XDL - rollar coastal

Based on rm0.30, XDL is trading at only 4.23 times of its annualised net profit of rm49.8 million in FY2013 ended Dec 31. Also the company has rm170 million in net cash or 23 sen per share as at Sept 30 2013.

Its earnings took a beating in FY2013. For the third quarter ended Sept 30, its sales volume nearly havlved to 800000 pairs from 1.4 million pairs in the previous corresponding period. Consequently its quarterly net profit contracted to rm13.2 million.

Its net profit for the nine months ended Sept 30 fell 92% year on year to rm37.36 million. The company attributed to its weaker earnings to higher costs and intense competition sparked by a glut of sports in China, which is its main market.

Looking ahead (Jan 2014) the company is targeting a rm10 million to rm20 million boost to its profit for FY2014 with its venture into the Malaysian market through a partnership with Universal Fitness And Leisure Sdn Bhd. Even with the more conservative estimate of rm10 million it is still a 20% boost to its profit. With that estimate earnings, the company is valued at only 3.52 times forward earnings.

The management also stated that it expects sales to rebound in 2HFY2014 as inventories begin to clear up.

Notably Malaysian listed Chinese companies tend to trade a a steep discount due to poor investor sentiment.

Abroad valuations for shoesmakers are much higher. HK listed Anta SPorts Products Ltd is valued at 18 times earnings. China listed Beijing Toread Outdoor - A is valued at 33 times.

Last week saw the is stock price hit by massive short selling causing its share price to plunge 54% to rm.300.

To recap, the rallyon XDL share price from rm0.27 to 0.63 since Dec 2013 has presented opportunity for traders to make quick profits, given that the company's rights issue was priced at rm0.35. The righs issue comes with bonus shares and free warrants All in, the cost of each share they receive is actually less than rm0.25.

Despite sitting on large pile of cash, XDL undertook rights issue. It issued 241.9 million new shares under its cash call, which is sweetened by free warrants plus 181.49 million bonus shares.