The Fantastic Four: 4 S-Chips with Potentially Big Problems

Yesterday, bourse operator Singapore Exchange Limited (SGX: S68) published an article that highlighted a number of financial irregularities that had recently appeared in some S-chips.

While the Singapore Exchange had not named any companies, it did point out that the S-Chips in question belonged to the textile and sporting goods, manufacturing, heavy industries, packaging, electrical and electronics, retail, and chemical sectors.

My colleague Stanley Lim had written a great recap of Singapore Exchange’s article earlier today. Here’s how Stanley described some of the questionable financial antics that the bourse operator is concerned about:

“1. Some companies have reported compensation claims from customers that are in excess of 10 times the original value of the sales that are the subject of the claims.

2. Some companies have written off huge amounts of trade receivables without providing proper explanations.

3. Some firms with declining revenues had increased prepayments to their suppliers while lengthening credit terms for their customers.

4. “Significant loans” and advances were also made by some companies to their business associates that are outside the norm of business practices; these loans and advances were then subsequently deemed to be uncollectible and written off.”

As mentioned earlier, Singapore Exchange did not identify the S-chips involved. But, I was intrigued by the findings and wanted to investigate further; I ended up with four names (the titular Fantastic Four) that may have belonged to the list of problematic companies that Singapore Exchange had referred to.

In the spirit of educating, amusing, and enriching investors (those three essentially form The Motley Fool’s mission statement), I want to share the names of those four S-chips. But before I do, I’d have to stress that I’ve had no contact whatsoever with Singapore Exchange on the matter.

In no particular order of merit (demerit?), here they are below.

The first possible offender is Hu An Cable Holdings Ltd (SGX: KI3), a manufacturer of electrical cables and wires. In the quarter ended 30 September 2015, the company had made a loss of RMB 546 million after suffering an impairment of RMB 508 million on “doubtful trade and other receivables and prepayments.” For some context on how massive that impairment loss is, Hu An’s total equity at end-2014 was only RMB 1.15 billion.

Second in line is Leader Environmental Technologies Ltd (SGX: LS9). The company, which is involved with environmental protection solutions, had impaired a total of RMB 246 million in trade receivables and advances to suppliers in the quarter ended 30 September 2015. That sum of money isn’t trivial at all when we consider that Leader Environmental had total equity of only RMB 320 million as of 31 December 2014.

The third S-Chip I found is Sinotel Technologies Ltd (SGX: D3W). In the third-quarter of 2015, the wireless telecommunication technologies solution provider had clocked a loss of RMB 14.8 million on revenue of just RMB 7.3 million. A big contributor to the company’s red ink is a RMB 10.5 million impairment of property, plant and equipment.

Last on my list is rubber and foam materials producer Ziwo Holdings Ltd (SGX: I9T). For the quarter ended 30 September 2015, the company had drowned in RMB 213 million worth of losses. Some of the big-ticket items in the company’s expenses in the quarter were (1) impairment of trade receivables of RMB 8.5 million, (2) a RMB 49 million impairment of property, plant and equipment, and (3) a whopping RMB 96 million in product defect claims and related expenses. Those losses were not easy for Ziwo to stomach – the company had only RMB 521 million in total equity as of the end of 2014.

The four aforementioned S-Chips may not be the companies that were chastised by Singapore Exchange yesterday. But, their shareholders may still want to dig into these companies further – given their latest business results, it’s only appropriate that very careful assessments of their future business prospects are in order.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.