China XD Plastics: Management's Buyout Is Woefully Inadequate

Jason Cooper, CFA profile picture
Jason Cooper, CFA


  • On February 16, 2017, a "Buyers Consortium" consisting of the firm's Chairman and CEO, Mr. Jie Han, and Morgan Stanley Private Equity Asia III submitted a non-binding proposal for acquisition.
  • The offer of $5.21 per share materially undervalues this security. The offer was also made prior to significant disclosures of investment in new facilities.
  • Using public releases and statements made over the earnings calls, I attempted to show what the revenue and net income of CXDC could be by 2021 when investment is complete.
  • I find that the fair value of CXDC could be as high as $58.32 per share using, what I believe to be, conservative assumptions.

China XD Plastics Company (CXDC) engages in the research, development, manufacture, and sale of modified plastics, primarily for automotive applications in China. It currently has three plants in Harbin with a production capacity of 390,000 metric tons, one in Sichuan with a production capacity of 300,000 metric tons, and a plant in Dubai with a nominal production of 3,000 metric tons with production expected to rise to 25,000 metric tons by the second quarter 2018. The aim of the company is to move up the value-added chain of modified plastic products and to diversify into 3-D printing, biodegradable, aerospace, high-speed rail, and medical equipment plastics. They also aim to sell their goods to companies outside of China and are currently in the process of developing relationships with companies in Germany, France, and South Korea. They already have an international customer in South Korea.

Timeline of 2017

Recent events cast a pall over the security. On February 16, 2017, the Board of Directors (the "Board") received a non-binding proposal letter from the "Buyers Consortium", which is comprised of CXDC's Chairman and CEO, Mr. Jie Han, and MSPEA Modified Plastics Holding Limited, an affiliate of Morgan Stanley Private Equity Asia III, to take the firm private at a price of US$5.21 per share. The Buyers Consortium currently beneficially owns approximately 74% of the issued and outstanding shares of common stock of the Company on a fully diluted and as-converted basis, with Mr. Han controlling 33,510,131 outstanding shares (source) and MSPEA controlling 16,000,000 shares that can be converted from the $100M investment that the firm made in 2011 in redeemable convertible Series D preferred shares (source). The "Going Private" transaction would be overseen by an independent special committee established by the Board. The independent special committee was headed by Lawrence W. Leighton, an established American

This article was written by

Jason Cooper, CFA profile picture
Jason is responsible for investment research on the firm's core holdings and assists in portfolio management. He passed the three CFA examinations in a three year period and is currently a member of the CFA Institute and the CFA Society of New York. He is also a member of The ANALYST, the oldest securities analysis club in the United States, which was co-founded by Benjamin Graham, the father of securities analysis. Jason joined Stuyvesant after graduating Cum Laude from Cornell University, where he completed both pre-med requirements and earned a BS in Animal Science.

Disclosure: I am/we are long CXDC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: My firm, Stuyvesant Capital Management Corporation, has invested funds for our-self and our clients in this security.

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