On April 7, 2011, shareholders of Qiao Xing Mobile Communication Co. (QXM, Financial) will vote of the scheme of arrangement proposed by parent company Qiao Xing Universal Resources (XING, Financial) back in September 2010. The proposal is for each shares of QXM, shareholder will get 1.9 shares of XING stock and $0.80 in cash.
On Friday, XING closed at $1.82 per share and QXM at $3.63. QXM is selling at $0.628 per share discount to its fair price based on the offer if the deal closes on today, and if one can sell XING at it current price.
XING can hold its current level is a big assumption. The stock has declined about 50% since the announcement of the offer. At the current price, it is selling at 40% of its net-net value, based on GuruFocus Benjamin Graham’s Net Current Asset Value Bargain screen.
The calculation does not include any long term assets, such as the mining properties that XING came to hold during the past years. The company had made it public its intention to become “a company with meaningful size in the resources industry” in recent years.
By the deep discount alone, XING seems to be of a good price. Further, buying into QXM and having the shares converted into XING seems to be even better bargain.
The GuruFocus screen is based on latest available financial data, which unfortunately for XING, is for the quarter ended on September 30, 2010. It is March 20, 2011, well into the year, unlike most companies, neither QXM nor XING has filed its annual report to SEC.
QXM expects its investors to decide its fate based on financial information that is almost half year old. Indeed, in the material the company sent to its shareholders, 3Q09 data was used to present the company’s pro forma results.
QXM is majority owned by XING. Its main business is telecommunication equipment manufacturing. During 2009 and the first three quarters of 2010, the subsidiary reported small and steady annual and quarterly losses. XING’s intention is to obtain 100% ownership, to get hold on the cash that is on QXM’s balance sheet, and to sell or kill the rest of money-losing manufacturing business.
XING can then use cash to buy more mining rights, which the company consider more stable and less competitive.
It is a very sensible strategy. It will be nicer if the company can provide more timely financial data so the investors do not have to have such a hard time to decide.
On the other hand, ever wonder why the stock prices of the two companies are so depressed? Part of the reason, I believe, is precisely the lack of timely financial reporting.
Disclosure: Long QXM
On Friday, XING closed at $1.82 per share and QXM at $3.63. QXM is selling at $0.628 per share discount to its fair price based on the offer if the deal closes on today, and if one can sell XING at it current price.
XING can hold its current level is a big assumption. The stock has declined about 50% since the announcement of the offer. At the current price, it is selling at 40% of its net-net value, based on GuruFocus Benjamin Graham’s Net Current Asset Value Bargain screen.
The calculation does not include any long term assets, such as the mining properties that XING came to hold during the past years. The company had made it public its intention to become “a company with meaningful size in the resources industry” in recent years.
By the deep discount alone, XING seems to be of a good price. Further, buying into QXM and having the shares converted into XING seems to be even better bargain.
The GuruFocus screen is based on latest available financial data, which unfortunately for XING, is for the quarter ended on September 30, 2010. It is March 20, 2011, well into the year, unlike most companies, neither QXM nor XING has filed its annual report to SEC.
QXM expects its investors to decide its fate based on financial information that is almost half year old. Indeed, in the material the company sent to its shareholders, 3Q09 data was used to present the company’s pro forma results.
QXM is majority owned by XING. Its main business is telecommunication equipment manufacturing. During 2009 and the first three quarters of 2010, the subsidiary reported small and steady annual and quarterly losses. XING’s intention is to obtain 100% ownership, to get hold on the cash that is on QXM’s balance sheet, and to sell or kill the rest of money-losing manufacturing business.
XING can then use cash to buy more mining rights, which the company consider more stable and less competitive.
It is a very sensible strategy. It will be nicer if the company can provide more timely financial data so the investors do not have to have such a hard time to decide.
On the other hand, ever wonder why the stock prices of the two companies are so depressed? Part of the reason, I believe, is precisely the lack of timely financial reporting.
Disclosure: Long QXM
