Saturday, August 1, 2009

Troubled Company: KXD DIGITAL ENTERTAINMENT LTD


As mentioned previously, avoiding bad investment is a important skill to have. I picked a troubled company that still survive and gather the information from its IPO. I had purposely ignored their past results since all IPOs have to show impressive growth to get listed. I shall focused on

  1. Capital allocation - will it fuel more growth, or just for current owners to cash out?
  2. People - trustworthiness, past records of directorship, board strength
  3. Competitive Strength - Sustainable or just a market lagger.

If you have invested the company, I will appreciate if you can share your experience and information too. I shall be looking into more details in future postings. However, as SGX limits reports and information to only 2 years, I can probably only analyze based on what is available.

Company Info:

KXD Digital Entertainment Limited is an investment holding. The Company is engaged in manufacture and sale of audiovisual entertainment devices, including liquid crystal display (LCD) televisions, portable digital versatile disc (DVD) players and DVD recorders. The Company’s operation is located in People’s Republic of China. Its wholly owned subsidiary, Shenzhen KXD Multi-Media Company Limited, is engaged in manufacturing and sales of audio-visual entertainment appliances and devices.

IPO Details:

Shares Offered: 160 million
By Placement: 152.5 million
By Public Offer: 7.5 million
Offer Price per share: S$0.23
Lead Manager: SBI E2-Capital
Commence Trading: 27 October 2003

Net IPO Proceeds: S$33.5 million, to be used as follows:
$8m to support new LCD and plasma screen business.
$4.5m to establish overseas distribution center for DVD products
$2.5m for R&D facilities
$18.5m balance for working capital

Competitive Strength:

  1. We have a competitive cost structure as compared to manufacturers in developed or developing countriessuch as Europe and Taiwan. By designing and utilising our own subsystems in the production of our end products, we achieve greater cost efficiency as compared to other PRC manufacturers.
  2. Our original design manufacturing capabilities enable us to customise, design and manufacture products that specifically meet our customers’ requirements. We are also able to provide a wide range of integrated services and shorten the purchase orderto delivery lead time for our customers as a result of good material procurement logistics.
  3. Since our first export in 1997, we have established a diversified customer base which spreads over more than 20 countries, thus reducing our reliance on any single economy.
  4. Our emphasis on R&D allows us to anticipate and meet our customers’ requirements in a timely manner. Our R&D department is capable of designing approximately 70 new model designs each year.
  5. We have an experienced and motivated management team who is familiar with the international and domestic PRC market, and are incentivised through share ownership arrangements.

Competition

  1. Shinco Electronics
  2. BBK Electronics
  3. Jiangsu Hongtu High Technology
  4. Changzhou Xinqiu Electronics
  5. SVA (group)
  6. Sichuan Changhong Electronics
  7. Amoisonic Electronics

Future Plan

  1. Strengthen our R&D capabilities
  2. Develop new products
  3. Set up service or distribution centers in various countries, such as North America, Western Europe and Taiwan,to enable us to respond to our customers’ queries in a timely manner and keep us abreast of the industry advancement.
  4. Expand the PRC market With the rising consumer spending in the PRC, we intend to expand the PRC market by actively promoting our products through:
    i) participation in relevant industry events and trade shows;
    ii) provision of better service support and engage in relationship marketing; and
    iii) establishment of branches and sales offices in the PRC to provide more efficient pre-sales and after sales services

People

  • Liu Fusheng, CEO and Managing Director since 1999
    Holding Directorships in 6 other companies
    Previous Directorship
    - Shenzhen City Panda Acoustics. Reasons for leaving not known because cannot find information.

  • Gu Wei, COO and Executive Director since 1997
    Holding Directorship in 1 other company

  • Hu Xiaoming, Executive Director since 2003

  • Lai Guanglin, non-Executive Director since 2003
    Holding Directorships in 2 other companies

  • Lee Joo Hai, Independent Director since 2003
    Holding Directorships in 10 other companies
    Previous Directorship
    - Solid Resources Investment. Reasons for leaving unknown.
    - Kingboard Copper Foil Holdings. Reasons for leaving unknown.
    - Lung Kee Metal Holdings. Reasons for leaving not unknown.
    - Teamsphere. Reasons for leaving not unknown.

  • Zhu Kaiying, Independent Director since 2003
    Holding Directorship in 2 other companies

  • No board interlock found


Investment tips:

Further analysis will be made in future posting. However, there seems to be a few issues already based on the IPO. If you have information of this company, please leave a comment of the links so that I can give a more complete analysis. Investment is a learning journey and sharing of information will help everyone. I doubt I can find annuals before 2 years ago as SGX only allow for 2 years.

References:

  1. IPO Prospectus
  2. IPO: KXD DIGITAL ENTERTAINMENT LIMITED:: SBI E2-Capital brings a new Chinese listing to Singapore that appears to be riding the popularity of DVD systems to explosive growth...

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