs of shoe soles per annum.

 

Multi Sports Holdings Ltd

Trading in the shares of sports shoes and apparel manufacturer, Multi Sports, has been suspended for more than a year as the company was unable to submit its 2015 annual report.

Last April, Multi Sports said there was a delay in the release of the company’s 2015 annual report due to additional work to be performed by external auditor RT LLP to verify expenditure incurred and bank balances.

Apart from that, Deloitte & Touche, the external auditor from Taiwan, was unable to carry out its review in line with Taiwan Accounting Standard Requirements. Multi Sports had taken part in the Taiwan Depository Receipts Programme to seek a secondary listing on the Taiwan Stock Exchange in 2011.

Trading in Multi Sports’ shares was suspended on May 10 last year.

Bursa Malaysia has served show-cause letters on the company to explain by July 10 why it should not be delisted.

 

XingHe Holdings Bhd

Founded in 2002 and based in the Chinese province of Henan, XingHe is one of the top six edible oils companies in China. The company made its debut on the ACE Market of Bursa Malaysia in April 2014 after completing a reverse takeover of Key West Global Telecommunications Bhd.

Back in September 2014, XingHe managing director and substantial shareholder Ma Guo Liang said the group planned to build its second plant in China to produce peanut protein powder in the first half of 2015.

Estimated to cost RMB400 million, the proposed plant was part of the peanut oil producer’s plan to venture into the nutritional food industry. The investment included land acquisition, buying machinery and marketing expenses.

Ma also said XingHe planned to set up a palm oil refinery in Malaysia with an annual capacity of 100,000 tonnes to 150,000 tonnes as it saw potential in the country becoming a hub for its business expansion in Southeast Asia. However, there have been no updates on these expansion plans.

 

Sinotop Holdings Bhd

Formerly known as John Master Industries Bhd, Sinotop is a fabric manufacturer that primarily produces customised woven loom-state fabrics from cotton, synthetic and mixed yarn.

Last October, the group diversified into project management and infrastructure/construction-related businesses in the light of the declining fabric industry in China.

Local media reported that Sinotop is bidding for RM3 billion worth of infrastructure jobs in the hope that securing such jobs would strengthen its earnings.

It is noteworthy that Sinotop’s external auditor, Crowe Horwath, has been closely monitoring the group’s portfolio of trade receivables while undertaking procedures to obtain sufficient evidence in the course of auditing the group’s accounts.

In its 2016 annual report, Sinotop said its board of directors oversees and urges management to manage the trade receivables in a more stringent, effective and efficient manner to ensure healthy cash flow at all times.

 

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