I sold my shares. I bought into this company because 1) it has good reputation in China's pork industry; 2)its products cover many big cities, such as Shanghai and Tianjin; 3) pork is one of the few industries that have been benefiting from China's recent episode of high inflation; 4) strong Chinese currency against US dollar helps preserve dollar purchasing power... However, I still sold my shares sadly today when the market was open. I was very disappointed by the management's weak response to the anonymous article posted on China Economic Review (a news source owned by foreigners). I attended the entire conference call. Here are few important moments I would like to share with you and that led me to make the sad decision. There was an guy from California, asking the management whether they contacted China Economic Review to ask them to take off the article and whether they would consider pursuing any legal action against China Economic Review considering that the contents in the article were fake as claimed by the company’s management team. The answers provided by the management are ambiguous and completely unacceptable from an investor's point of view. There was another guy asking what made the management to decide to repurchase shares worth $10 million, which is a tiny amount compared to the cash the company has plus huge line of credit the company has access to. He further asked whether the management thought the current large amount of CAPEX is a better investment than repurchasing the shares at the current price (around $10). This guy from the company (his surname is Wang or something) gave an affirmative answer. I dare to say that Mr. Wang did not really understand the nature of this question, or he truly thought the company was substantially undervalued. This may be a good company, but operated by a bunch of idiots. I feel no reasons to hold the firm's shares any longer given the enormous uncertainty circling around the firm's business: 1) Chinese government is taking rigorous action to suppress pork price, which contributed about 25% of the current round of high inflation; 2) food safety is a like poison, to which no company is immune; 3) adverse selection, a term I learned from the economics textbook and understood vividly via investing in HOGS; 4) possible accounting manipulation (I am saying that the company is clean, most probably not), and it negative consequence on the firm's stock price in the future; 5) poor management team, and terrible skill at handling PR emergency. I admire those of you who are still holding the company's stock. I wish you all best luck.
Your gloom caused you to miss some indicators. At the end of the piece, the lead, Wong I believe, was asked about action against CER, and he advised the company was considering legal action for slander.
There's no question in my mind that there is some puffery in the statement of current business, an action to show the processing of many more hogs, some of which were unacceptable to Zhong as food material was alluded to, hence the higher throughput of carcasses and lower quantity of meat getting to market.
The fact remains, this is a NASDAQ stock which is built on promise, not delivery yet, it shouldn't be evaluated like a bank stock.
I see your point but thought I'd mention, I am an American businessman who has traveled to China about 25 times over the past 5 years, and visited probably 100 industrial companies. What I frequently see are poorly managed enterprises that make a lot of money. They lack organization, quality control, even focus or a sense of strategy. However, they get orders and they make stuff and they reinvest. I've seen many companies double, triple, quadruple in size in just a couple of years.
A good Chinese businessman doesn't need firm rules or governance to succeed. He needs a drive to grow his business.
You probably are right, but no company can prosper forever with poor management and/or corporate governance. It cannot be run like a family business forever. I guess it is a risk-return tradeoff. For now, I think the risk involved in this investment outweighted its return.