The S-Chips Value Trap : Fake Cash Holdings - Hongwei and China Hongxing Sports | Investment Moats Skip to Content

The S-Chips Value Trap : Fake Cash Holdings – Hongwei and China Hongxing Sports

One of the key things that a value investor look into is a company’s financial strength. Small time investor like us have not many ways to do that but to analyze the balance sheet, income statement and cash flow statement.

At Investment Moats some aspect of the balance sheet that I look at to ascertain financial health are:

  1. Short Term and Long Term Debts – Efficient use. Less the better
  2. Cash and Equivalent Holdings – Adequate. More the better
  3. Short to Negative Cash Conversion Cycle

One unique characteristics about these S-Chips is that they keep a lot of cash. Some deploy their cash immediately but many just keep it to the tune of 30-50% of their market cap.

When I see this, I thought to myself: “This is a value buy!”

Sadly the case of China Milk and Oriental Century have taught us that those cash is only useful if they exist.

Sometimes I wonder what SGX is doing to clamp down on this. You have all these inferior companies using Singapore as the backdoor to list because Hong Kong is a harder place to list. After listing here they use it as a further backdoor to list in Hong Kong again!

Take a look at Oriental Century’s stats. It’s a textbook value stock. My friend bought it and got royally screwed.

Hongwei Tech and China Hongxing have cash holding discrepancy

This week we probably add 2 names to this group. One common trait: they are very cash rich as part of market cap.

Given these releases and the kind of disclosures, have your confidence in S-Chips been affected. 1 Oriental Century might be a one-off but now we have so many examples.

Hong Wei

Hongwei_auditissues

China Hongxing

CHX_final

 

I don’t know about you guys but I will be wary to practice investing using only the financial reports for S-Chips

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