Background

Xingquan International Sports Holdings Ltd ('Xinquan') is involved in the manufacture of shoe soles; outdoor & indoor sports & leisure shoes; outdoor & indoor sports & leisure apparels & accessories.

Recent Financial Results

The results for the 6-month ended 31/12/2009 shows that Xinquan's net profit increased by 20% from RM45.1 million to RM53.9 million, while turnover increased by 53% from RM204 million to RM311 million. I have appended below the results for FY2006 to FY2009 for your perusal. We can see that Xinquan recorded a net profit (before translation forex gain) of RM93.0 million for FY2009. This translates to a full-year EPS of 30 sen (based on issued share capital of 307.33 million shares).


Table: Xinquan's results for FY2006-9

Valuation

Xinquan (now trading at RM1.22) has a PER of 4.1 times. Based on its strong earning growth over the past 3 years (averaging about 90% over 3 years or 41% in the past year alone), Xinquan's low single-digit PER means that the stock is very attractive.

Technical Outlook

From the chart below, we can see that Xinquan has just broken above its downtrend line at RM1.18-20. This breakout could mean that the stock may either move sideway (instead of sliding further) or enter into an uptrend.


Chart: Xinquan's daily chart as at Mar 12, 2010_4.00pm (Source: Quickcharts)

Conclusion

Based on good financial performance, strong earning growth, attractive valuation & positive technical outlook, Xinquan could be a good stock for medium-term investment.
(Warning: Despite the above positive comments, we must be cautious taking long position in Mainland Chinese stocks due to the high incidence of accounting irregularities.)