SBB - Sunbridge Group

[System]

Sunbridge Group Limited (SBB) is a leading retailer of menswear in the People's Republic of China.

The Group owns and operates the "PANDIST 邦迪.斯顿" and "AGUESEADAN 亚阁.仕丹" brands of menswear, which are targeted at different age group segments of upper middle class males. The Group's products are currently sold in over 400 retail outlets across the PRC.

http://www.sunbridge.com.au

 

[rcm617]

Anybody have a look at this before, it has a very low PE of 2 and has been growing revenue and profit. It is based in China and does all its business there. Has dropped from 20c to 6.5c after a large percentage of shares went out of escrow and seems to be getting fed more shares at that price.
Seems extremely cheap on the numbers, so don't know if this is a great opportunity as a result of some large shareholders needing the money or if they know something I don't.

 

[rcm617]

I should have also mentioned that they have cash of $31 million, with liabilities of about $10m.
The market cap is also about $31 million.

 

[craft]

I should have also mentioned that they have cash of $31 million, with liabilities of about $10m.
The market cap is also about $31 million.

I've had a quick look and didn't find anything glaringly obvious. On the face it, its very cheap and not that ugly. Have taken a position (0.065) - a sensible risk managed position size - because I don't know much about it yet other than it's superficially cheap.

Thanks rcm for bringing it to the forums attentions

 

[rcm617]

I have also taken a small position, will look a bit more into it and maybe buy a few more. Doesn't seem to be any need for hurry as someone is selling whenever a decent number builds up in the buy queue at 6.5 cents.

 

[VSntchr]

I've had a quick look and didn't find anything glaringly obvious.

The one thing that I found a little : was the "MEGA RICH INTERNATIONAL CREATION Ltd" Hong Kong Based company that is the middle rung of their corporate structure lol!!

 

[Klogg]

I've had a quick look and didn't find anything glaringly obvious. On the face it, its very cheap and not that ugly. Have taken a position (0.065) - a sensible risk managed position size - because I don't know much about it yet other than it's superficially cheap.

Thanks rcm for bringing it to the forums attentions

Short of this being a scam/fraud, this one is very cheap.

I've gone through a fair bit of digging on this one, mainly around verifying the company exists, and have found:

- "Pandist" products listed on eBay, Baidu and alibaba
- Searches in Mandarin bring up their products, as well as reviews on forums about their products (I had a friend translate for me), dating back to '04
- Called the office to confirm their most recent 'letter to shareholders' (the one on Collins st, Melbourne)
- Found images of the MD in some recent sponsorships of major events (fashion show, volleyball tournament)

This has verified to me that the company exists and has done so for some time.


For obvious reasons, I have to rely on the auditor to weed out anyone cooking the books. Given it's done by an organisation with a decent reputation (Grant Thornton), there's a level of comfort to be had there.

In regards to adequate funds, the company looks the goods. It has already paid a dividend, carries 31m in cash (10m net liabilities though) and at current earnings, the yield is in the vicinity of 12%.

The only concern for me is the board of directors. While they have a board of directors that includes two Australians, their recent directorships haven't exactly brought about significant success (e.g. Plympton with NZX:MAD, ASX:ENT, ASX:BSI [I think this changed names])


Nevertheless, for me, this one is binary. It's either a scam, or investors will make good money.

 

[craft]

The one thing that I found a little : was the "MEGA RICH INTERNATIONAL CREATION Ltd" Hong Kong Based company that is the middle rung of their corporate structure lol!!

Its better than "MICRO POOR DOMESTIC DESTRUCTION Ltd"

It just seems to be the pre-listing private company name. Never part of the marketing or brand names.

 

[McLovin]

Short of this being a scam/fraud, this one is very cheap.

Hmmm...

Myself and another poster have been discussing this company for a few weeks via PM. While neither of us could put a finger on a single smoking gun, the impression we both got was that the further you dig the more it starts to smell.

 

[Ves]

The only concern for me is the board of directors. While they have a board of directors that includes two Australians, their recent directorships haven't exactly brought about significant success (e.g. Plympton with NZX:MAD, ASX:ENT, ASX:BSI [I think this changed names])

Andrew Plympton, I assume it is the same bloke, turned the St Kilda football club around in the 90s. Under his watch their financial position improved extensively, and on the field they made two grand finals against Adelaide.

The threads for this company over at Hotcopper are running hot at the moment. Didn't really find anything too illuminating on there unfortunately. Just the usual ramping / opportunity of a life time comments.

I'll have a read of the prospectus over the weekend. I agree with the others: looks reasonable enough on the risk / reward at this price.

The Bull.com.au also did an article at some point on Chinese IPOs. This one was mentioned.

 

[VSntchr]

The announcement on 2/12/2013 regarding substantial holdings shows that most entities have registered the exact same address in the Virgin Islands.

Not sure if this has relevance, just another piece to the puzzle.

 

[rcm617]

Only found one substantial holder apart from the founder who still has 55% ownership and that was Grace Trend Management ltd.
Was there more?

 

[skc]

McLovin and I have talked about this for a few weeks. It's stirred up enough attention here so I might as well present to you my findings. These are my findings only and they could be wrong, incomplete etc etc, so DYOR.

1. Who were the sellers in the IPO? 55% of shares held by the MD, with the remaining spreading across 11 companies.

2. What do these companies have in common? See Schedule 1 of the announcement on 2/12/2013. Where are they all based in?

3. Who were the buyers of the IPO? Hint: compare the Top 20 holders on 25/11/2013 to the Schedule 1 above. Who stood out?

4. The new big holder from 3 above... what his/her story? Try googling her name.

5. For those who take comfort in Grant Thornton being the Auditor. Who was the auditor for Sino-Forest? The answer is EY. Who was the internal auditor for Eratat Lifestyle (a Chinese fashion house recently defaulted on a $5m interest payment, while claiming to have $600m in cash)?

6. Speaking of interest... how much interest do you expect to earn on the $28m cash pile?

7. Directors... how much have these directors been paid? How much work do you expect them to perform at this pay scale?

8. Dividends. They paid 0.06c (i.e. $0.0006) in dividend to holders. That's <$300k. If someone chooses to see that as comforting then he/she is easily impressed.

The threads for this company over at Hotcopper are running hot at the moment. Didn't really find anything too illuminating on there unfortunately. Just the usual ramping / opportunity of a life time comments.

There was something really illuminating poasted there. One poster put up the share registry information. Unfortunately that information has been interpreted incorrectly. He thought the large holdings by Citi and a Singaporian bank were accumulated by those institutions. The fact is that they are original holders who transferred holding to them, most likely for selling. They have been moved from the holder's name to street name, so to speak. Citi has been a net seller... in fact they are so net that they have not bought a single share for the last 2 months. The net buyers? Almost entirely Comsec and E-trade.



So, DYOR, draw your own conclusions and best of luck. I can only list so many questions.

 

[Huskar]

Short of this being a scam/fraud, this one is very cheap.

. . .

The only concern for me is the board of directors. While they have a board of directors that includes two Australians, their recent directorships haven't exactly brought about significant success (e.g. Plympton with NZX:MAD, ASX:ENT, ASX:BSI [I think this changed names])

Interesting

As Hempton says (with perhaps stronger language), you can tell a fraud / failure far more from the associates than from the accounts...

 

[craft]

Hmmm...

Myself and another poster have been discussing this company for a few weeks via PM. While neither of us could put a finger on a single smoking gun, the impression we both got was that the further you dig the more it starts to smell.

You got any details McLovin? Or at least a heads up from which direction an odour is coming?

It was only a very small initial offering (~20 Million) to gain a listing with the original minority shareholders (198 Million) escrowed until last month and the founders shares (259 Million) escrowed for another 18 months.

Some of those dozen odd original minority holders now have a market to dispose of their shares and are selling at what appears to be low prices. They are probably more familiar with the company then the buyers - so that should be heeded but does that necessarily mean something fishy is going on? or are they exiting maybe a long term holding at the first real opportunity for their own personal reasons?

If this turns out to be a total fraud there would be some awful red faces at the auditors and the ASX etc. A poor business - that's a different story with far more potential - but again at face value I don't mind where this business is pitched and if its all as stated the price is good.

 

[Klogg]

1. Who were the sellers in the IPO? 55% of shares held by the MD, with the remaining spreading across 11 companies.

2. What do these companies have in common? See Schedule 1 of the announcement on 2/12/2013. Where are they all based in?

3. Who were the buyers of the IPO? Hint: compare the Top 20 holders on 25/11/2013 to the Schedule 1 above. Who stood out?

4. The new big holder from 3 above... what his/her story? Try googling her name.

5. For those who take comfort in Grant Thornton being the Auditor. Who was the auditor for Sino-Forest? The answer is EY. Who was the internal auditor for Eratat Lifestyle (a Chinese fashion house recently defaulted on a $5m interest payment, while claiming to have $600m in cash)?

6. Speaking of interest... how much interest do you expect to earn on the $28m cash pile?

7. Directors... how much have these directors been paid? How much work do you expect them to perform at this pay scale?

8. Dividends. They paid 0.06c (i.e. $0.0006) in dividend to holders. That's <$300k. If someone chooses to see that as comforting then he/she is easily impressed.

On some of those points (numbered accordingly):
5) Yes, point taken on this one. Only covered off the obvious of some backyard agency doing a dodgy... Doens't remove all doubt by any means

6) I did wonder why there was only <$1m in interest bearing accounts... but couldn't find much more.

7) I believe that's fees paid to directors for just over 1month post-IPO.

8) Again, the IPO states dividends to be paid, 25% of NPAT post-IPO. Given it's a little over 1month, that calculates to an NPAT of just over 1mil, which works with financials.

I am very intrigued by earlier points! Am very keen to look into it. Thanks skc/McLovin

As I mentioned earlier, this is a binary outcome in my view. Have limited exposure to this accordingly.

 

[craft]

1. Who were the sellers in the IPO? 55% of shares held by the MD, with the remaining spreading across 11 companies. Correct - not particularly unusual for a private company.

2. What do these companies have in common? See Schedule 1 of the announcement on 2/12/2013. Where are they all based in? All bar XU and one other registered in the Virgin Islands - Probably not that unusual for wealthy Chineses investors, and perhaps speaks to the companies being 'related' - I would be surprised if they are not related parties in a private company.
3. Who were the buyers of the IPO? Hint: compare the Top 20 holders on 25/11/2013 to the Schedule 1 above. Who stood out? Ms Shanshan Hong accounts for 14,226,000 of the 21,738,000 IPO shares. .

4. The new big holder from 3 above... what his/her story? Try googling her name.You are going to have to help me out if there is a connection here because Google wont talk to me. If there is I wouldn't be surprised, like an unofficial underwriting to make sure they meet minimum statutory listing requirements
5. For those who take comfort in Grant Thornton being the Auditor. Who was the auditor for Sino-Forest? The answer is EY. Who was the internal auditor for Eratat Lifestyle (a Chinese fashion house recently defaulted on a $5m interest payment, while claiming to have $600m in cash)? Can't trust auditors - but they have insurance and I have shares in IMF, so its all O.K
6. Speaking of interest... how much interest do you expect to earn on the $28m cash pile? 2,354??? That's low but what is the interest rates for at call in china? actually why have the loans not been discharged? existing terms??

7. Directors... how much have these directors been paid? How much work do you expect them to perform at this pay scale? 55K for the chairman and 105K in aggregate for the non-executive directors. XU gets 300K plus super.
8. Dividends. They paid 0.06c (i.e. $0.0006) in dividend to holders. That's <$300k. If someone chooses to see that as comforting then he/she is easily impressed. 0.06c is in line with the dividend policy for the 1 month between listing and reporting.

The Company expects to pay dividend of 25% of statutory
net profi t after tax with respect to earnings generated from
completion of the Offer to 31 December 2013. Thereafter the
Company is targeting a dividend payout ratio of at least 25% of
statutory net profi t after tax.
Depending on available profi ts and the fi nancial position of the
Company, it is the current intention of the Board to pay an annual
dividend each September.

We are not talking a pristine well established public company but as small private companies being taken public to try and find a bit of liquidity for early investors to exit - it seems pretty run of the mill just with a Chinese flavour - well that's the argument for the positive anyway.

None of the registry stuff overly concerns me (yet). Is the cash really there - that's more significant question (for all businesses)

A concern is that the minority holders don't seem to be in sync with the Mr Xu (who's escrowed for another 18 months) that's a story I would like to know more about, because he is pivotal to future minority holder outcomes.

DYOR.

Its good to see a bit of discussion happening on a stock thread.

 

[skc]

We are not talking a pristine well established public company but as small private companies being taken public to try and find a bit of liquidity for early investors to exit - it seems pretty run of the mill just with a Chinese flavour - well that's the argument for the positive anyway.

None of the registry stuff overly concerns me (yet). Is the cash really there - that's more significant question (for all businesses)

A concern is that the minority holders don't seem to be in sync with the Mr Xu (who's escrowed for another 18 months) that's a story I would like to know more about, because he is pivotal to future minority holder outcomes.

Craft,

2. Yes. That's the same reasonable conclusion that I've reached.

4. She's the one who got the IPO over the line. Only a related party or assocaite of the company would invest $2.8m in this kind of float... and I would be surprised to find such person in Australia.

5. I like the hedging this with a long in IMF . But have a read of the Eratat Lifestyle story. It's quite fascinating. http://www.themalaymailonline.com/m...-eratat-lifestyle-ltd-where-has-the-cash-gone

6. RMB deposit interest rates in China. It's not high but it is not zero. http://www.sc.com/cn/en/save/deposit-interest-rates.html

7. Page 11 of annual report shows director remuneration. The two Australian directors were appointed 2 July 2013 and paid $5007 and $3750 to the end of Dec 2013. The Prospectus had the higher numbers as you stated. It is entirely possible that they are paid more after listing since workload has increased. All I am saying is that don't expect them to have spent too much time checking the financials in the Prospectus. Read the Eratat story above and you will find that the Singaporian Board there has no idea what the Chinese management team is doing. And that company listed for over 4 years.

8. Yes it is the stated Policy. But since insiders (I am including Ms Hong's holding here) control all except ~8m shares, the vast majority of money paid out as dividend stays with the insider anyway. So the 0.06c dividend resulted in ~$5k going to the new holders. Also, for a company to pay only 1 month's worth of dividend (as opposed to 6 months or 12 months' worth), it is implied that the sellers sold their share ex-div. But there was no dividend paid in 2013 according to the annual report. Did they forgo their 2013 dividend? In 2012, dividends paid was $7.6m.

The cash holding (if there) being larger than debt is not itself an issue. Someone like RCG and SFH have more cash than they do debt. They do however have net interest revenue (as opposed to net interest expense).

A few other things that I can't work out...
9. Customer receipts are remarkably similar to revenue, implying customers make cash payments. Yet receivables is almost a quarter of yearly revenue, implying customers get 90-day payment terms. However there may be an accounting reason for this.

10. Cashflow from investing activities, purchase of PPE from 2013 to 2010 were RMB 0.226m, 2.286m (labeled as Purchase of franching rights in MegaRich's annual report, but possibly misplaced in the Sunbridge's annual report as payment for PPE)，7.25m and 2.05m. The investor presentation claimed that the company is constructing a new 8 storey building for head office, due for completion in June 2014. Yet they've not spent much on finishing the job.

Some of those dozen odd original minority holders now have a market to dispose of their shares and are selling at what appears to be low prices. They are probably more familiar with the company then the buyers - so that should be heeded but does that necessarily mean something fishy is going on? or are they exiting maybe a long term holding at the first real opportunity for their own personal reasons?

There are few possibilities.
1. The minority holders have serious problems themselves unrelated to the company, and are genuine distressed sellers. This may be the case if one or two of them were selling, but the registry showed that 7 of them have been selling to various extent.
2. The minority holders have really wanted to exit for a long time, so clutching at any liquidity they can get. This sounds crazy considering that their dividend from 2012 is about 25% of the current market value.
3. The minority holders know something, and that something isn't good, and it's coming soon. Pure speculation on my part.
4. Something more elaborate at play?

On the other hand... the company appears to have real operations. i.e. there are clothes being made and places to buy them. It's the numbers that need to be scrutinised. Also, I am taking numbers from one part of the accounts to scrutinise other parts of the accounts, so it may or may not be correct.

 

[craft]

It's the numbers that need to be scrutinised.

Totally agree there. BUT

The but for me is that I don't think I could ever get to a definitive answer given the nature of the company. Which brings it back to risk control. As Klogg said it's pretty much a binary outcome. Position size based on a total wipe out to buy a ticket based on the superficial valuation.

I read rcm's post had a quick look, did a quick sizing calc, brought some stock and have since spent a few hours having a bit more of a look - I now know a little bit more but the main thing I know is that I'm not going to be able to get satisfied enough to go big (long or short) so I'll leave the position for interest sake and get back to researching my bread and butter - quality stocks.

cheers

 

[McLovin]

You got any details McLovin? Or at least a heads up from which direction an odour is coming?

Pretty much what skc said. Oh and guess where the 28 year old CFO used to work...

http://au.linkedin.com/pub/yee-shyang-wong/1a/99b/281

I also found it odd that a public company's entire senior management was employed on one month's notice.

ROIC and margins at the ebit level are quite incredible. Makes you wonder why the target payout ratio is so low. Also given the cash balance, you wonder why they even bothered floating, and why in Australia, especially if the minority shareholders are all related to insiders.

I think there is a real business here (no one would pretend to sell such ugly clothing!), it just doesn't smell right.