China XD Plastics: When The Numbers Don't Add Up, There's Over 80% Downside


  • CXDC reports substantially margins higher than its main competitor, yet spends much less on R&D.

China XD Plastics Company (OTC:CXDC)

China XD Plastics is a Chinese specialty chemical company which is engaged in all phases of the production of plastics, which are mainly used for automotive uses, and sells to mainly the Chinese end-market.

CXDC entered the US public markets through a reverse merger, a method that many fraudulent companies have previously used. Below is a summary of what we have found researching CXDC.

  • Reported profit margins 200% higher than its larger and better funded competitor Kingfa.

CXDC's Gross Margins Are Substantially Higher Than Its Much Larger Competitor

CXDC has incredible gross margins, if you believe them. CXDC's main publicly traded competitor is Kingfa, which trades on the Shanghai Exchange. Kingfa is mentioned in CXDC's 10-K as well, the 10-K reads:

Currently, Xinda Group's primary Chinese competitor in the automobile industry is Guangzhou Kingfa Science & Technology Co., Ltd. ("Guangzhou Kingfa"). Guangzhou Kingfa entered the automotive modified plastics market in 2006 and its facilities had an annual manufacturing capacity of 375,000 MT for its modified plastics products used in the automobile industry at the end of 2012, according to the research report by Frost and Sullivan. Guangzhou Kingfa has the largest capacity expansion plans and was expected to expand to 1.06 million MT by 2015 according to Frost and Sullivan's report, but its utilization rate of production capacity is expected to be lower than that of China XD based on Frost & Sullivan's report. Guangzhou Kingfa has much larger financial resources than Xinda Group. However, we believe that it currently holds fewer number of product certifications for automotive modified plastic to the automobile industry compared to Xinda Group. Another top domestic manufacturer of modified plastic is Shanghai Pret Composites Co., Ltd. ("Shanghai Pret"), which focuses on the production of automotive plastics. It had an annual capacity and sales volume of 120,000

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