Sunday, 13 January 2019

The Curious Case of Sino Grandness (Part 2)

6 months back, I wrote about my interesting observation of Sino Grandness (SFIG). In the last few days, TTA a company which has loaned to SFIG made an announcement that SFIG has not paid back the loan amount of about RMB 140 million. This is despite the company having extended the maturity date of their loan once.

The link can be found here

In my opinion, given that SFIG has a cash balance of RMB$416million, it should not be possible for SFIG to miss the repayment of RMB$140 million.

Increasingly High Receivables and Dicey Cashflow

One thing that is increasingly worrying is how high the receivables are at. At current count, it is about RMB 1.5 billion, which is about 120 days of revenue. Furthermore, from the cashflow point of view, the receivables has always been increasing and never stopping. No doubt, the business could be expanding but I seriously doubt so.

Furthermore, in its last financial year, the company was able to produce RMB$500 million despite still increasing its receivables. This means operationally the company should be able to easily repay by managing its cash well for just one quarter; hence so to be unable to repay a RMB$140 million loan despite being cash positive does not seem plausible. Furthermore the company did an equity raising of RMB$200 million last year. This totals an amount of RMB$700 million in cash and yet they are unable to repay a small loan

Given these recent event, I will be adverse towards owning the company's stocks because of the fear of its eventual implosions.