1285.HK – Jiashili

[Lupo Lupus]

 

Jiashili is a Hongkong-listed Chinese biscuit manufacturer. They IPOed in 2014 and their stock price has been in decline (surprise surprise!) since then. They are optically very cheap:

 

MCAP (in HkD): 750 mln

PE:6

PB: 0.8

DY: 8%

 

Some of my notes on this

 

POSITIVES

 

• Fairly stable business, good ROE

• Large net-cash position

• One of the largest biscuit manufacturers, old establish brand (I asked around; they are well-known but have somehow old-fashioned image)

• Two large minority owners; should give some protection for minority shareholders

 

NEGATIVES

• Chinese biscuit market is competitive according to IPO prospectus (available on their website, very informative)

• Majority-owned by Chairman: I see this as a negative in Asia. There is great potential for asset tunnelling and risk of a lowball offer taking the company private after accumulating cash on the balance sheet

• In total five directors have resigned since the IPO

• Paid a large dividend prior to IPO, thus IPO has indirectly been used to cash-out

• Receivables have shot up recently.

 

My main concern with this one is corporate governance. Otherwise it seems a good price for a stable boring business.

 

Anybody done some work on this one?

 

 

 

[Genyi]

The stock has become even cheaper by now. I just skimmed the Annual Report 2018 and I already saw enough to agree with your conclusions. The business seems to be doing well, but there are too many red flags related to corporate governance.

 

In addition to the negatives you listed, a RMB156,043,000 loan advance to 'independent third parties' now appeared. This is almost 20% of the Current Assets and there is no further explanation except that the loans are unsecured and repayable within one year. Similar loan advances from 2017 have already been partially impaired.

 

Another unsecured RMB10,000,000 loan was advanced to a holding company of the chairman. It's already being impaired for RMB946,000.

 

Perhaps the chairman is struggling with personal financial challenges? Or some other person/entity has an undisclosed/informal interest in this company? Jiashili should clarify these posts and the other corporate governance issues in order to avoid such speculations.