Qiao Xing Mobile Communication is $137mm company which develops, manufactures, markets, and sells mobile handsets in China under the CECT and VEVA brand names. The company provides its products to mid-income consumers through its own retail stores, national and provincial distributors, TV direct sales distributors, and Internet distributors, as well as through its Website vevago.com. It currently operates six VEVA retail stores in Beijing, and employees 600 people. The company sold $2 million mobile handsets last year.
The company currently trades at a fraction of its net cash value, and has actually done so for quite some time now. Our estimated liquidation value is in the range of $4 to $5. However, liquidation is extremely unlikely as the company’s Chairman (who owns 60% of the company’s shares) would not approve the dissolution of its company. A more likely scenario would be the payment of a special dividend in the future or simply a convergence between the company’s current prices with at least the lower end of liquidation value estimates, which would yield a 160% return.
There are currently no activist investors pushing management to return the cash to shareholders. A notable shareholder is Andrew Weiss, from Weiss Asset Management, who is known for focusing on obscure, illiquid, and sometimes complex investments.
Excessive cash burn is also unlikely, as there have been no material changes on the regulatory environment or operating capabilities that prevent the company from at least breaking even in the coming years. Therefore, the company offers an asymmetric payoff with the odds of a positive return extremely tilted towards shareholders. In the meantime, we continue to wait for a catalyst to unlock this value.
Disclosure: We do not hold any positions on QXM