China Growth Stocks

[viking86]

TSTC: some of their A/R (the ones related to "integrated projects") is by contract not collectable within the first 24 months b/c some of the A/R is withheld for free project maintenance services for the first 24 months of installation. So if a new auditor treats all A/R's that are older than 24 months as "bad debt", there may be some legitimate disagreement by Mgmt b/c those A/R are usually paid after the 24-month period is over and thus cannnot be written off as bad debt.

In his letter to shareholders of 3/11/11, CEO Han explained in details the way service and equipment contracts are signed with the Big 3 (it used to be Big 4 before 2008) and why most payments by the Big 3 which account for 99% of 2010 revenue usually take a year or more. As they do more WFDS projects with non-Big 3 parties in the future like the Houston hospital and the High Speed Rail project, they hope to get payments in shorter time. But in the past the Big 3 have always paid all their A/R with no write-off.

Another argument against the case of TSTC being a major fraud is the $44MM line of credit that Bank of Beijing has granted them.

The average cash collection cycle for integrated projects is generally longer than 365 days, because most integrated projects have a portion of final payment with an average 5-10% of the contract value, which is payable at the end of a 24-month period of free project maintenance.


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