FerroChina trigger cashflow concern – Part 2: Hongguo, Synear, Celestial

Hongguo

In the latest second half result.

Asset:
Cash and equivalent 66mil
Trade receivable 128mil
FD 16mil

Current liabilities 144mil
Amount payable in one year 16mil (secured by FD)

Operating cashflow before working capital 81mil
Net cash from operating activities 10mil

Assume the trade receivable is easily collectable, the company should have sufficient cash to cover the liabilities. After the working capital change, the net cashflow is only 10mil. The cash are converted into form of inventories. Retail consumption might slow, but there shouldn't be a sharp drop till the company cannot convert the inventories into cash. Looks alright.

Synear

In the latest half year result.

Asset:
Trade receivable 261mil
Cash bank balance 1335mil

Current liabilities 285mil
Amount payable in one year 20mil

Cash from operation 162mil
Cash used in investing 652mil
Cash used in financing 150mil

The negative cashflow is the result of aggressive capacity expansion. The operating cashflow remain healthy, but negative consumer sentiment might affect sales. Earning might come down but loss is unexpected. The cash balance should last the company quite a while. Once the new factory is running and consumption recover, we might see a substantial surge of earning. The cashflow is not a concern to me.

Celestial

The company has two major business – industrial soy product and consumer product. In the last half year result.

Asset:
Cash and equivalent 1651mil
Trade and other receivable 488mil

Current liabilities 1690mil (Borrowing of 1277mil)
Amount repayable in one year 1257mil (Convertible bond)

Operating cashflow before working capital 352mil
Cash from operation 173mil
Cash used in financing activities 140mil

Looking at the convertible bond, it is possible for holder to do early redempt at June 2009. The holders are unlikely to convert them to share now given the market condition. Worst case if the bond is redempted after a year, the current cash should be sufficient to buffer it. Given the business is cash generating, this shall not be a big concern.