Anyone care for a china milkshake?
No, i am not talking about the melamine scare that reappear in china as expected. I am referring to the S-chip China Milk Products.
It is going to default on its convertible bond redemption due to restrictions in transferring money out of china.
All along, i have reservations about this stock as its chairman lives in a grand mansion that is extravangantly decorated and china milk’s profit margin is outrageously high, which leads to the question whether it is sustainable.
Now that it says it could not transfer money out of china makes it even suspicious. It may not have enough cash, for in the first place ,with such high profit margins, it need not raise money through convertible bonds. I suspect something has gone wrong with its business, that’s why it is coming up with an excuse.
As Buffett says:Skim milk often masquerades as cream” Don’t drink your China milk yet!
Entry filed under: Watch your step.