First, in regard to the news on July 24, 2007: we initially learned of this delayed filing back on July 2, 2007 - the main point of the news release on the 24th was to inform shareholders that, according to relevant SEC/NYSE rules, the company could be subject to enforcement action, suspension, or de-listing of its shares.
For those that have been involved in CYI for more than six months, please remember we have seen this scenario the past two years as well. CYI was late in filing their 2004 Annual report and filed it on July 14, 2005. CYI was late in filing their 2005 Annual report and filed it with the SEC on August 7, 2006.
Now, if I may, comment on the overall delay in KPMG Singapore completing its annual review: We all know CYI changed independent auditors on December 12, 2006 (from KPMG Hong Kong to KPMG Singapore). Investors should be aware that KPMG cannot just "send over the CYI file" from the Hong Kong office to the Singapore office. The new office (KPMG Singapore) must begin from scratch from January 1, 2006 to conduct its formal review.
The personnel now working on CYI for KPMG Singapore ARE NOT ALLOWED to interact with the previous auditors of KPMG Hong Kong. If they did... the annual audit certainly would not be "independent." This is the primary reason for the extended delay. Now...should CYI executive management have waited until after December 31, 2006 to change independent auditors? For all investors concerned...ABSOLUTELY!! Should CYI have notified both offices (earlier) that a change would be taking place and the new office could have begun its work...YES INDEED!!
On a side note here I should add that the Chinese executive management team (Mr. Yan Ping) would never allow a de-listing. CYI was the FIRST (or second) Chinese company to list on the US financial exchanges back in December 1994. The Chinese (State Holding Company) consider this listing to be a mark of prestige and honor in China; and they currently do not appreciate (CYI management's) continued delays. Again, please remember the State Holding Company/Coomber/Yulin City Municipal Government is the second largest holder of CYI with an 18% stake - 6,708,180 million shares.
There have been numerous questions about the valuation of CYI's "investments" (as Mr. Philip Ting now classifies them) Thakral and HLG Enterprises. I spoke with the financial controller of Hong Leong Asia (Mr. Ho Mang Chan) on Thursday evening to confirm these numbers (they are also found in HLA's March financial report):
CYI owns 36.7% stake in Thakral (not including convertible bonds - I asked Mang Chan as to why they are not included and he commented that only the ordinary shares are used in HLA's financials) which equals 898,990,352 shares.
Last Friday’s closing price (for these calculations) was S$0.18. This equals S$148,333,408.1 Converting to US$ this equals US$97,928,991.12
CYI owns 45.42% stake in HLG Enterprises which equals 387,614,839 shares (not including the convertible preferred bonds).
Last Friday’s closing price was S$0.52. This equals S$201,559,716.3
Converting to US$ this equals US$133,066,253.52
Together these 2 stakes are worth approximately (in US$) 230,995,244.6 which breaks down to US$ 6.20 per share.
Now using the cash on the balance sheet (from the unaudited annual report on February 27, 2007) of 95,526,000.00 this breaks down to US$ 2.50
Cash and investment stakes now equal US$8.70
Friday’s closing price of CYI: US$ 9.39
How would you like to purchase a majority (76.4%) interest in China's largest independent diesel engine maker that will earn close to $US1.00 and generate $US 1.0 billion in revenue for 2007 for US$0.69? As I mentioned in my above shareholder activist letter..."Hello?...any private equity firm out there listening? Any interest in a tangible and profitable business in the fastest growing GDP country on the globe?....Hello...Carlyle...TPG...Warburg Pincus...Apollo...anybody listening?"
So how is Yuchai's business performing so far in 2007? As CYI (Singapore based management) still continues its charade of delays, we have our colleagues at Zacks.com to thank for Yuchai's outstanding first half 2007 results.
And wouldn't you know it... these results were released the same day that CYI released its 6-K.
I should alert investors that I did receive correspondence from CYI and Mr. Philip Ting on Friday, July 27, 2007. You may view their official letter to me here (.pdf).
Now here's a question for all to ponder....has Yuchai's diesel engine business declined 22% since July 24, 2007? The markets truly are inefficient!!
DISCLOSURE AND DISCLAIMER
Peter A Delgado II is the Principal and owner of Threshold Capital Corp, a state Registered Investment Adviser in the State of New Jersey. Threshold Capital Corp and its clients currently hold a position in China Yuchai International, Limited and plan on holding that position through the Company’s Annual meeting. The above commentary represents the opinions of Peter A Delgado II and Threshold Capital Corp and in no way constitutes a solicitation of business or investment advice. It is intended solely for informational and entertainment purposes of the reader and the author.