Tuesday, February 01, 2011

China Gas purchased #2

Following an announcement from the company providing an update on the investigation following the arrest of the managing director and executive president, I decided to buy more shares in China Gas (HK:384) this morning. Purchase price was HK$2.90 per share.

The announcement has provided sufficient clarity (IMHO) in that:

1. definitive action has been taken or is being taken against the two directors involved;

2. management appears to have a reasonable basis for stating that the maximum (i.e. worst case) loss is HK$178 million which is not material to the company;

3. they have used a "big 4" accounting firm to make an investigation and prepare a report and "they are satisfied with the findings so far";

4. they have provided a loose timetable for the report to be submitted after Chinese New Year;

5. there was confirmation that the company is operating "normally" and that 2010Q4 gross profit margin had improved.

The negatives:

6. it was not definitively confirmed that there were no additional issues;

7. there was no statement regarding appointing replacements for the arrested directors.

Although not as definitive as I, as a shareholder, would like it was a considerably better effort from the company's directors in addressing the issue than some other cases.

Combined with my earlier purchases in July 2009 at HK$1.96, my average purchase price is HK$2.49.

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