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| Xingquan: Current weak share price is temporary |
| Written by Loong Tse Min | |||
| Thursday, 27 August 2009 11:12 | |||
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The China-based sports shoe maker, which was Malaysia’s first foreign direct listing on July 10, has seen its share price fall 22% from its retail IPO price of RM1.71 as of yesterday’s close of RM1.34, largely attributed to retail investors’ concern over corporate governance of China-based companies listed overseas. Its vice-president of investor relations Thomas Ng told The Edge Financial Daily, “We are a fundamentally strong company. We have delivered two quarters of growth and this trend will continue based on our current growth in point of sales. “Our shareholding structure remains robust with two institutions having 8% of the company (equity) and another six institutions having 10% of the company. We see continued interest by these funds in our companies. As such we believe the current share price situation is temporary.” On concerns of who audits the company’s accounts in China, Ng said Xingquan had been paying income taxes there on a quarterly basis, and value-added tax monthly, and all these are handled by the company’s finance team. “China tax authority will confirm to our reporting accountants (SJ Grant Thornton) on the computation and amount of tax paid. Xingquan is incorporated in Bermuda and is subject to Bermuda tax law. Currently there is no tax obligation to profits by a Bermuda-listed company,” he said. On dividend policy, executive chairman and CEO Wu Qingquan told The Edge Financial Daily that “there will be an interim dividend at the mid-year point for the period July to December 2009”. Early yesterday, Ng told reporters at a briefing that Xingquan aims to boost third-party distribution outlets in China to 2,000 by mid-2010 from the current 1,600 in its efforts to boost revenue and earnings. He said revenue and earnings were expected to grow about 30% in line with the point-of-sales or outlet growth for the financial year ending June 30, 2010. The expansion of the number of outlets includes a venture into five new provinces in the western part of China from its strongholds in 20 provinces in northeastern and central China. The western provinces are Shaanxi, Gansu, Qinghai, Guizhou and Ningxia where there are plans to open about 50 stores, in anticipation of a growth in purchasing power from the Chinese government’s initiatives to develop the region. However, the majority of the 400 new outlets to be opened from now to June next year would be in provinces that the company’s “Addnice” sports brand is already well known, with the new stores expected to make immediate contribution to revenue. Speaking at the same function, Wu said: “When a new sports outlet is opened in a shopping mall or shopping district, we expect customers (in these provinces) who already know our brand to walk in and buy.” With the stores being mainly third-party owned, he said costs incurred by the company will be mainly on manpower, training, customer service and marketing expenses. Selling and distribution expenses made up about 8% of revenue in the company’s unaudited results for the financial year ended June 30, 2009. The company will also build its new factory in Hui An, Fujian province, which is due to be completed by June 2011. That will increase Xingquan’s shoemaking capacity to 10 million pairs a year from the present 5.94 million pairs. In the interim, the company expects to outsource production of about one million pairs of shoes until June 2010, to meet demand. However, Wu said the company is unlikely to market its shoes in Malaysia at the moment. “If we venture out (of China), Malaysia will be among the first markets we will look at. But first we will need to study the market and we do not think people in the major cities would recognise and buy our shoe brand yet. Maybe in the smaller states where there are large suburban areas,” he said. The company also announced that it has received certification from the Chinese Industry Association for Antimicrobial Materials & Products for antibacterial technology in sportswear on Aug 6. The new technology is expected to boost consumer demand as well as garner higher profit margins. Anti-bacterial features will be introduced in certain flagship products at the company’s upcoming spring/summer trade show next month, said Wu. On the issue of investors’ concern on corporate governance, Ng said Xingquan had two Malaysians as independent directors on its board. They are former Securities Commission official Datuk Siow Kim Lun and former assemblyman Datuk Ng Ah Hock. Siow is a former SC director of market supervision division and director of issues and investment division, and a former member of the listing committee of Bursa Malaysia from May 2007 to May 2009, while Ng, the former assemblyman of Sungai Pelek in Selangor from 1990 to 1995, was also a member of the Selangor Public Services Commission between 2002 and 2007. The company also has a third independent director Zhou Liyi, who is a Chinese national and certified public accountant and tax agent in China. Ng added that the company will issue its annual report in October this year that will show 60% of the company’s free float public shares are held by “very robust institutional investors”. This article appeared in The Edge Financial Daily, August 27, 2009.
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