Published February 25, 2009

Talk of accounting issues, margin calls hurts S-chips

China Hongxing, Fibrechem and China Zaino are among those hit

By LYNETTE KHOO

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S-CHIPS tumbled in panic selling yesterday as market rumours of margin calls and accounting issues made the rounds, hurting market confidence.

China Hongxing shares fell as much as 34.5 per cent yesterday, before closing at 11.5 cents, a 20.7 per cent slump from its previous close. This led brokers to blame margin calls for the sell-off.

Dealers noted that investors were also likely to have been disappointed by the absence of a final dividend for the group's full-year results despite its strong cash hoard, or that some investors were offloading some convertible preference shares issued by the company in 2006.

A local analyst expressed concerns over the resilience of China Hongxing sales in this recessionary climate and the group's over-expansion before the Olympics last year.

The sudden plunge in share price led China Hongxing directors to issue a statement yesterday, assuring that there has been no material change in the financial position and operations of the group since the release of its FY2008 results on Feb 17.

The group is in a strong net cash position, with no long-term debts and with short-term loans amounting to just six million yuan (S$1.34 million). It has a strong net current asset base of 3.46 billion yuan.

China Hongxing directors also said that they are not aware of any reason for such a decrease other than the general price weakness of China-based Singapore-listed companies.

Yesterday, the FTSE ST China Index fell 4.5 per cent and the Prime Partners China Index slipped 4.1 per cent. Of the hardest hit S-chips yesterday, China EnerSave plunged 33.3 per cent to one cent, Celestial NutriFoods slipped 17 per cent to 19.5 cents, and China Zaino shed 23.1 per cent to 15 cents.

The S-chip universe is facing a 'contagion effect' of credibility issues and, in some cases, even doubts about financial figures, analysts said.

Compounding this concern was a delay at Fibrechem Technologies to release its fourth-quarter and full-year results on Monday night as was originally scheduled. Its results briefing yesterday morning was also cancelled.

The delay and a trading halt that started from Monday afternoon sent investors and brokers mulling over the possibility that external auditors were unable to verify the accounts or there were credit issues.

According to its investor relations firm, the exact date for the earnings release is not confirmed but Fibrechem will make an announcement over the next few days. The stock's trading volume jumped eight-fold on Monday.

Some dealers said that a sudden surge of trading activity in an illiquid stock is a tell-tale sign. A local analyst said that investors should avoid S-chips with a lot of expansionary activities or which have a lot of cash but do not properly account for failing to pay dividends.

Others felt that concerns surrounding S-chips are overblown. 'This market is all about sentiment and panic and possibly compulsory redemptions,' said DMG & Partners Securities analyst Heng Tong Jin.

So far, S-chips have announced a mixed bag of earnings results but fundamentals are taking a back seat now as fear is taking grip again.

Many companies, not just S-chip, have over-expanded in anticipation of growth, only to be caught by the recessionary winds, Mr Heng added. 'The share prices are just so low that they are over-punished.'