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F40 China New FY16 numbers: headlines good, details are another matter

By Nigel Somerville, the Deputy Sheriff of AIM | Friday 30 June 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

ShareProphets AIM-China Filthy 40 play China New Energy (CNEL) posted its FY16 numbers this morning. On the face of it a profit of RMB 3.6 million (about £400,000) reads well, but a look at  balance sheet suggests that as ever we are on the cusp of a placing, and what about those receivables?

The audit statement tells a rather different story: the company is currently partially relying on project payments in advance from customers and delaying payment to suppliers…That’s bad enough, but note 2.2 tells us more in the form of uncertainty of the industry and economic slowdown in the P.R. China as well, all giving rise to the future going concern. Oh, and the Group is continuing to evaluate new funding options. Right, so placing ahoy.

We are told that the Directors consider that the Group has adequate resources but a bit of maths suggests otherwise: the group ended 2016 with cash of RMB 13.9 million but RMB 11.2 million was restricted cash. We are told that following the placing in February (£702,132) net cash sat at RMB 13.6 million. At that rate the unrestricted cash of RMB 2.7 million from year end looks thin to say the least. Meanwhile, suppliers spent an average of 252 days waiting to be paid.

Looking at net assets, they sat at only RMB 4.5 million. Yikes! That leaves a lot of unpaid bills behind….

The receivables are worth a look: of c. RMB 130 million of current trade receivables, c. RMB 80 million is given over in allowances for impairment, and of the c. RMB 50 million held as unimpaired but overdue receivables RMB 28 million is more than 60 days overdue, a further 10 million is over a year late and a couple of million are over 2 years overdue. But they are not impaired…..whatever

 In related party transactions the company discloses (aside from disclosures made elsewhere) RMB 10,595,000 of non-trade receivables due from a company under the control of two directors of the group, up from RMB 8 million the previous year. Hmm.

Having started the day with the shares up at 1.8p, reality seems to be setting in at the current 1.45p but I fancy that’s still a long way north of where they should be.

This is a dog’s dinner. Bargepole.

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