China stocks battle with perception issues

It is understood that several more Chinese companies are waiting to list on Bursa Malaysia, but their IPOs have been put on hold due to concern that there may be few takers

WITH net profit growth of 23 per cent last year and forecast growth of 20 per cent this year and 30-40 per cent next year, plus a targeted dividend payout ratio of 20 per cent in 2010, Multi Sports Holdings Ltd should present attractive opportunities for investors seeking returns from equities.

However, the stock has been trading at a low price-to-earnings (PE) ratio of about three times for the fiscal year ending December 31 2010, and below its initial public offering (IPO) price of 85 sen.

The company along with other Chinese companies listed on Bursa Malaysia, such as Xingquan International Sports Holdings Ltd, K-Star Sports Ltd and Xidelang Holdings Ltd, is suffering from a negative perception that these stocks are risky plays.

Blame this on investors' bad encounters with some of the Singapore-listed Chinese companies in 2008 that were hit by accounting irregularities as well as investors' lack of familiarity with shoe stocks and China's sports shoe industry per se.

And incidences such as what happened at Kenmark Industrial Malaysia Bhd whose Taiwanese managing director James Hwang mysteriously disappeared only to resurface nearly a week later, claiming his absence was due to illness, only serves to reinforce such reaction to the Chinese counters.

In the case of Multi Sports, the selldown by Tan Sri Quek Leng Chan's GuoLine Group Management Co Ltd of its 15 per cent holdings soon after the IPO triggered some concern that there could be something wrong with the company.

To change investors' perception of these stocks, some underwriters have been arranging trips for fund managers and the media to the companies' production facilities in China.

"Seeing is believing. We want people to know that these companies are here to stay and that their management stays committed to the company," an organiser for one of the trips said last week.

This battle with perception has been keeping the Chinese companies' chief executive officers (CEOs) up all day and even at night, giving interviews and meeting people to explain and give assurance that they are here for the long haul.

It is understood that several more Chinese companies are waiting to list on Bursa Malaysia, but their IPOs have been put on hold due to concern that there may be few takers.

Still, the companies are not the only ones suffering perception issues. Wijaya Baru Global Bhd's image has been damaged by its involvement in the controversial Port Klang Free Zone (PKFZ) project at Pulau Indah, Selangor.

CEO Datuk Faizal Abdullah has been working to restore the loss-making construction firm's reputation due to its involvement in PKFZ through subsidiary Kuala Dimensi Sdn Bhd, which was the main contractor.

"Definitely, Wijaya Baru's reputation took a hit. Many of our business partners and suppliers do not want to be associated with us anymore," Faizal said in an interview with Business Times last month.

He said publication of the PricewaterhouseCooper's audit report on PKFZ threw a bad light on the company and its management. Never mind that the company had completed and delivered the project on time.

"My sense is, we will overcome it, but it's going to take time," he said.

Likewise, criticism has been levelled at Malaysian company directors after a slew of corporate scandals at Transmile Group Bhd, Megan Media Holdings Bhd, Sime Darby Bhd, Kenmark and Linear Corp Bhd showed that too many company directors today are in the dark over the activities in their companies, and this will take time to recover.

Clearly, perception is difficult to change. As the saying goes: "It takes years to build a good reputation and only seconds to destroy it."

Still, a fund manager has said that in the case of these Chinese stocks, the companies took a chance by listing on smaller bourses like Bursa Malaysia instead of in Hong Kong or Singapore.

"These companies have performed well and consistently met their growth targets. It's time we give them a chance."

Hopefully, with perseverance, these companies will see their stocks perform on par with those of their Singapore-listed peers that are trading at an average PE of six times in two to three years.