More Foul Play in China - Qiao Xing Mobile

[JEast]

I know several on the board own a little of Qiao Xing Mobile (QXM).  It would appear that things are getting worse with the recent CFO resignation.  Handsets or no handsets, it is hard to invest when management has free access to the company's checkbook.

 

http://businesswatch.21cbh.com/index.php?m=content&c=index&a=show&catid=16&id=212087

 

Cheers

JEast

[Guest Hester]

So that makes 3 halted stocks that Wu Ruilin is involved with.

 

Francis Chou has somehow found a worse investment than Overstock.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chou-funds-13-f-6250/

[lessthaniv]

So that makes 3 halted stocks that Wu Ruilin is involved with.

 

Francis Chou has somehow found a worse investment than Overstock.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chou-funds-13-f-6250/

 

Not the best investment he's ever made but put into context:

 

Dec 31,2011 : Owned $1.58M  in a fund carrying $392M in assets. That represents .4%. Not the end of the world.

 

But don't let that stop you from taking a shot at him.

___________

 

Excerpt from AR:

 

Investing in China a Conundrum

Companies based in China are regarded with grave suspicion that makes investors skeptical about

the cash on their balance sheets. All things being equal and their revenues coming from the U.S. or

Canada, these companies would be considered undervalued even at stock prices 50% to 100%

higher. For example, take a look at Qiao Xing Mobile Communication (QXM), a company in which

we have holdings. If we look only at its June 30, 2011 balance sheet, without putting any value to

their operations, we see the following positives:

1) Net cash per share of approximately $6.20 compared to the stock price of 98-cents on

December 30, 2011. Another way to look at it is that you can buy this company for

approximately $55 million and get approximately $328 million in net cash.

2) Net-net working capital per share of approximately $7.40. 

3) Book value per share of approximately $6.98.

4) On September 8, 2010, Qiao Xing Universal Resource (XING), the parent company,

offered to buy out the minority shareholders of QXM for 1.9 shares of XING plus 80 cents

in cash. The stock price of XING, which is listed on the NYSE, traded between $1.45 and

$3.55 per share from the offer date to the end of 2010. This means the value of the offer

was fluctuating roughly between $3.55 ($1.45 x 1.9 + $0.80) and $7.55 per share.

Unfortunately, on April 7, 2011, the offer was rejected by the minority shareholders of

QXM. Since then, the stock price of QXM has plummeted from $4.32 to below a dollar.

5) It is listed on the New York Stock Exchange.

6) It is currently audited by Crowe Horwath, a recognized international auditing firm. Crowe

Horwath LLP is one of the largest public accounting and consulting firms in the United

States.

The negatives are not as obvious, but deserving of caution. Key among them: 

1) The founder and CEO has taken some questionable actions. Since China’s business

environment is a bit like the Wild West, it is difficult to find companies and/or management

with a totally pristine reputation. Moreover, a lot of businesses, including Qiao Xing’s, are

intertwined.

2) Most of the cash is held in China. Cash may not be accurately stated or it cannot be

repatriated to North America in an economically efficient manner.

3) Most revenue numbers cannot be verified.

4) Accounting for receipts is not a common practice in China.

5) You cannot verify the company’s numbers even though it retains a well known accounting

firm, is listed on NYSE, and thus must adhere to strict compliance and accounting

standards.

 

There are a number of firms doing business in China that have similar characteristics. They are also

extremely cheap, and as I’ve said, if their stock prices were 50% to 100% higher, and if their

businesses operated in U.S. or Canada, they would be considered undervalued. Yet, while they raise

red flags, we think we can invest prudently in China if we use a basket approach, keep our positions

appropriately sized and closely monitor developments at the companies.

 

[Guest Hester]

XING opened trading today, down 75% so far.

 

So that makes 3 halted stocks that Wu Ruilin is involved with.

 

Francis Chou has somehow found a worse investment than Overstock.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chou-funds-13-f-6250/

 

Not the best investment he's ever made but put into context:

 

Dec 31,2011 : Owned $1.58M  in a fund carrying $392M in assets. That represents .4%. Not the end of the world.

 

But don't let that stop you from taking a shot at him.

___________

 

Excerpt from AR:

 

Investing in China a Conundrum

Companies based in China are regarded with grave suspicion that makes investors skeptical about

the cash on their balance sheets. All things being equal and their revenues coming from the U.S. or

Canada, these companies would be considered undervalued even at stock prices 50% to 100%

higher. For example, take a look at Qiao Xing Mobile Communication (QXM), a company in which

we have holdings. If we look only at its June 30, 2011 balance sheet, without putting any value to

their operations, we see the following positives:

1) Net cash per share of approximately $6.20 compared to the stock price of 98-cents on

December 30, 2011. Another way to look at it is that you can buy this company for

approximately $55 million and get approximately $328 million in net cash.

2) Net-net working capital per share of approximately $7.40. 

3) Book value per share of approximately $6.98.

4) On September 8, 2010, Qiao Xing Universal Resource (XING), the parent company,

offered to buy out the minority shareholders of QXM for 1.9 shares of XING plus 80 cents

in cash. The stock price of XING, which is listed on the NYSE, traded between $1.45 and

$3.55 per share from the offer date to the end of 2010. This means the value of the offer

was fluctuating roughly between $3.55 ($1.45 x 1.9 + $0.80) and $7.55 per share.

Unfortunately, on April 7, 2011, the offer was rejected by the minority shareholders of

QXM. Since then, the stock price of QXM has plummeted from $4.32 to below a dollar.

5) It is listed on the New York Stock Exchange.

6) It is currently audited by Crowe Horwath, a recognized international auditing firm. Crowe

Horwath LLP is one of the largest public accounting and consulting firms in the United

States.

The negatives are not as obvious, but deserving of caution. Key among them: 

1) The founder and CEO has taken some questionable actions. Since China’s business

environment is a bit like the Wild West, it is difficult to find companies and/or management

with a totally pristine reputation. Moreover, a lot of businesses, including Qiao Xing’s, are

intertwined.

2) Most of the cash is held in China. Cash may not be accurately stated or it cannot be

repatriated to North America in an economically efficient manner.

3) Most revenue numbers cannot be verified.

4) Accounting for receipts is not a common practice in China.

5) You cannot verify the company’s numbers even though it retains a well known accounting

firm, is listed on NYSE, and thus must adhere to strict compliance and accounting

standards.

 

There are a number of firms doing business in China that have similar characteristics. They are also

extremely cheap, and as I’ve said, if their stock prices were 50% to 100% higher, and if their

businesses operated in U.S. or Canada, they would be considered undervalued. Yet, while they raise

red flags, we think we can invest prudently in China if we use a basket approach, keep our positions

appropriately sized and closely monitor developments at the companies.

 

I won't, and never said it was the end of the world or anything like that. The great Francis Chou isn't immune from criticism, especially when he's at the bad end of such a transparent fraud.

 

 

 

[Parsad]

Not sure what the sarcasm is for Hester.  He laid out all of the pros and cons, including the fact that the financials may be fraudulent in the annual report.  He said that he is taking a basket approach because of the risk.  Like others have said here before, it's so easy to be critical when you hide behind anonymity. 

 

At least I can give Carson Block that much credit, because he put his name out there, but alot of other people, and maybe I'm pointing you out and maybe I'm not, are a hell of a lot braver when they have nothing to stand behind other than a message board username.  Cheers!

[Guest Hester]

Anonymous posters have been calling John Hempton, Herb Greenberg, Roddy Boyd, Carson Block, etc.. the scum of the earth for years and not a peep, but I criticise Chou once for investing his shareholder's money in what I consider a painfully obvious fraud, and suddenly anonymous criticism of public figures is frowned upon. Ok, fair enough. I'll have to keep this in mind though.

[Parsad]

Anonymous posters have been calling John Hempton, Herb Greenberg, Roddy Boyd, Carson Block, etc.. the scum of the earth for years and not a peep, but I criticise Chou once for investing his shareholder's money in what I consider a painfully obvious fraud, and suddenly anonymous criticism of public figures is frowned upon. Ok, fair enough. I'll have to keep this in mind though.

 

Well there's one enormous difference that you may or may not have noticed.  Francis is a very good friend of mine, as well as to many others on this board, whereas the turds you mentioned I have no knowledge of whatsoever...except the one time I cornered Herb Greenberg at the very first Value Investing Congress.  He, along with Jim Chanos, had just called Fairfax and Prem frauds in front of 400 hedge fund managers.  When I asked Herb if he actually read the Fairfax annual reports or filings, he said that he had not, but had two very trusted sources who had done their research! 

 

So, if you believe turds like that are on the same level as Francis, by all means say what you want about him...but you better as hell do it on another board.  If you haven't noticed, I own this board and moderate it.  If you don't like it, you are more than welcome to go back to your blog!  I hear one more sarcastic comment about Francis, and I have no problem banning anyone's ass...censorship be damned! 

[Hielko]

I understand it's your board and he's a friend, but should you really respond differently based on who is discussed? I don't think it's creates a healthy atmosphere if you don't allow criticism; different viewpoints are one of the most valuable resources on this board.

[Rabbitisrich]

There have been older threads that included criticisms of Chou's holdings. Hester's post--"the great Francis Chou"--may have seemed like an attack on Chou personally. However, I interpreted it as a comment on (perceived) excessive adoration by board members.

[value-is-what-you-get]

I found Hester's initial reply to be spiteful and provocative.  Criticism is one thing - taking a cheap shot like that is something else and says more about Hester than it does about Chou.  Some personality types feel better about themselves when taking others down a notch.

[cwericb]

Let’s be fair here. Francis Chou is a very honourable man, but he is not clairvoyant and every investment of his will not be successful. Believe me I know, as I have invested in his funds for several years. And while he is certainly not in the same league as some of those people mentioned in Hester’s post, shouldn’t posters be allowed to express dissenting and critical views of investments and/or fund managers? Are certain topics to be above criticism?

 

This board is of very high quality entirely due to the fact that our moderator spends a lot of time ensuring that it stays that way. We all respect and appreciate Sanjeev for what he does because without his work this board would degenerate into something like the Yahoo or Stockhouse boards.

 

However, the beauty of this board is that it is a forum where we get intelligent and informed debates and opinions on topics that illustrate the pros and cons of the subject at hand. Surely we don’t want to censor posts just because we disagree with them.

 

Hester once made the point that shorters provide a good balance against the paid PR departments pumping their companies. So long as information is reliable should we not have access to it whether we agree with it or not?

 

 

[zippy1]

Lets be fair here. Francis Chou is a very honourable man, but he is not clairvoyant and every investment of his will not be successful. Believe me I know, as I have invested in his funds for several years. And while he is certainly not in the same league as some of those people mentioned in Hesters post, shouldnt posters be allowed to express dissenting and critical views of investments and/or fund managers? Are certain topics to be above criticism?

 

This board is of very high quality entirely due to the fact that our moderator spends a lot of time ensuring that it stays that way. We all respect and appreciate Sanjeev for what he does because without his work this board would degenerate into something like the Yahoo or Stockhouse boards.

 

However, the beauty of this board is that it is a forum where we get intelligent and informed debates and opinions on topics that illustrate the pros and cons of the subject at hand. Surely we dont want to censor posts just because we disagree with them.

 

Hester once made the point that shorters provide a good balance against the paid PR departments pumping their companies. So long as information is reliable should we not have access to it whether we agree with it or not?

I respect short sellers for they offer me opportunities to see my own possible mistakes.

 

However, I just don't see why Hester has to drag Francis Chou into this discussion for holding a minute position in his fund. It appears to me that Hester is just trying to be spiteful and provocative.  It says more about Hester than Francis.

[Guest Hester]

Well obviously I never put Chou in the same league as the others I mentioned because I didn't (nor would I) call Chou what many board members have called my sample group (scum, etc...). I admire Chou in some respects, his beginnings are inspiring, but I think he does get excessive adoration and has made a fair bit of easily avoidable mistakes. He isn't in the same league as Berkowitz, Klarman, Watsa, etc... Bottom line, those are my opinions, and it is your board Sanjeev, do as you please. If you want to ban people for mildly criticizing and not deifying a friend of yours, who happens to be in the public spotlight managing 10 figure amounts, have at it. Remember, I first joined this board during the Sino Forest heyday, and defended Block, not a popular position. During that I was blankly accused of everything from spamming the board with viruses, to working in cahoots with an underground illegal short selling manipulation ring. So I can handle criticism, and I work on the premise that others, especially public figures, can too.

 

However, I interpreted it as a comment on (perceived) excessive adoration by board members.

 

Lets be fair here. Francis Chou is a very honourable man, but he is not clairvoyant and every investment of his will not be successful. Believe me I know, as I have invested in his funds for several years. And while he is certainly not in the same league as some of those people mentioned in Hesters post, shouldnt posters be allowed to express dissenting and critical views of investments and/or fund managers? Are certain topics to be above criticism?

 

Yes to both of these.

[Parsad]

I have no problem with anyone criticizing Francis' investments and neither would he.  What I'm saying is the smarmy, smart-ass comments is what I can do without.  Hester's initial comments were fine.  It was the whole "great Francis Chou" stuff. 

 

The board is called the "Corner of Berkshire & Fairfax" for a reason.  I don't care if you don't agree with something regarding Buffett, Watsa, et al, but do me the courtesy of being respectful to them, as it is my board and my time spent running it.  Some of you may say Francis doesn't belong in the same category, but he's solely responsible for why our dinner is the way it is now.  As a human being, he may be on par with them already!  Cheers!

[Ballinvarosig Investors]

If you want to ban people for mildly criticizing and not deifying a friend of yours

You didn't mildly criticise him though, you mocked him. Also, your comments strike me as a little "gleeful".

 

I don't think Parsad has a problem with anyone attacking an investment made by anyone is is acquainted with. I know I have criticised investments made by the likes of Tim McElvaine and Fairfax here before, but I would never dream of defaming their person. These guys give a heck of a lot to the community for very little in return and just because I might think they are wrong on occasion, it doesn't give me the right to belittle them.

[Kraven]

The tremendous overreaction by some members to what were benign and, in my view, completely appropriate comments really reflects very badly on the board.  At the end of the day, Sanjeev, yes, this is your board.  No one disputes that in the least.  You can do whatever you want.  Take your ball and go home if that's how you want to play.  I didn't realize that friendship of public figures equated with a ban on criticism no matter how mild.  People sure criticize people like Berkowitz and it often gets personal.  But I guess that's different.  This is all very disappointing.

[S2S]

The tremendous overreaction by some members to what were benign and, in my view, completely appropriate comments really reflects very badly on the board.  At the end of the day, Sanjeev, yes, this is your board.  No one disputes that in the least.  You can do whatever you want.  Take your ball and go home if that's how you want to play.  I didn't realize that friendship of public figures equated with a ban on criticism no matter how mild.  People sure criticize people like Berkowitz and it often gets personal.  But I guess that's different.  This is all very disappointing.

 

Very well said, Kraven.

 

I have a hard time believing what Hester actually wrote, "Francis Chou has somehow found a worse investment than Overstock", could be considered "spiteful" or "a cheap shot" by some here.

 

With XING selling off as much as it did, and given that Francis is one of the more prominent names in XING's holders list, I think *some* criticism is inevitable. But hey, I'm not a personal friend of his, what do I know?

[petec]

The tremendous overreaction by some members to what were benign and, in my view, completely appropriate comments really reflects very badly on the board.  At the end of the day, Sanjeev, yes, this is your board.  No one disputes that in the least.  You can do whatever you want.  Take your ball and go home if that's how you want to play.  I didn't realize that friendship of public figures equated with a ban on criticism no matter how mild.  People sure criticize people like Berkowitz and it often gets personal.  But I guess that's different.  This is all very disappointing.

 

+1

[ourkid8]

I have a large position in Chou Asia fund and I just switched it into Chou Associates.  There is too much risk investing in Chinese companies directly even though Francis does look for a large margin of safety. 

 

So that makes 3 halted stocks that Wu Ruilin is involved with.

 

Francis Chou has somehow found a worse investment than Overstock.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/chou-funds-13-f-6250/

[Guest Hester]

After some thought, I've decided to delete my account and move on. I enjoyed following this board, and thanks to Sanjeev for the time/effort he puts in to moderating/managing the board. As I said, I've been criticized heavily in the past, and many I admire have been called some ugly names. I could care less, I have a think skin.

 

However, a censorship of anyone who makes the slightest negative comment about Francis Chou, or for that matter anyone else who happens to be in the public eye, is not something I will put up with. Week in and week out people here criticise, even insult: fund managers, investors, analysts, CEO's, companies, political figures, different groups of people, without ever having to put up such ridiculous backlash, or with being called defamatory (that one made me laugh). If Sanjeev wants to make this place one Chou/Watsa bronze statue away from value investing North Korea, so be it. I do not worship the dear leader, and I am not going to pretend that I don't think Francis Chou is a mediocre investor (although personally he is probably a great man) or that Patrick Byrne is not mentally ill. I don't care who they are friends with or what dinners they organize.

 

Frankly, Parsad probably has wanted me gone for a while. People don't like dissenting opinion, and many here are not fond of short sellers. So now everybody can be happy again.

 

Toodles,

-Hester A.K.A John Hempton

(Just kidding, I figured I'll go out on a joke)

[enoch01]

Hester, I'm sorry to see you go.

 

:(

 

You've made helpful contributions and I hope you reconsider.

 

[AZ_Value]

Cool heads fellas... Cool heads!

 

Hester, you shouldn't leave, you do provide a lot of value to the board, at least in my opinion. So yeah, don't go, this too shall pass as they say.

 

I don't think Hester attacked Chou's character at all, if he did then he'd be crazy because you'll have to search long and hard before you find a guy like Francis who voluntarily refuses to take any compensation when he thinks he didn't do well by his investors.

However he does invest money on behalf of people and his investments are public so they will be discussed on investment boards, especially one dedicated to value investing.

All you have to do is take a look at discussions about Watsa's investments in RIMM or the recent Resolute soap opera to realize that people will question what, why and how these guys are doing what they're doing and buying what they're buying, and not in the most flattering manner oftentimes. This would also apply to WEB himself whenever politics are discussed on the board.

It is the nature of the beast, no need to get emotional about it.

 

As for Hester, you've realized that many on the board had a pretty bad experience with how Fairfax and Prem were treated during the short attack so there are certain people that are just disliked but the caveat is there is a story behind and you have to accept it and live with it unfortunately, as you are outnumbered, and so far you've done a good job of that.

 

In summary, Francis is a great guy, and like everybody else he will make mistakes and those mistakes will be discussed on investment boards, and for those who want to defend him, all they need to do is point at his pretty darn good long-term track record, that's all.

So, again, cool heads people!