3 years ago, I wrote about Chinese companies with poorly executed websites. Specifically, I pointed out that YONG and CXDC didn’t have great websites. (For your information: CXDC has a market cap of $235M and the borrow is about 7%.) Let’s revisit these companies.
- YONG: Back then, I took a large position in YONG put options, betting on the Yongye takeover bid failing. Unfortunately, the takeover bid did go through and I lost money. Fast forward 3 years, their websites have disappeared. Yongyeintl.com was the website aimed at investors. It went dark on or before September 14, 2014 according to archive.org, shortly after the going-private transaction. China-yongye.com was the Chinese language website. It went dark on or before February 28, 2017 – the website is currently an error page (in Chinese). So now you understand my irritation with losing money betting against YONG. While I don’t know what happened to this company, I think it’s safe to say that their website execution got worse.
- CXDC: Back then, they did not seem to have paid for their stock photography. Now, they have rectified that. However, the copy on this website is pretty awful. The copy on the top of the website (archive.org) reads: “Welcome to China XD Chinese website”. Those are the exact words… in English. The copy on the bottom reads: “In case of information discrepancy between the Chinese website and English website of the company, the English website shall prevail”. That’s quite the paradox- we’re welcomed to the Chinese website but apparently it is the website that will prevail in case of [sic] “information discrepancy”. On top of that, a lot of the links on the website do not work (e.g. I could not figure out how to watch their corporate video). But hey, at least they paid for their stock photography.
The CXDC website is actually broken in many places
Can’t contact R&D
China XD has an affiliated website at XindaHolding.com. There is a R&D order page at http://xindaholding.com/tech-2.php (archive.org link)
However, the email listed on the website – rd [at] cnxd dot net – does not work at all. Go ahead and email it yourself.
A similar page exists at http://www.xdholding.com/tech-2.htm (archive.org link) as well as http://chinaxd.net/tech-2.php (archive.org link)
Website listed in 10-K doesn’t work
The latest 10-K states: “The Audit Committee Charter can be found on our website at http://www.cxdc.net”. Unfortunately, that website does not work.
For the most part, I couldn’t find the business
In general, I tried to find their actual Chinese website. You know… a website where you can contact sales reps, get product information, arrange product orders, etc. etc. I could not find it. One important caveat: I cannot read or write Chinese and did not search in Chinese on a Chinese search engine like Baidu.
Some footprints of a business???
The best evidence in favour of CXDC comes from a blog post (by a John Sheehy / Koneko Research)… although I’m not convinced about the “media” article that talks about the company. That’s because journalists have names and the other articles on that site seem dubious. Also, that website has less views than a typical post on this blog.
AL Composites Materials FZE (China XD’s Dubai operations) seems to have some job postings at naukrigulf.com (a cursory search through reddit suggests that it is a legitimate job site). However, the job postings don’t make a lot of sense. Let’s take a look at the posting for “Market Intelligence Research Manager of Product Development Centre” (archive.org link)… that job title is strange. Why would a product development centre need market intelligence research?
The Contact Details state that “Chinese XD head quarter is in New York”, which makes no sense.
The Job Description is a laundry list of stuff that barely makes sense, e.g. “Responsible for Product Development Centre market intelligence R&D team, security of capital.” The job posting links to ChinaXD.net, which is a website that doesn’t work and lacks relevant information on the Dubai operations. In comparison, other job postings on the same job site have excellent English and link to business websites.
LinkedIn lists some employees. However, one profile I looked at (Lily He) strikes me as a little strange. The email listed in the profile will never work because the domain is not registered. And her experience lists “Dealing the labour dispute of the company(2016 march help to fire 20 employee in one time);”.
Strange business practices
From the latest 10-K:
we have experienced delayed payments from our ROK customer in 2015. To better manage its financial risk, we ceased supply to the customer for 60 days. The DSO for ROK customer has increased from 55 days for the year ended December 31, 2014 to 107 days for the year ended December 31, 2015. In addition, we purchased raw materials in the amount of US$70.0 million on behalf of our ROK customer during the second half year of 2015, but did not receive all the payment. As of December 31, 2015, the amount due from our ROK customer is approximately US$9.5 million. In the event the payment for raw materials and/or the outstanding accounts receivable become uncollectable despite management’s efforts, we will suffer financial losses and as a result, our plan to develop overseas market may be delayed.
So apparently their ROK customer didn’t pay on time, the company stopped supplying them (presumably disrupting their operations?), and still decided that it is a good idea to lend them $70M by purchasing raw materials on the deadbeat customer’s behalf.
On Feb 17, 2017 the company announced a possible takeover (EDGAR 8-K): China XD Plastics Announces Receipt of Preliminary Non-Binding “Going Private” Proposal
So maybe this will be Yongye all over again. I would encourage you to read their press release. Some highlights:
- The CFO’s email address is “firstname.lastname@example.org”. Interestingly enough, the same email address was listed in one of the company’s contracts on page 34 of EX-10.1 of this 8-K. And it is also the email address listed for Mr. Allan Lao, IR Manager (8-K) and Mr. Tienan Han, IR Manager (8-K). It’s strange that 3+ employees all use the same email address instead of personalized email addresses… and at the same time, that email is also being used for important legal notices. That’s strange for a company that claims to have over a thousand employees on its outdated investor FAQ. Usually with a big company you wouldn’t have all sorts of different communications all being funneled into a single email address.
- Mr. Han has engaged Skadden, Arps, Slate, Meagher & Flom LLP as his U.S. legal counsel. Skadden is a big name law firm. They might be quite serious.
- No details about financing (especially whether or not MSPEA will be contributing more capital), although this is typical for non-binding proposals.
- I can’t remember if I’ve pointed this out on this blog, but almost all going private proposals for Chinese reverse mergers have succeeded.
I am short CXDC. We’ll see if I lose money for a second time.
CXDC Receives An Unfair Buyout Offer When It Is Over 80% Cheaper Than Comparable China-Listed Companies – The Koneko Research blog post mentioned earlier.
xdholding.com, xindaholding.com, cxdc.net, cnxd.net – Domains associated with China XD.
Bleecker Street Research’s piece of CDXC – the Seeking Alpha post that led to a class-action lawsuit.
- One of the commenters, Richard X Roe, points out that many distributor sales contracts were signed around Christmas Day. Look at the 10-K exhibit and search for “List of Material Loan Agreements and Material Business Agreements”. 2012年12月25日 corresponds to December 25, 2012.
- China XD Plastics Refutes Allegations in Seeking Alpha Article (part 1) – PR issued by the company in response.
- China XD Plastics Refutes Allegations in Seeking Alpha Article (part 2 / lengthy rebuttal) – PR issued by the company in response.
Does China XD share its New York officers with “Daehan Investment Trust Co“? I couldn’t verify this.