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Questor share tip: Warning for investors in China based companies
China-based founders of Naibu have not returned calls from British board members
China is becoming one of the most buoyant global market for foreign investors Photo: EPA
By John Ficenec
2:16PM GMT 19 Feb 2015
Naibu Global International
11.5pSuspended
Questor says AVOID
AFTER the UK-based directors of Chinese sportswear company Naibu Global International admitted they don’t know how trading is in the Far East, it is a reminder of the risks to shareholders in some overseas companies.
British investors have been enticed into UK-listed Chinese companies in recent years by the promise of riches linked to the country’s fast-growing economy and booming middle-class spending. But, in many cases, all it has delivered is misery and losses, with inexperienced investors losing millions.
Naibu, which cancelled its dividend last year before seeing its shares suspended last month, is a cautionary tale. But investors can protect their savings by ignoring the overarching story and focusing on the cash.
The investment story behind all China-based companies listed in the UK or the US is simple and intoxicating. They offer the chance to access China’s economic boom, with the riches of a burgeoning middle class seemingly there for the taking.
Mr Huoyan Lin, founder and chairman of Naibu Global International
The problem, however, is that the returns rarely materialise, ownership is opaque, governance of some companies is seriously lacking and 2014 has resulted in some brutal losses for those who ignored the warning signs and chased the returns.
The junior market last year had no fewer than four companies that left UK investors holding what amounted to a worthless piece of paper.
The first area to look at is the shareholder register. If there is a majority shareholder or a significant shareholding then smaller investors will be at the whim of their interests. Ensure the free float is well above 25pc, preferably 100pc. If not, this should set alarm bells ringing.
There are other warning signs as well, provided by digging a little deeper into the results.
Aim-listed Naibu Global International was reporting rapid revenue and profit growth, making the shares look like a bargain. However, nearly all the cash was being used to fund land and property purchases.
Investors should never forget that cash is king, and when something looks too good to be true, it invariably is. Investing in some Chinese companies is such a case.
UK directors of Chinese company: we have no idea what's going on
China-based founders of Naibu have not returned calls from British board members
China is becoming one of the most buoyant global market for foreign investors Photo: EPA
By John Ficenec
11:14AM GMT 18 Feb 2015
The UK-based directors of a Chinese sportswear manufacturer have told investors they have been “unable to obtain any information" on the company's trading operations.
The bizarre twist of events follows the suspension of the shares only last month.
Neither Mr. Lin Huoyan, the founder and chairman, nor Mr Lin Congdeng, executive director, have responded to requests from the UK-based non-executive directors to provide information on trading operations in China, according to the statement.
Mr Huoyan Lin, founder and chairman of Naibu Global International
The directors have appointed KPMG to look into Naibu's financial position. The non-executive directors have asked Mr Lin to co-operate with KPMG in the preparation of this report, although as yet, he has not indicated he will do so.
The most recent turn of events is the latest in a sorry tale for investors in Aim-listed Naibu Global International.
Naibu was set up by its founder, Huoyan Lin, in 2002, and is headquartered in Fuzhou, the capital city of Fujian Province, China. The company was admitted to Aim in April 2012, raising £6m and valuing the company at £68m.
It reported impressive annual results with revenue up 15pc to 1.93bn renminbi (£19.3m) and pre-tax profits up 15.7pc to Rmb417m for the year ended December 2013. The company even paid out a 4p dividend. The shares looked like an absolute bargain trading on a low single digit price earnings (P/E) ratio and paying a handy dividend.
However, the investment story came to an abrupt end last year when the company unexpectedly stopped paying dividends despite Naibu reporting record first-half sales of Rmb332.7m for the six months ended June, and had cash on the balance sheet and no debt.
On the company's "Honors page" it was voted "International Famous brand" and one of "China's 500 most valuable Brands"
The company used nearly all the free cash to invest in buying land rights and investing in a factory, according to its latest set of annual results, which showed it generated cash of Rmb205m after tax in 2013, but then spent another Rmb195m buying land and property.
What appears to be a computer generated image of Naibu's offices from the website
The share price has collapsed since the start of 2014, from 69.5p to just 11p before they were suspended early last month.
British investors have been lured into UK-listed Chinese companies in recent years by the promise of riches linked to the country’s fast-growing economy and booming middle-class spending. But, in many cases, all it has delivered is misery and losses, with inexperienced investors losing millions.
