Category Archives: China Penny Stocks

Tech Pro Reaches for Help from Blue Sky

Tech Pro upd

Tech Pro, 3823 H, the penny dreadful which dropped after a short-seller report, is hoping for a savior from Blue Sky Power, 6828 hk.  The company just appointed 47 year old Lee Tsz Hang, aka Sze Chun Lee, the previous CEO and director of Blue Sky Power, a natural gas refueller and trader.

Purchase and Placement Fail

The day before this announcement, on 8/31/2016, the company stated that a proposed placement shares – both by a general and special mandate, had lapsed.  These shares were to be issued to allow the company to buy the other 50% of Fuchao property group, which it had agreed to purchase for 387.5 Mill rmb on 6/3/2016.  The two placements were projected to raise net hk$616 Million  (about 530 Million rmb.) on a share price of hk$.25.  Without these placements, it’s doubtful the company could make the purchase since it has only hk$81.7 in cash and has been losing money annually from its declining LED business and soccer team funding of Sochaux-Montbéliard SA, (FCSM).With a plummeting stock price and the scrutiny of short-sellers, it’s prospects for debt financing are slim.  After the announcement of the hiring of Mr. Sze Chun Lee, the company reported the Fuchao purchase was also over since it was reliant upon the placement.

Blue Sky Power Exec to the Rescue

In an interesting turn, the company appointed Mr. Lee Tsz Hang. Blue Sky Power Holdings is currently a natural gas refueller and trader.  However, prior to this, it was China Print Power, a small-cap printer which had declined into a money-losing company.  Rather than liquidate, Mr. Lee used the assets of the company to transform it into a natural gas refueller and trader, issuing multiple shares and bonds and eventually selling a majority interest to Beijing Enterprises.  Neither companies have any relation to LED or property management.  However, if Mr. Lee Tsz Hang was able to transform an old fashioned, money losing print business into a natural gas company, riding the wave of China’s pollution edicts, the Tech Pro must be betting he can perform the same magic to transform it.  The company does still have cash and minimal debt. As extra incentive, he owns 64,370,000 shares in Tech Pro, about 1% and will get HK$ 35,000/month.To be continued.

Tech Pro Financial Statement from HK filing.

rmb 000
 Current Assets 6/16 12/15
  cash 81,741 128,579
  Trade Rec 140,880 142,981
  Inventory 29,392 30,396
  Other C/A 31,370 30,789
  Other Rec 107,724 112,468
  Pledge Bank Dep 498 487
Totl Curr Assets 391,605 445,700
NonC Assets    
  Prop/Pl Eq 68,195 68,562
  Intang 272,223 321,018
  other non C 5,635 5,179
  Cont Consideration 7,118 3,669
  JV Investment 374,753 366,641
Total Non C Assets 727,924 765,069
Total Assets 1,119,529 1,210,769
Curr Liabities    
  Trade 29,056 25,658
  Accruals 61,776 76,606
  Finance Lease Oblig 495 494
  Inc Tax Payable 21,153 21,153
  Bank 0 132
Total C Liab 112,480 124,043
Non C Liab    
  Finance Lease 508 741
  Def Benefit Oblig 2,374 2,051
  Def Inc Tax 66,503 78,222
Total Non C Liab 69,385 81,014
Total Liab 181,865 205,057
Assets – Liab 937,664 1,005,712
ca/cl 348% 359%
Tang Assets-Liab 665,441 684,694

 

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Short Sellers Were Right, Tech Pro Sales Down 50%, Bleeding Cash

insolvency-96596_640

After numerous negative reports on Tech Pro, 3823 hk, the company finally proved them right.  After giving a vague profit warning on August 5, its newly-released first half financials showed another big loss.  On the balance sheet, its cash dropped by 46.8 million rmb taking it down to 81.7 million rmb.

tech pro first half

 

On the surface, the revenue drop is marginal. Digging deeper, from the segment breakdown, the predictions of the downsizing of the LED business are proven true with a drop of 50%. Despite the drop in sales, there is an outsize increase in administration costs. The company attributed this primarily to an 81 million rmb increase in pro-team expenses. (The team, Sochaux-Montbéliard SA, (FCSM), was acquired in July 0f 2015. It has a listed asset value of 132.9 million rmb against liabilities of 53.3 million rmb. It was acquired for 7 million euros or about 52.5 million rmb.)

tech pro segments

The company gives little explanation for the marked decline in LED sales.  It hopes to improve that segment by attending exhibitions in Europe.

Rental JV Uncertainty

As Glaucus reported in August, the company’s 50% JV interest in Shanghai Fuchao represented a sub-lessor in a building in Shanghai called Universal Mansion.  The building was owned by the Logistics Department of the Chinese People’s Armed Police Force.  In the first half report, Tech Pro stated:

On 30 May 2016, the Group announced that the Central Military Commission (“CMC”) of the PRC issued a notice (the “Notice”) on 27 March 2016 on the stopping of all paid services of the People’s Liberation Army (“PLA”) and the People’s Armed Police Force (“APF”) (關於軍隊和武警部隊全面停止有償 服務活動的通知), pursuant to which, the PLA and the APF are set to stop providing all paid services, which is expected to be completed in three years. The Group has been carrying out study on the impact of the Notice on the business and operations of the sub-leasing services business. The Group has consulted its PRC legal advisers and was advised that since the CMC has not yet specified on how to deal with existing contracts regarding real estates of the military, there are uncertainties as to when and how the rental arrangement under the leasing agreements would be affected by the Notice.

The Group expects that the property market in the PRC remains favorable. As the location of the premise that the Group operates the sub-leasing business is at the prime area in Shanghai, the vacancy rate is low and the rent is stable. It has less sensitive to the volatility in the PRC economic situation.

It’s interesting to note that the company was informed in May in 2016, but has continued its proposed the buyout of the other 50% of the JV despite this glaring uncertainty.

To recap the bellwethers of Tech Pro’s Fall:

 3/11/2016

The Wall Street Journal noted the strange trading movement at end of day plus the tripling in stock value in 2 years despite repeated, declining losses.

6/1/2016

GeoInvesting

  • The LED business is deteriorating with poor margins
  • Revenue growth in the LED business is suspect
  • The soccer team will need big investments
  • It will continue to need debt or equity financing to fund its operations

7/28/2016

Glaucus

Strong sell, no value

Accused of fraudulently over-reporting transactions and income.  Stock dropped over 90% in one day on that announcement; dropped all the way to .14 but has since recovered to .25. (Was 2.27 before the fall).