Chimin Sang

Is Lihua International Cooking Its Books? Part III

Hi Steve,

The most recent Lihua's report does fix one problem that I had pointed out about ASP. Their prospectus was not clear in indicating the sales of 'CCA wire' include 'CCA wire and copper wire'.

That being said, my suspicion on Lihua is not off. All my other points are still valid, including the inconsistencies of CEO's claim on revenue, discrepancies in its transaction amount with Fushi, and AR days/AP days unrealistic in this industry.

Such short AR days (DSO) is really striking. With the wire business gross margin 30% and copper rod business margin 10%, such low DSO is making this business super lucrative. Do you want to believe such a company exists in a commodity business in China with hundreds of competitors if not thousands? Your call.

I would suggest you talk to companies in this field in China if you are serious. You can find many of them through alibaba.com.


On Nov 18 10:09 AM Steven R. Chapski wrote:

> Mr. Sang,
>
> I would like to know your response to LIWA's 3rd quarter 10-Q filed
> on Monday, November 16. In the 10-Q, the company indicated that CCA
> wire sales that you noted are actually CCA and copper wire sales.
> On page 36 of the 10-Q, they indicate that the average price per
> ton for CCA wire was $6,475 and $6,741 for the three months ended
> September 30, 2009 and June 30, 2009, respectively. These figures
> seem to refute your claim that there is "significant difference of
> CCA unit sale price between Lihua and Fushi."
>
> Thanks,
> Steve Chapski

Is Lihua International Cooking Its Books? Part III

xzhou,

Thanks for your information. I have other similar information I have not included in my articles, which are focused on accounting analysis.

If you are interested in contacting me personally, forward your information through contributor relationship of seekingalpha. Thanks.

Is Lihua International Cooking Its Books? Part II

My final addition to this article to quantify how high the CCA sell price can possibly be.

en.smm.cn/shtoday_pric...

This site lists the oxygen free copper wire price in China, which should set the ballpark of the upper limit for CCA wire, knowing that copper is 3 times more expensive than aluminum, and CCA is used as a cheaper substitute for copper wire.

The site shows the current oxygen free 3mm copper wire is 51450 RMB/ton, equals $7,566/ton. After assuming a generous 30% margin for the drawing, the upper limit for fine copper wire, a superior product to CCA, is $9830/ton. The enamelled wire has maximum at $11,023/ton.

How can the CCA per ton price higher than $14,360/ton remains a big question.

Is Lihua International Cooking Its Books? Part II

Bump5,

My analysis did not involve any engineering knowledge, no derivatives or integrals. All of the analysis is accounting.

If I had posted this article after you sold your long position, you would not be the one here to complain, would you? You would be the one here laughing your ass off for the poor long holding your LIWA share at a higher price, wouldn't you?

The overall social value created by this article to save the loss from the potential fraud by this article is on the order of hundreds of millions of dollars. I am getting a tiny tiny portion from the social value created, how wrong am I?

Sorry that you happen to be the last fool, but that is the game you have chosen. Being an investor, you were not responsible for your own investment by not doing enough homework.

Is Lihua International Cooking Its Books? Part II

User 344233,

Look, if I am wrong, I am the one to lose, and you are the one to gain. Is it fair?

Is Lihua International Cooking Its Books? Part II

Thanks to Bill Simpson and "Big Boss". Your following is encouraging me.

It is hard to have to come to the conclusions that I had, but numbers do speak for themselves. I feel sorry for my fellow Chinese if this proves to be accounting fraud. I hope innocent investors get less hurt with this article.

Is Lihua International Cooking Its Books? Part II

Stockgod,

You seem not able to understand how a business works and how to reading financial statements. Your lack of knowledge can be fixed by visiting this definition: www.investorwords.com/...

According to your logic, Enron was really a nice company before 2000 -- their stock price rose to as high as $90. Would you like to understand what 'brutal' means? Hold on to LIWA.

Is Lihua International Cooking Its Books? Part II

Stockgod,

This article is meant to be brutal because this company has been brutal to the secondary market investors.