Oriental Gardens: Earning quality, valuation and the investment idea of the fund

Huagang Fish, Qu Feng, is my favorite to go to the park when I was studying at Zhejiang College. To change scenery, winding path, to the people suspense, to the people of Lenovo and surprise, everywhere contains the Oriental garden design thought deep.　　I was curious to see that some people questioned the quality of Oriental garden's earnings and the level of valuations, and saw some people questioning the fund's speculation of Oriental Gardens.　　Oriental Garden: What is the quality of earnings? Chart 1 Reports some of the financial data for Oriental Gardens in 2009 and at the end of the three quarter of this year. 2010 years ago, three quarters, for example, the operating activities of the Oriental Garden Net cash flow is-327 million yuan, that is, Oriental garden sales received cash than procurement and other expenditures of less than 327 million yuan, but its net profit is 175 million yuan.　　The difference between the two is that the non-cash surplus in Figure 1 is $502 million! What does this difference mean? As I pointed out in a series of previous articles, if the receivable does not change, the sales income will be equal to the cash received, and if the inventory and payables are unchanged, the cash paid by the purchase will be equal to the sales cost and the profit will be equal to the net operating cash flow. Conversely, if receivables increase, that means sales income is greater than cash inflows, that is, a part of the sales revenue is on sale revenue; If the inventory increases, some of the procurement is not sold, the cost of sales will be less than the current period of procurement, the profit will tend to rise;　　This period of sales costs less than the current period of procurement, will lead to increased profits, operating cash flow down. As we analyzed, at the end of the three quarter of 2010, relative to the end of 2009, the Oriental Garden accounts receivable increased by 213 million yuan, the inventory increased by 449 million yuan, deducted from the increase in the payment of 29.6 million yuan and the advance receivables increased by 8.22 million yuan, operating capital net increase of 624 million yuan!　　The proportion of non-cash surpluses is 124.28%.　　This result has two meanings: first, Oriental Garden's surplus quality is indeed not high, Oriental garden in the first three quarters of the profit, 100% did not turn into cash, to accounts receivable, inventory and other forms of operating capital exist, so there is a greater risk of liquidity, surplus quality can be high where to go? Second, the Oriental garden can not be excluded through the early recognition of income, the postponement of the confirmation of sales costs to increase profits suspicion! In addition, the November 29, 2010 Eastern Garden of the right to back the stock price reached 337.8 yuan, relative to the listing after the first day of the closing price rose 189.96%.　　In other words, Oriental Gardens have the pressure to raise surpluses to maintain stock prices, and there are signs of earnings management that must be vigilant to investors. Of course, Oriental Garden implementation of the "Urban landscape system integrated service provider" development strategy, and Oriental garden this year has been in the hands of a number of cities of the total price of 5.213 billion yuan contract, can provide an explanation for its performance growth. However, investors still need to pay attention to, first, some of the project contract or intentionality, the Oriental Garden Bulletin did not disclose the expected duration of information, engineeringThe construction contract has not been signed, so there is still some uncertainty.　　Second, even if there is no significant uncertainty in the project, because there is no cash inflow to confirm that these sales revenue has been achieved, the contract itself can not exclude the suspicion of Oriental garden surplus management.　　is the valuation of Oriental gardens on the high side?　　We can analyze the valuation level of Oriental garden from two aspects. First, the Oriental Garden November 29, 2010 Close of the P/E ratio of up to 200 times, which means that we pay 200 yuan to buy Oriental Garden 1 yuan profit, investment yield is only 1%, to more than 200 years to recover investment, investors in the heart of sureness?　　And this price-earnings ratio level, in the Shanghai and Shenzhen Cities, the SME board and the gem All companies, is located in the highest 10%, that is, Oriental garden is a share market the most expensive 10% of the stock. Second, one reason for the overvalued value of Oriental gardens may be its high growth. We might as well analyze the influence of the growth of Oriental garden on its stock price. If the average return on net assets in China is 10%, it means that we spend 1 yuan on the future 0.10 yuan of profits, the return on investment is 10%, the P/E is 10 times times, that is, the P/E ratio is roughly 10% times the average rate of return is 0 and the growth rate is 10 times. 2009 Oriental Garden reported earnings per share of 2.28 yuan, after the right to return per share of 0.57 yuan, if the Oriental garden does not grow, according to 10 times times P/E, the stock price is roughly 5.7 yuan, and November 29, 2010 The closing price of the stock is 112.4 yuan, the growth of the prices for 112.4-5.7 = 106.83 yuan, the percentage of share price is 95.04%. Or, we pay the price, 95% is the purchase of Oriental Garden future performance growth! Will Oriental Gardens be able to maintain long-term high performance and high growth? Will sustained high performance attract significant capital inflows? Will it lead to increased competition? Does Oriental garden have enough core competitiveness to keep competitors out of the market, so as to ensure long-term stable high performance and high growth?　　Among them, there are too many uncertainties, the author's analysis, perhaps for investors to refer to.　　Does the fund really represent the interests of investors? The higher the stock price, the higher the return on the investment rate or lower? Many investors sometimes muddle around here. Here we can look at a simple example, assuming that the market only John and our two investors, only one stock. As shown in Figure 2, assuming that last year John Press 10 Yuan, the stock price is expected to be 30 yuan after 1 years. Now John the stock to us, if the price is 20 yuan, John's investment return rate is 100%, we estimate the return on investment is 50%.　　If the price is 15 yuan, the investment return rate of John is 50%, and we expect the return on investment to be 100%. In summary, the higher the current stock price, the lower the expected return on investment in buying a stock, and the higher the return on the investment of the selling stock, our wealth will be transferred to the selling stock。 Here I would like to remind investors repeatedly, buy stocks, investment, is the current cash to exchange for future cash, the higher the price we pay, the lower the rate of return on our investment!　　For those stocks with high valuations, be careful before you order! However, the fund managers entrusted by the Fund investors to manage the fund, the next single seems not prudent! From the chart 3来, in the 2010 quarter, two quarter and three quarter, the average stock price after the Oriental garden is 49.29, 73.31 and 99 yuan respectively, which means that in the first quarter, the two quarter to the three quarter increase in the Oriental garden stock, the expected return on investment will fall.　　But we observed that the number of Oriental Gardens held by Yifangda and Guangdong's 5 funds showed a significant increase, and we also noticed that the Star joint venture fund Morgan was in the same period in the reduction of Oriental garden, which means that Morgan is anxious to achieve relatively high return on investment. As for Yifangda, whether or not in the Oriental garden, we do not comment on this, however, the data shown in Figure 3 really tell us: first, Yifangda, GF and other fund management companies and investment Morgan and other joint venture fund management companies, in the Oriental Garden of the stock on the idea of investing is very different.　　The former in the high price, high valuation of the background of overweight and the latter reduction, is reflecting the difference between the two ideas of investment. Second, as we have analysed in Figure 2, in the Oriental garden valuation is obviously high, at a high price of the background overweight, reducing the investment fund's expected return on investment, this means that Yifangda, Guangdong and other investment funds, and not well represented the interests of the fund investors?　　Does that mean there is a conflict of interest between the fund managers and the fund investors? Third, we can not help but Lenovo, Oriental Garden is also suspected of the pressure to engage in earnings management, at the same time, YIFANGDA and GF investment funds in overweight, this is coincidence, or tacit understanding? I do not dare to speculate, leaving the readers of wisdom to read it. Illustration/刘飞 (author is professor of Central University of Finance and Economics)