Given that these transactions were quite sometime back, verifications can no longer be made.
Management said that they only received the shareholding changes from JFAM at the end of July ’09 which they subsequently released on 6 Aug ’09.
Management said that they have now strengthened their internal procedures in this respect and will ensure that it will not occur again.
When the media first brought up the discrepancy regarding the change in JFAM ’s shareholding on 24 Aug ’09, instead of reacting negatively to the news, the stock had risen 1 cent to 21 cents and had continued to rise to hit an intra-day high of 26 cents on 30 Aug ’09 before consolidating around the 25 cents level.
This is likely due to the company reporting that they had received RMB888mln worth of new orders at the 2010 Spring/Summer collection trade fair held in Xiamen on 24 Aug ’09 as well. While this represents a 26% yoy decline, it is up from May ’09’s RMB440mln, Mar ’09’s RMB800mln and Oct ’08’s 650mln. Management said then that the orders would have been flattish yoy if not for held back orders and rebates provided to distributors to weather the downturn in 1H 2009.
Management also said then that they were heartened by the recent signs of stabilization and believe that they will start to see more signs of stable performance next year, a reversal from their more pessimistic view since 4Q 2008, after the collapse of Lehman Brothers.
With management’s latest clarifications and strengthened internal controls to ensure that such an event will not recur in future, coupled with almost 90% of its share price being backed by cash & management’s target of collecting the outstanding RMB604.6mln of prepayments by the end of this year, we maintain BUY.
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