XINGQUAN INTERNATIONAL SPORTS HLDGS LTD
Primary Symbol & Exchange: Xingquan
5155 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/7/2010 RM:1.59
Mkt Cap RM’m : 488.65
Shares (m): 307.33
Par USD: 0.10
Primary Symbol & Exchange: Xingquan
5155 - Ordinary Shares - Malaysian Stock Exchange
Price/share @ 28/7/2010 RM:1.59
Mkt Cap RM’m : 488.65
Shares (m): 307.33
Par USD: 0.10
SECTOR CLASSIFICATION
MSEB: Consumer
Fox Capital: Footwear
MSEB: Consumer
Fox Capital: Footwear
Executive Chairman: Wu Qingquan
Managing Director: Wu Qingquan
Managing Director: Wu Qingquan
KNOWN MAJOR SHAREHOLDER(S) (as at 30/10/2009)
Tan Zhen Xiang Holdings Limited 58.43%
Tan Zhen Xiang Holdings Limited 58.43%
Contact Info
Company Address: Houyang Industrial Zone, Yanshang Village, Chendai Town, Jinjiang City, Quanzhou City, Fujian Province, PRC 362211
Company Address: Houyang Industrial Zone, Yanshang Village, Chendai Town, Jinjiang City, Quanzhou City, Fujian Province, PRC 362211
BACKGROUND
Xingquan International Sports Holdings Limited was incorporated in Bermuda under the Bermuda Companies Act on 15 December 2008 as an exempted company limited by shares under the name of Xingquan International Sports Holdings Limited. On 11 February 2009, the Company was registered in Malaysia as a foreign company. It commenced business on 1 June 2009.
The Company's principal activities are investment holding and provision of management services and its Group is principally engaged in the manufacturing of shoe soles and shoes and sales of shoe soles, shoes, apparels and accessories.
Xingquan International Sports Holdings Limited was incorporated in Bermuda under the Bermuda Companies Act on 15 December 2008 as an exempted company limited by shares under the name of Xingquan International Sports Holdings Limited. On 11 February 2009, the Company was registered in Malaysia as a foreign company. It commenced business on 1 June 2009.
The Company's principal activities are investment holding and provision of management services and its Group is principally engaged in the manufacturing of shoe soles and shoes and sales of shoe soles, shoes, apparels and accessories.
The Group is a sports and leisurewear enterprise based in Quanzhou City, Fujian Province, PRC engaged in the manufacture and distribution of outdoor and indoor sports and leisure shoes, apparel and accessories with a strong focus on brand management and product development.
Th Group currently has over 2,000 point of sales in China that cover 25 provinces. Xingquan also recently started its expansion into 5 new provinces, namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
Th Group currently has over 2,000 point of sales in China that cover 25 provinces. Xingquan also recently started its expansion into 5 new provinces, namely Shaanxi, Gansu, Qinghai, Guizhou and Ningxia.
Products
Shoe Soles
Comprise athletic shoe sole products designed for specific sporting activities such as running, tennis, basketball and mountain climbing, as well as leisure shoes. It also supplies shoe soles to manufacturers of well-known PRC brands including Xtep, China Peak, 361 degree and Qiaodan.
Outdoor and Indoor Sports and Leisure Shoes
Comprise mainly of outdoor sports shoes designed for specific outdoor and indoor sporting activities such as running, tennis, basketball and mountain climbing, as well as leisure shoes, marketed under its "Addnice" brand. It is also OEM for owners of international sports & leisure brands such as FILA, J’Hayber, Bullsozer, Spalding, Eksis, Prince & Lotto.
Outdoor and Indoor Sports and Leisure Apparels and Accessories
Comprise apparels for specific outdoor and indoor sporting activities such as running, tennis, basketball and mountain climbing and leisure and functional apparels such as t-shirts, polo shirts and windbreakers and accessories such as sport bags, caps, socks and head and wrist bands, designed for various outdoor and indoor sporting activities and marketed under its ¡°Addnice¡± brand.
History
Year 1995
Jinjiang Xingquan was established for OEM manufacturing.
Jinjiang Xingquan was established for OEM manufacturing.
Year 1999
Xingquan Footwear established to manufacture shoe soles.
Xingquan Footwear established to manufacture shoe soles.
Year 2000
Xingquan Plastics established and begins manufacturing for FILA, Spalding and Prince.
Xingquan Plastics established and begins manufacturing for FILA, Spalding and Prince.
Year 2002
Xingquan Plastics starts manufacturing shoe soles for well-known PRC sports brands Xtep, China Peak, 361¡ã and Qiaodan.
Xingquan Plastics starts manufacturing shoe soles for well-known PRC sports brands Xtep, China Peak, 361¡ã and Qiaodan.
Year 2003
Addnice Sports was established.
Addnice Sports was established.
Year 2004
Addnice starts manufacturing footwear products under the "Addnice" brand.
Addnice starts manufacturing footwear products under the "Addnice" brand.
Year 2005
Expands into sports apparel and accessories.
Expands into sports apparel and accessories.
Year 2006
Signs WNBA player Miao Lijie.
Signs WNBA player Miao Lijie.
Year 2007
Signs NBA players Jason Kapono and JR Smith.
Signs NBA players Jason Kapono and JR Smith.
Year 2009
IPO on Bursa Malaysia.
WHY WE FEEL XINGQUAN IS UNDERVALUED?
1) Xingquan is in global institutional funds radar
Per Xingquan’s press release dated 17/5/2010 - according to Executive Chairman and CEO, Mr Wu Qingquan, Xingquan’s recent shareholding list saw the entry of four large institutional investors from US and Europe emerging as its top 20 shareholders. This proves that Xingquan’s fundamentals are gaining recognition not only in Malaysia but also amongst significant global fund managers.
Per Starbiz article titled “Xingquan to enhance value” dated 19/7/2010, Xingquan was in talks with a few funds from Taiwan and Beijing in its efforts to enhance company’s value by bringing in more institutional investors. Notwithstanding this, Chairman and CEO, Mr Wu Qingquan said that he and his family, which hold about 58.5% stake in Xingquan were not keen to dispose off their shareholdings at the moment. If these fund managers are interested, they need to purchase in the open market.
Other local institutional funds investors include Lembaga Tabung Haji, Kumpulan Wang Perseraan, Employees Provident Fund (EPF) and Prudential.
2) For the Q3 ended 31/3/2010, Xingquan registered a net profit of RM32.7m or EPS of 10.00 sen/share, 46% higher than the previous corresponding quarter. Revenue grew 60% to RM170.2m.
It had in May 2010 announced that it recorded a strong order of about 673 million renminbi (about RM323m) for its Autumn/Winter 2010 Sales Fair, which was 35% higher than in the same event last year. Hence, Xingquan is expected to record an even higher earnings for Q4 ended 30/6/2010.
3) Trading below 3x P/E
Prospective P/E for FYE 2011 based on consensus forecasts at less than 3x reflects that the market appears to have priced in the worst for the small-cap shoe stocks. Possible reasons for the low valuations attached to these stocks include investors’ lack of familiarity with shoe stocks, the downtrend of China’s equity market since Aug 09, the S-chips financial scandal in 2008 and prospects of consolidation of the shoe industry.
IPO on Bursa Malaysia.
WHY WE FEEL XINGQUAN IS UNDERVALUED?
1) Xingquan is in global institutional funds radar
Per Xingquan’s press release dated 17/5/2010 - according to Executive Chairman and CEO, Mr Wu Qingquan, Xingquan’s recent shareholding list saw the entry of four large institutional investors from US and Europe emerging as its top 20 shareholders. This proves that Xingquan’s fundamentals are gaining recognition not only in Malaysia but also amongst significant global fund managers.
Per Starbiz article titled “Xingquan to enhance value” dated 19/7/2010, Xingquan was in talks with a few funds from Taiwan and Beijing in its efforts to enhance company’s value by bringing in more institutional investors. Notwithstanding this, Chairman and CEO, Mr Wu Qingquan said that he and his family, which hold about 58.5% stake in Xingquan were not keen to dispose off their shareholdings at the moment. If these fund managers are interested, they need to purchase in the open market.
Other local institutional funds investors include Lembaga Tabung Haji, Kumpulan Wang Perseraan, Employees Provident Fund (EPF) and Prudential.
2) For the Q3 ended 31/3/2010, Xingquan registered a net profit of RM32.7m or EPS of 10.00 sen/share, 46% higher than the previous corresponding quarter. Revenue grew 60% to RM170.2m.
It had in May 2010 announced that it recorded a strong order of about 673 million renminbi (about RM323m) for its Autumn/Winter 2010 Sales Fair, which was 35% higher than in the same event last year. Hence, Xingquan is expected to record an even higher earnings for Q4 ended 30/6/2010.
3) Trading below 3x P/E
Prospective P/E for FYE 2011 based on consensus forecasts at less than 3x reflects that the market appears to have priced in the worst for the small-cap shoe stocks. Possible reasons for the low valuations attached to these stocks include investors’ lack of familiarity with shoe stocks, the downtrend of China’s equity market since Aug 09, the S-chips financial scandal in 2008 and prospects of consolidation of the shoe industry.
4) Despite the recent rally in Xingquan’s price (since June 2010), the current price of RM1.59/share is still below its IPO price of RM1.71 for retailers and RM1.80 for institutional investors.
3) Depressed valuations not justified. We believe the depressed valuation for the small-cap shoe stocks are not justified and should, over time, converge with those of the major HKSE-listed shoe stocks. CIMB Research in its recent report dated 26/7/2010 stated that they are hopeful that the shoemakers they visited (including Xingquan) will not see a repeat of the scandals that beset S chips. Perhaps, the more important question is whether the companies have the right strategies to survive and capitalise on the upcoming industry consolidation. They stated that they are reasonably confident that Xingquan is moving in the right direction as it switches its focus from the competitive sportswear market to the less-competitive outdoor market segment.
4) Qingquan is currently, the only China company being actively covered by CIMB Research, which they continue to rate an Outperform with target price of RM3.12, based on 60% discount to the listed peers under their regional coverage to reflect Xingquan’s smaller size. Xingquan is currently trading at a 50% discount to their 6x P/E target. Potential re-rating catalysts may include better than expected trade fair order value and a further rebound of China’s stockmarket.
5) Among the China shoe stocks, Xingquan is believed to be the only one to have a dedicated investor relations (IR) person in Malaysia to whom analysts and fund managers have easy access.
6) Xingquan at more than 80% discount to Li Ning. Looking at the 1-year forward P/Es of Xingquan and Li Ning, we see that Xingquan has been trading at 82-90% discount to Li Ning since its listing in Jul 09.
7) Strong balance sheet with net cash position of RM0.83/share (earmarked for expansion) and NAB/share of RM1.08.
8) Decent dividend yield at 4.0% based on projection for FYE 2010 mainly due to its depressed share price.
Per The Edge Malaysia dated 19/7/2010, Xingquan’s recent share price rise was probably due to its first dividend payout that was declared in February 2010. The 2.5 sen tax exempt dividend has to some extend boosted investor’s confidence in the stock. The rise in its share price is probably because some investors have faith that the company can continue to set aside part of its profits as dividends to reward shareholders when it grows.
CONCLUSION
We strongly feel that the depressed valuation for this small-cap China shoe maker stock is not justified, and the catalysts for further re-rating may come from:-
a) Declaration of higher dividend which will gain more confidence from the investors
b) Delivery of continued good earnings track record and payment of dividends to show that they are genuinely generating cash.
c) Better than expected trade fair order value
d) A further rebound of China’s stockmarket.
e) Greater coverage & "buy" or "outperform" recommendation by more research houses / stock analysts apart from CIMB Research.
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