Thanks YiStock for such a very detail analysis. From the color of the report, I know which IB you are referring to who always give over optimistic TP for stock that they want to promote and sometimes (not all the time) provide unfair/unprofessional analysis for stocks when they want to downgrade. It happens to tomypak as well where I laughed when the report said that the reason of downgrade because they doubt the sudden surge of the profit margin. In fact nowadays, I am really in doubt the accuracy of the IB report as they are just too many misleading reports cases.
Onshore Foreign Currency Loan (OFCL) is a short term foreign currency loan available for exporters and importers. The unique features of OFCL is that companies need to repay the loan in foreign currency upon maturity. Companies preferred OFCL due to the cheap financing cost.
For exporters in foreign currencies, this is not an issue due to natural hedging bcoz their export proceeds will be in foreign currencies and thus will be able to repay the foreign currency loan upon maturity.
For importers, the risk is higher if they do not have foreign currency proceeds to repay the loan and they will incurred foreign exchanged losses if the foreign currency appreciated. This risk can however be mitigated by entering into a foreign exchange contract.
As for Tguan, they are exporting in USD, thus there is no added risk as they are able to naturally hedge their position. The risk will only come in if they finance more than their foreign currency export proceeds. Even that, Tguan can always hedged their position under foreign exchange contract.
OFCL financing in USD is presently very cheap at a cost of less than 2 % per annum.
Thank you for the great research! Have certainly learned a thing or two. I have read through the downgrade report, the analyst is comparing Tguan to low margin film manufacturers. But last 2 quarters showed increasing gross profit margin for its plastic products. The donkey analyst doesn't appear to appreciate that Tguan expansion is not only generating higher revenue, but higher margin as well.
An excellent insightful report. Thank you very much Yistock. You are indeed very good comparable to icon8888. Please write more of such reports to educate us and we really appreaciate your fine works.
For Yistock, Your report is excellent; not only you provided details analysis on onshore foreign currency Loan but also helps us to see how investment bank reporting may not be correct in the true sense. I eally enjoy reading your article. Please write more to enight us. Thank you.
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Posted by Jeffbkt > 2016-02-06 13:02 | Report Abuse
Thanks YiStock for such a very detail analysis. From the color of the report, I know which IB you are referring to who always give over optimistic TP for stock that they want to promote and sometimes (not all the time) provide unfair/unprofessional analysis for stocks when they want to downgrade. It happens to tomypak as well where I laughed when the report said that the reason of downgrade because they doubt the sudden surge of the profit margin. In fact nowadays, I am really in doubt the accuracy of the IB report as they are just too many misleading reports cases.