China Growth Stocks

[viking86]

TSTC: yes, amazing it's at $10 today, a 50%+ drop within a few weeks on otherwise stellar Q3 results and outlook for Q4 and 2011. I think the continually high A/R plus the recent (tiny) raise was exploited by shorts and fear mongerers to trigger the selloff. If high A/R was really a concern here, this company would have gone out of business long ago since its DSO has always been high over the 13+ years it has been in business. Also, it would not have got the $40MM LOC it recently got from Bank of Beijing if that were a major concern.

Honestly, I dont think the A/R issue will go away any time soon. Although the DSO will decrease some in coming years as the sales mix shifts to a higher % coming from WFDS (see article below), high A/R's is not a TSTC specific issue. It's a sector issue as that's the way business with the big 3 is conducted, as explained by Richard Wu (VP of finance) in the recent CC:

First, I would like to discuss the schedule of our company’s accounts receivable. Many investors have been concerned with the company’s high level of accounts receivable. For instance, our Q3 accounts receivable amounted to approximately $134 million, which represents 280 days’ sales outstanding. This level of receivables is related to the purchasing patterns of our customers. It takes our customers about three months to approve their budgets for the new calendar year, plus another three months for construction to take place. Once construction is completed, we expect our days’ sales outstanding to average about 180 days, which is typical in China.

Our three largest customers, China Mobile, China Unicom, and China Telecom, are large state-owned entities that clearly have a high degree of creditworthiness. To-date, we have not experienced any significant write-downs or increases in bad-debt provisions.

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=57564283