On Friday (9/1/2015) the shares of Chinese clothing company Naibu (NBU) were suspended at the request of the non-executive directors “pending clarification of its trading position”. The CFO had resigned on the 31st December and the trading update on the 24th November hinted the dividend might not be paid and profits reduced.
The best comments on this event were probably those of Paul Scott who writes for Stockopedia. He has been consistently critical of Chinese companies listed on AIM and his words on this latest debacle included: “Chinese stocks are too risky to go near with a bargepole” and he concludes that “some of these stocks have been listed on AIM with the primary purpose being to relieve British investors of our money“. He suggests the balance sheets of many are a work of fiction and the earnings are a mirage.
ShareSoc commented on Naibu in a Newsletter article in October 2014 soon after it was indicated the dividend would be cancelled despite the company apparently having loads of cash on its balance sheet. This is what ShareSoc said then in an article on share tips “What can be learned from this debacle? One thing is that share tips are dangerous both for tipsters and investors. That is particularly the case when one is making investment decisions primarily using financial analysis in a business in a far away country and where it is not easy to talk to the management. Dangers were not difficult to spot – the company has an Executive Chairman, Mr Lin, who holds 52% of the shares – so in essence he can pretty well do what he wants.” As I said at the time “With a short track record as a public company, this is the kind of company this writer avoids. It would also undoubtedly score lowly on the AIM Scorecard we published last year (available on our web site)“.
I also made some very negative comments about a similar Chinese company, Camkids, back in February 2014 after seeing a presentation by some of the directors which is available on the ShareSoc Members Network – it revealed many of the issues with such companies. The company is on a p/e of 0.7 at the time of writing so it looks like many investors do not believe their accounts either.
ShareSoc Members were certainly warned to be wary of such companies, but perhaps not as soon as would have been preferable.