Shenzhen Kingsino Technology Company Limited (002548.SZ) announced last night that Mr. Liu Feng resigned as Chairman, Board Member, Chairman of the Strategic Committee, and all positions in Kingsino subsidiaries, effective immediately.
Dr. Chen Junhai, Kingsino founder and long-time Chairman from Company inception through 2019, will become its Acting Chairman, until such time a new Chairman is elected by the Board, according to the Kingsino Announcement.
In my market commentary published on April 30, China’s Kingsino Lost $200 Million in Hog Futures Trading, we discussed Kingsino incurred huge loss in Q1 from trading the newly launched DCE live hog futures. While Mr. Liu cited personal reason, I believe he is the fallout from this debacle. Last month, General Manager Yang Hualin also resigned, and Mr. Zhao Zukai became the new GM.
The Losing Trade
How did Kingsino lose so much money in just two months? In response to a Shenzhen Stock Exchange inquiry in May, Kingsino disclosed certain details of its futures trading. In January and February, the Company established short September position of 1,846 lots, at an average cost of 25,500 (RMB per ton). As a hedger, Kingsino is required by DCE to post an 8% performance margin, totaling RMB 60.3 million [= 25,500 (price) x 16 (tons) x 8% (margin) x 1,846 (lot)].
In March, when hog futures price shot up to 29,800, this short position carried a loss of 4,300 points per contract. The total loss was RMB 127 million [= -4,300 (points) x 16 (tons) x 1,846 (lot)]. Kingsino closed about 90% of those contracts at the end of the first quarter.
Ironically, just around the time Kingsino cut its loss, DCE hog futures tumbled and began a multimonth slide. On Friday, September contract closed at 17,550
Looking back, if Kingsino held on to its short position and met all margin calls, these 1,846 contracts would turn from a big loss to a huge win. The jackpot would have been RMB 234.8 million [= 7,950 (points) x 16 (tons) x 1,846 (lot)], equivalent to US$36 million.
Unfortunately, this wishful thinking would never take place in real life. Mr. Liu was an appointee by the controlling shareholder, Guangdong Agricultural Commerce Bank. Unlike Dr. Chen who was company founder and had a final say, Mr. Liu was a professional manager and had to follow order. His only logical action was to close the trade by quarter end and prevent the loss from getting bigger.
Last month, Kingsino provided guideline on operating results of 1H2021. The Company expected sales revenue at RMB1.19 billion, up 139.53% year–over–year. Net profit is in the range of RMB30–40 million, down 78.4%–83.8% from year–ago period.
The Company sold 451,100 hogs in the first six months of 2021, up 157.77%. However, the average selling prices for market hog, piglet and gilt were down 12.77%, 18.20% and 17.94%, respectively, from 1H2020.
Under Mr. Liu, Kingsino entered into an aggressive 5–year Plan beginning 2020. Sales target for Year 2 (2021) is 1.5 million hogs on revenue of RMB 7 billion. So far, less than 1/3 of hog sales and 17% of revenue target were reached.
Kingsino stock closed at RMB5.23 on Friday, down 50% YTD. At a market capitalization of 3.6 billion, it now ranks 30th among the 33 publicly traded hog companies in China. (US$1≈RMB6.50 yuan)
Full Disclosure: Kingsino Relationship
The author was an advisor for Kingsino in 2017–2019. The relationship ended in December 2019 when Dr. Chen was forced out as Chairman. Neither the author, nor China–America Commodity Data Analytics, Inc. (CACDA) has a business relationship with Kingsino at the present time.
Have a great weekend.