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Background: Foreland Fabrictech Holdings Ltd was established in 1988 and has more than 20 years of experience in manufacturing functional and normal fabrics. Its products, marketed under the Fulian brand, are mainly used in sports, leisure, business apparel and high-grade umbrellas.
Recent development: Foreland placed out 45m new shares at $0.1235 per share last month, a 9.9% discount. This month, however, founder and Executive Chairman Tsoi Kin Chit placed out 30.8m of his shares (6.15% stake), but at $0.16 per share, a 33% premium, which seems a bit unusual. One of the major investors is Foreland’s top 10 customers.
Key ratios…
Price-to-earnings: 7.1x
Price-to-NTA: 0.6x
Dividend per share / yield: Rmb0.02 / 2.8%
Net cash/(debt) per share: $0.057
Net cash as % of market cap: 42%
Share price S$0.135
Issued shares (m) 511.168
Market cap (S$m) 69.01
Free float (%) 47.4%
Recent fundraising activities May 2011: placement of 45m new shares, net proceeds $5.5m
Financial YE 31 Dec
Major shareholders Tsoi Kin Chit, founder & Exec Chairman (52.6%)
YTD change +42.11%
52-wk price range S$0.055-0.170
Our view:
Strong recovery of quarterly performance. From 3Q10, Foreland’s sequential growth in both revenue and net profit has staged a strong recovery, consistently meeting management’s guidance prior to each of the quarters. Two factors drove the growth: 1) strong demand for its high-grade and functional fabrics due to recovery in the market for high-grade textile products, and 2) continual expansion of its high-grade umbrella fabrics business. Foreland guided that these trends would last into 2Q11. If this momentum could be sustained, FY11 looks likely to be a record year. Annualising 1Q11 EPS, the stock would be trading at a PER of only 2.9x. It is also trading below book at P/B of 0.6x.
Proposed Korea dual-listing. Foreland also announced that it intends to seek a dual listing on the Korea Exchange to seek higher valuations for its stock. However, it has yet to submit a formal application.
Still plagued by negative sentiments towards S-chips. While the financial figures and recovery momentum look good, the share price has not reacted in tandem. The recent irregularities in S-chips’ accounting may have cast a dark shadow on these companies. If the numbers for Foreland are real, an investment at this price level could reap high rewards for the investor.
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