Qian Feng Fabric Tech

Business Description

Qian Feng Fabric Tech Limited is engaged in the production, dyeing and post-processing treatment of synthetic knitted fabrics. The Company produces fabrics with functionalities, such as water-resistance, fire-resistance, chlorine resistance, and Ultra-violet (UV) protection, moisture wicking, anti-static, anti-mildew and anti-bacterial properties. Fabrics that it produces are used in a variety of products, such as casual wear, sportswear, shoes and bags. On February 3, 2008, the Company completed the acquisition of Fujian Jiamei. In July 2009, the Company announced that it has transferred its 100% interest in wholly owned subsidiary, Fujian Jia Mei Textile Co., Ltd to Qianfeng International Co., Ltd The Company also announced that its wholly owned subsidiary, Mega-Gain International Co., Ltd has transferred its 100% interest in capital of Fuzhou Jimei Textile Co., Ltd to Qianfeng International Co., Ltd. For the nine months ended 30 September 2009, Qian Feng Fabric Tech Limited's revenues decreased 33% to RMB223.8M. Net income decreased 50% to RMB42.6M. Revenues reflect a decreased in income from sales of luggage & bag fabrics and garment & apparel fabrics segment. Net income also reflects an increase in selling & distribution expenses, higher finance expenses and decreased gross & operating margin.

Revenue breakdown by products

Garment and apparel fabrics – 51.7%

Shoe Fabrics- 25.1%

Luggage and Bag Fabrics- 14.3%

Other Fabrics- 8.9%

Qian Feng Fabric Tech part 1

In general under value investing there are 2 types of stocks, Cigar Butts and Buffett stocks. Cigar Butts, named by Benjamin Graham the father of value investing, are companies that are so cheap that they are worth more dead than alive. Their liquidation value being more than their market capitalization. Warren Buffett explains it as “If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the "cigar-butt" approach to investing. A cigar butt found in the street, which has only one puff left in it, may not offer much of a smoke, but the bargain purchase will make that puff all profit."

Buffett Stock, named after Warren Buffett the greatest student of Benjamin Graham, is one of those rare companies that have an unassailable competitive advantage. These companies usually are the monopolistic dominant companies in their industry (Microsoft, Straits Times), or have a worldwide trademark (Coca Cola, Macdonald), or is the lowest cost competitor (Wal-Mart). Usually, their competitive advantage keeps getting stronger. Usually, one would buy these type of stocks when they are moderately priced and hold forever unless the economics of the business has changed or they are very over priced.

Recently I bought stocks in Qian Feng Fabric and I would list it as a Cigar Butt stock. Currently, Qian Feng has a market capitalization of US$ 28 million, and debt of US$ 6.1 million. But Qian Feng is sitting on cash reserves of US$ 41.7 million. This means that if I were to liquidate Qian Feng, after paying back all its debts and buying back all its stocks, I would still have an extra US$ 7.5 million.

Of course, nothing is certain in life and even less so in investing. Many things could go wrong, the company may not survive, the management could misuse the cash on bad investment, textiles have a bad economics or the stock price could remain very low for a very long time. Indeed, last year sales have fallen by more than 40% mainly due to the economic crisis. But I am confident that the company even though it may not prosper, will at least survive. Even though sales have fallen, Qian Feng still makes a profit, and has a positive cash flow.

Record of my though process

I have decided to open a blog to document my though process as I choose stocks to invest in.

My Dad and my Mum have agreed to invest $5,000 and $1,000 respectively for me to invest, and I am very grateful to them for that. Hopefully, I will not lose money and even obtain a reasonable return for them.

Also hopefully, I can bounce stock ideas off my readers, if there are any.

Letter to Investor, 1st Q 2010

To my partner (father):

In my first letter, I want to address three concerns that you and I may have; the expectations, my method of operation and results.

Expectations

It is in the nature of investing that there will be good years and bad years. So how can you judge whether my results are satisfactory? To avoid the problem of drawing the bull’s eye after I have shot the arrow, I have decided to set my yardstick at 10% above the Straits Times Index (henceforth known as STI). Thus, if the STI increased by 20% my goal would be 30%, and if the returns for STI drop to -20% my goal would be -10%. Historically the STI has grown by about 10% annually, and if everything goes according to plan you would expect returns of 20%

You may have concerns that I maybe setting an overly low yardstick for myself. Your concerns are very valid, but please consider the following. On 5^th March 2010, Wall Street Journal report that the best 3 records in funds management over the last 45 years are Warren Buffett at 20.3%, Fidelity Magellan Fund at 16.3% and Templeton Growth Fund at 13.4% a year on average. 2/3 of the investment funds average returns of less than 10%.

Now, you may wonder why I choose to measure my result relative to STI. This is because a) I believe that a better relative result will lead to a superior result overall b) You can compare my stock picking skills to chance and the general Singapore stocks c) I will have an excuse in bad years.

Method of operations

However, I cannot promise you results. Nobody truthfully can. But, I can promise you is that

(a) Our investments will be chosen very carefully on the basis of value and not on popularity

(b) That I will attempt to bring risk of permanent capital loss to an absolute minimum by obtaining a wide margin of safety if our investment.

In buying stocks, I have the following four criteria.

1) I must be able to understand the business.

2) The business must have a sustainable competitive advantage that makes life difficult for their competitors’.

3) I admire and trust the management.

4) Then finally the stock should be selling at a reasonable price.

Results

This is the stocks we hold at 31^st March 2010. In Singapore Dollars.

Chin Partnership STI

1^st Quarter 2010

Holdings	Average price bought	Market price
Challenger	2,700	3,015
Adampak	960	1,020
Yangzijiang	1,230	1,130
Total	4,890	5,165
Change		5.62%

Partners Investment Percentage

Dad $4,890 100%

Our holdings have increased by 5.62% for our first three months. Although I feel that we have done well for our first quarter, please keep in mind that three months or even one year’s results are not to be taken too seriously. Short periods of measurement exaggerate chance fluctuations in performance. While I have done well in the first quarter, there are bound to be periods, where I do badly. My unscientific opinion is that 5 years is the absolute minimum when an investment result can be determined

So, it comes to the end of my first letter to you. If there are any questions, feel free to let me know.

Sincerely,

Chin Yee Hong

祝合夥人（爸爸）

在我第一封信中，我要向您解说 三件你可能有的疑问；期望，我的运作方式和成绩。

期望

我的投资成绩坑定会有理想和不理想的时候。哪，您怎么能判断什么样的成绩能让你满意？为了不会有先射箭后画射帖的毛病，我事先把我的投资目标放在批新加坡海峡时报指数（从现在起叫成《海峡指数》）高10%。如果海峡指数增加20%， 我的目标是增加30%。 如果海峡指数掉20%，我的目标是掉10%。海峡指数每年平均会增长10%，哪假设一切都根据计划您会有20%的回报。

您可能会担心，我把投资目标放的太低了。您的关心是正常的，但您先注意以下这一点。在三月三日2010年，华尔街日报报道，在近45年里，投资成绩最好的前三名是，沃伦·巴菲特在20.3%，麦哲伦投资基金在16.3%和邓普顿投资基金在13.4%。2/3投资基金的回报都达不到10%。

您会问为何我会选着把我的成绩跟海峡指数相对。这是因为a)我相信相对好的成绩会造成绝对好的成绩b) 您可以把我选股票的技术更运起相比c)我在不理想的年里有借口。

运作方式

但是我不能向您保证一定会有20%的回报。说实话，没有人真的可以。可是，我能答应你的是

(a) 我们的投资会被经过仔细的精选。我会考虑投资的价值而不是投资的欢迎度。

(b) 我会在投资时要求广阔的安全程度。把永久资本损失的风险降到最低。

在买股票时，我有以下四个票准。

1） 我必须能了解那份生意。

2） 那份生意必须拥有让对手日子难过的可持续竞争优势。

3） 我敬服和相信管理部门。

4） 最后，那份生意的股票必须要在有理的价钱出卖。

成绩

这是我们在三月三十一日2010年，拥有的股票。

Chin Partnership STI

1st Quarter 2010

Holdings	Average price bought	Market price
Challenger	2,700	3,015
Adampak	960	1,020
Yangzijiang	1,230	1,130
Total	4,890	5,165
Change		5.62%

Partners Investment Percentage

Dad $4,890 100%

虽然我觉得我们在前三个月的表现很不错了，可是请记住不要对读三个月或一年的表现太过认真。短期的衡量很容易夸大偶然表现的漲落。我肯定会有表现不好的时候。我的不科学意见是，5年是个投资成绩能被判断的最短期限。

哪，这里就是我对您写的第一封信的结尾。如果有问题请问我。

陈奕宏