5/26/2011

FSIN: Fushi Copperweld evaluates strategic alternatives

Management is getting serious about the market’s inability to fairly value the company.


Fushi Copperweld evaluates strategic alternatives

Click to view report

“Chinese wire maker Fushi Copperweld Inc FSIN.O said it will evaluate the buyout proposal from its co-chief executive officer and a private equity firm, and will also look at other strategic alternatives.”

Add to this announcement the current valuation and growing short position. Many of these Chinese companies have been all lumped into the … it’s a Chinese company therefore everything they report is suspect. But at a certain point some of these stocks become value plays or just a candidate for price mean reversion. I believe FSIN has value based on these and other criteria.

Price = 7.07
Cash per share = 3.52
Long term debt per share = .17
Market Cap = 270 Million
Enterprise value = 98 Million
Sales/FCF = 21.13%
Insider ownership = 44%

Since it’s a Chinese stock I won’t dig into the capital structure or challenge the reported earnings.

But with the 52 week return of -35.61%, cash balance and the large growing short to float ratio the stock deserves a second look .

Even with a short term view the future demand for the stock keeps growing with the short balance.

Growing Shares Short and date reported

6,105,459 5/13/2011

5,903,615 4/29/2011

5,461,412 4/15/2011

3,924,025 3/31/2011

3,379,303 3/15/2011

3,214,301 2/28/2011

3,263,519 2/15/2011

3,450,501 1/31/2011

3,280,538 1/14/2011

3,171,098 12/31/2010

3,143,632 12/15/2010

3,231,313 11/30/2010

2,674,133 11/15/2010

2,525,035 10/29/2010

2,185,473 10/15/2010

1,961,859 9/30/2010

1,508,162 9/15/2010

912,317 8/31/2010

544,587 8/13/2010

433,978 7/30/2010

322,219 7/15/2010

460,078 6/30/2010



FSIN: long position

8 comments:

John Allen said...

hey shadow-

I literally just sold this yesterday, obviously wish i hadn't! FSIN looked good because of the auditor, the management proposal, and it was a SPAC, not a RTO at least. But recently they issued an 8-k where Abax looked like it was stepping back from the transaction and I got spooked out. Even this release specifically has wording about a deal not getting done, but at least it doesn't sound like the deal is totally off. Actually if this thing is not a fraud, $11.50 is way too low of a price for the business. I've been burned badly on LFT recently, which also looked good (Goldman IPO, big 4 auditor, wide street coverage, and big name hedge funds invested). So these things really are dicey. What do you think?

ShadowStock said...

Been there done that like ever investor especially value oriented investors.

Sorry if this doesn’t directly answer the question but for me the expected value was exciting enough to make the purchase. The sentiment became so negative. I tried to indicate by listing the shares short for every two week going back almost a year.

A completely different kind of stock but the expected value or margin of safety based on my initial analysis started bearing fruit. SYMS was up to 10.20 today closing at 9.49 up 28% for the day. Not an obvious value play but the same goes for the positive intangibles moving DWCH higher.
i guess what i'm saying at times the diversified approach will help
stop the fear reaction and also enable you to increase the position when information or the expected value increases.

Good luck and all of us will continue to make those impossible to calculate stock moves that are missed or sold based on rational information.

Elie said...

A lot of the Chinese names are cheap now. How do you separate out the real ones from the frauds?

Anonymous said...

Shadow,

I am also a value investor. I believe this is not the place where traditional value frameworks can apply.

I was recently a FSIN shareholder and sold out flat. I also thought this was an oversold china value play,. There are many many red flags here (i.e. . This buyout news release yesterday that sent the stock up was an attempt from the board and managers to push the stock back up after it was dropping like a rock. Some shady characters involved in this name that have appeared on other Chinese frauds. Other problem is, if they ever went into Ch11, you would never ever have a claim against those Chinese assets. This is a bad play imho, but best of luck to you.

ShadowStock said...

“A lot of the Chinese names are cheap now. How do you separate out the real ones from the frauds? “

I cant. But having said that you can try and implement several money management techniques. Buying a basket, trading the idea, ignore reported earnings and focus on net cash, rely on the conviction of proven value shops with a stake, avoid toxic capital structures, look at the history of management. But all of this effort is probably not a very good use of one’s investing time.

“I am also a value investor. I believe this is not the place where traditional value frameworks can apply”

I agree!, but the cash may have more certainty and future buying demand with a massive short position could help short term if the stock does not go Ch11.

Thanks for the responses.
Good Luck

John Allen said...

Hi Shadow,

I really like your effort to post names and start discussions, so thank you for that no matter what. The disturbing thing (well, the most disturbing thing) about these china frauds is that the cash has proven nonexistent, again see longtop and CCME -- probably local branch managers collaborated in the fraud. FWIW.

John Allen said...

also, very nice call on DWCH which looks to be shaping up well. Have you done much valuation work on SYMS? I saw a writeup awhile back but can't find it. wondering if there is much upside left given remaining uncertainties and the illiquidity of the stock.

Anonymous said...

Is there any news on if FSIN is going private or is this another fraud by a Chinese company to get the stock price to increase when its dropping like a rock?