According to FRS 39, the company will continue to mark to market its holding of these financial instruments, prices of which may continue to fluctuate in the present uncertain market conditions.
SE said that EBITDA for 2008 which strips out the negative effects of the mark to market losses of RMB210mln continues to show growth in 2008 and the company expects to continue to achieve positive free cash flow and higher sales for 2009.
Cash position as at Dec ‘08 is in excess of RMB700mln, up from 3Q ‘08’s RMB663.2mln versus short term borrowings of RMB9.5mln and long term borrowings of RMB715mln.
While the profit warning and management’s warning of more “marked to market” volatility due to the negative financial market impact will put a lid on share price performance (as reported bottom-line number gets more uncertain going forward), downside would likely be less so as well with management’s confidence on free cash flow and sales performance for 2008 and 2009 and the stock has also collapsed 88% from its 2007 high and is trading close to its book value. We maintain HOLD.
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