Company analysis example

1. AAA Road Material Co., Ltd Company Analysis
BACKGROUND Exhibit: The Subsidaries of TA PLC
1
4
Exhibit: The Shareholder Chart
100%
51% 49%
2
Exhibit: TA PLC's subsidiaries in China
Location % Share
AAA Road Material Co., Ltd. Hebei 51%
Zhenjing TA Co., Ltd. Jiangsu 51%
TA (Xinhui) Co., Ltd. Guangdong 100%
TA Public Limited Company (TA PLC)
TA Public Limited Company is a Thailand-based company which focuses on the production and
distribution of road materials for domestic and international markets. The company has three
business segments: manufacturing and distribution of asphalt products, marine transportation and
investments. Its asphalt products are widely used in the construction and maintenance of highways
and airports. In addition, the company sells some non-asphalt byproducts extracted from crude oil,
such as naphtha, gasoil and high-sulphur fuel oil. The company provides diesel and fuel oil to road
contractors and other manufacturers in Thailand. The company’s combined production capacity of
asphalt emulsion (AE) and polymer modified asphalt (PMA) is 520,800 tons per year in 2010. As
of 2010, it operated 8 subsidiaries in Thailand, 1 in Malaysia, 8 in India and 3 in China (check the
chart on the right). The total asset is Baht 10.7 billion (RMB 2.3 billion) as the end of 2010. The
total revenue reached Babt 26.3 billion (RMB 5.68 billion) in 2010.
Company Name
AAA Road Material Co., Ltd (the Company) is a Chinese-foreign joint venture registered on
October 26, 1998 with the registered capital of $2.1 million. Its investors include TI HK Co., Ltd.
(51% shares) and TH Road Material Co., Ltd (49% shares). TI HK Co., Ltd is a subsidiary of TA
PCL (Thailand).
TA PCL (Thailand).
TI HK Co., Ltd TH Road Material Co., Ltd
AAA Road Material Co., Ltd
The company can produce PMA 300 tons per day. The major raw materials include asphalt,
styrene butadiene styrene (SBS) and adhesives. PMA's production process includes heating
asphalt and mixing with SBS and adhesives.
The company locates in Langfang Economic and Technological Development Zone of Hebei
Province. The the company's main business activities include the production of road materials,
asphalt trade, road maintainance services and storage tank leasing. The revenue from polymer
modified asphalt (PMA) accounts for more than 50% of total revenue. The company employs 280
employees.
Langfang
Zhenjiang
Xinhui
Page 1/15

2. AAA Road Material Co., Ltd Company Analysis
BACKGROUND
5 Products
Product I - Polymer Modified Asphalt (PMA)
ASSESMENT SECTION
1 Related Banks Unit: '000 RMB
16,000 16,000
2 Guarantors
3 Management Team
Product II - Asphalt Concrete (AC)
4 Market/Clients
Payment Term
The company manufactures polymer modified asphalt (PMA) and resells asphalt concrete (AC).
Asphalt Concrete is a major raw material in the production of PMA.
Tonghua Road Material Co., Ltd
The company was established in 1998 with registered capital of RMB 17.25M. It is an investment
holding company owned by Hebei Traffic Bureau (a government agency), which supervises the
road construction and maintainance in Hebei Province.
O/S as at
April-30-2011
Bank
Beijing Capital Highway Development Group Co., Ltd (BCHD), established in 1999, is a state-
owned enterprise owned by Beijing's government. The company is responsible for highway
construction, maintenance, management and financing in Beijing area. As of 2008, its assets was
66 billion Yuan. The total length of highway under its management is 638 km.
TT/1-2 months20-30%Hebei Tonghua Road Material Co., Ltd.
As a major share holder, Hebei Tonghua Road Material Co., Ltd is also a large client. It purchases
finished modified asphalt from the comapnay and resells them to other clients through its own
sales network.
Limit Security
Prepayment
or COD
30%
BBL's Thai headquarters will issue the SBLC of RMB 10M with 100% credit coverage.
Bank of China Langfang Branch LUR and fixed assets
Asphalt Concrete (AC): Asphalt concrete is a composite material commonly used in
constructions, such as road surfaces, airports and parking lots. It is a by-product from the
refining of crude oil and base lubricating oil. It consists of asphalt (used as a binder) and
mineral materials.
Others
The process of making Polymer Modified Asphalt (PMA) include heating asphalt concrete to
decrease its viscosity, and then mixing with some additives such as Styrene Butadiene Styrene
(SBS) at 166 °C. The advantage of PMA over Asphalt Concrete is modifed asphalt is more
stable in extreme temperatures. By comparision, unmodified asphalt will become brittle and
crack in cold temperatures and it will be soften in high temperatures, causing rutting and surface
deformation. PMA is more elastic and durable with greater temperature stability. Therefore,
PMA is more widely used in road constructions.
Mr. Huang Xiang (General Manager) has worked in Tipco for 10 years. Prior to joining Tipco,
Mr. Huang had studied and worked in Thailand for 6 years. He has a Master Degree from Asian
Institute of Technology (AIT) in Thailand.
Client Name
40% Prepayment or
COD
Mr. Yang Tianxiang (Chief Finance Manger) joined TIPCO in 2010. Prior to joining Tipco, Mr.
Yang had worked in ICBC for more than 10 years.
Beijing Capital Highway Development Group Co.,
Ltd.
% of Total Sales
Page 2/15

3. AAA Road Material Co., Ltd Company Analysis
5 Products (Continue)
Additive - Styrene Butadiene Styrene (SBS)
Exhibit: Seasonal sales
Exhibit: The Production Procedure of PMA
6 Suppliers
Exhibit: Subject's ASP and Sales Volume (2008 - 2010)
2008 2009 2010
6,625 7,106 11,554 Exhibit: Subject's Suppliers and Payment Term
4,740 3,885 4,618
31,405,870 27,605,315 53,354,301
1,837 2,399 9,434
3,510 2,965 3,902
6,448,697 7,112,493 36,807,436
37,854,567 34,717,808 90,161,737Total Revenue ('000 RMB)
Local agencies
Supplier ％ of total purchase
60%Revenue of PMA
ASP (RMB/Ton)
PMA
Revenue of AC
SBS is a synthetic rubber copolymer consisting of styrene and
butadiene. It is usually mixed with asphalt concrete in order to
improve abrasion resistance and aging stability of asphalt
concrete.
PMA's production procedure is simple: heat Asphalt Concrete while mixing with additives. The
production procedure takes about 8 hours. Then, the semi-products is stored in the storage tanks
for fermentation for 48 hours. The production line is advanced and automatic. The plant operates
2 shifts per day and 8-hour for one shift. Each shift requires 2 workers, so only 4 workers work in
the production line.
AC 40%
Volume (Ton)
ASP (RMB/Ton)
Volume (Ton)
The production of asphalt is seasonal. According to Chinese government’s regulation rule, the
required temperature of road constructions is above 10℃. Road constructing are prohibited in
rainy days. The road construction is prohibited when the outdoor temperature is below 0℃ in
the North China.
Since the asphalt is difficult to be stored beyond 6 months, the company manufactures PMA 2
or 3 months before receiving orders. Therefore, the company does not product asphalt in
winters due to the lack of orders.
Raw materials used in the production include Asphalt Concrete (75%), SBS (10%) and other
adhesives (15%). About 60% raw materials are imported from TIPCO's headquarters in
Thailand and the rest 40% is purchased from local agencies which imported raw material from
South Korea.
The payment term with TIPCO HO is 60 to 90 days. The procurement price from the
headquarters is higher that from the local agencies which require COD. When the company's
liquidity is tight, it prefers to import from TIPCO HO; otherwise, it perfers to purchase from
the local agencies which charge lower prices and deliver more sufficiently. The following table
shows the list of suppliers and payment terms.
TIPCO HO (Thailand)
Payment Term
TT (USD)/ 2-3 months
COD (RMB)
Product
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2006 2007 2008 2009 2010
Sales (Q1-Q3) Sales (Q4)
000' RMB
Page 3/15

4. AAA Road Material Co., Ltd Company Analysis
7 Plant Visit c Entry Barriers
There are technology barrier and capital barrier in the modified asphalt manufacturing industry.
1) The technology barrier
1. Storage tanks: 2 tanks with storage capacity of 3,000 tons, 2 tanks of 500 tons
and other small tanks.
2. A warehouse for storing SBS and other chemicals.
3. A production line. 2) The barrier of capital and financing ability.
8 Industry Analysis
d The demand projection
a Characters of asphalt manufacturing industry:
1) The economic region of sales
2) Seasonality Exhibit: China's Total Lengh of Highway
b The Competitor of the industry
Source: China National Statistical Bureau
The modified asphalt producers can be divided into 3 categories, the first one is large
MNCs such as Shell, SK Group and Tipco Group. The second category is local
professional producers, such as Jiangsu Baoli Co. Ltd, Luxiang Co., Ltd and China Best
Modified Bitumen. The third group is large Chinese petrochemical enterprises, such as
Petrochina and Sinopec. As of 2008, Chinese companies have taken more than 50%
domestic market share of modified asphalt.
The formula is a key business secret for the competition. The formula varies in different road
condition and natural environment. Therefore, in order to find a formula, the newcomers have to
spend many years through huge investment and hundreds of experiments. A good formula brings
good product quality and lower manufacturing costs.
The cash cycle of asphalt producers is long since they need to purchase the raw material earlier
before a boom season by 2 or 3 months and get the payment 3 to 6 months later after the delivery of
products. This character requires the producers to obtain sufficient working capital and strong
financing ability.
The most important demand for modified asphalt is from highway construction and maintenance.
The annual consumption of modified asphalt is positively correlated to the total length of exiting
highway and the incremental length of highway each year. Therefore, it is reasonable to predict the
total consumption of modified asphalt by estimating the annual incremental length of highway.
From 2005 to 2009, China’s consumption of modified asphalt has grown from 1.25M tons per year
to 2.75M tons per year with ACGR of 17.08%. During the same period, the total length of highway
increased from 41,000 km to 65,000 km with ACGR of 12.25%. According to the China's 12th
Five-year-plan, Chinese government plans to increase the length of highway to 100,000 km by
2015, which means the ACGR of length of high will be 6.17% from 2011 to 2015 (see the chart
below).
On April 14, 2011, the investigation team visited the client and discussed with the general
manager Mr. Huang and Mr. Yang. The company is located in Langfang Economic and
Technological Development Zone, Hebei Province and covers an area of 13,332 sq.m. (20
Mu). The production facilities include:
The first use of modified asphalt in road construction in China dates back to 1992 when it
is used in the construction of Beijing's Airport Highway. Since then, the modified asphalt
has been used widely in the construction of highways, airports and buildings. As the boom
of highway construction took place in China in 2000s, the production of modified asphalt
experienced an explosive increase. From 2005 to 2009, China’s consumption of modified
asphalt has grown from 125 tons per year to 275 tons per year with an ACGR of 17.08% .
As to other building materials such as cement, the sale of asphalt is restricted by transport
distance. The economic transport distance is within 800 km. If the transport distance is
beyond this range, asphalt is needed to be heated and mixed again, which increases the
production costs. Therefore, the asphalt sales is a regional business.
The production of asphalt is seasonal. According to Chinese government’s regulation rule,
the required temperature of road constructions is above 10℃ and road constructions are
prohibited in a rainy day. Since the asphalt is difficult to be stored beyond 6 months, the
asphalt producers, normally, prefer to manufacture 2 or 3 months before receiving orders.
Most producers stop asphalt production in winter due to the lack of orders.
0
20,000
40,000
60,000
80,000
100,000
120,000
2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
2005 - 2009
ACGR = 12.25%
2011 - 2015
ACGR = 6.17%
Km
Page 4/15

5. AAA Road Material Co., Ltd Company Analysis
8 Industry Analysis (Continue) 9 Financial Analysis
1. Profitability
Exhibit: The total length of highway and annual consumption of modified asphalt
is positive correlated
Exhibit: China's annual consumption of modified asphalt
Exhibit: The Gross Profit Margin of PMA is higher than AC's margin
According to the regression model linked existing length of highway and annual
consumption of modified asphalt from 2005 to 2009, an increase of 410 km highway
resulted in an increase of annual consumption of modified asphalt by 232,500 tons.
Assuming this relation maintains and the increase of length of highway is in line with the
12th Five-year-plan, the annual consumption of modified asphalt will increase from 2011’s
3.52M tons to 2015’s 4.73M tons with ACGR of 7.72% (see the chart below).
Note: the X-axis is the annual consumption of modified asphalt during 2005 to 2009,
assuming the amount in 2005 is 100. The Y-axis represents China’s total length of
highway, assuming 2005’s length is 100.
From 2006 to 2010, the sales value is highly volatile with ACGR of 27.6%. The sales surged in
2007 due to the explosive increase of resale on AC (see the breakdown of sales). Hit by the global
economy recession, the sales value slumped by 78.9% in 2008 and turned to stable in 2009. Driven
by the recovery of global economy and the impact of Chinese government’s economic stimulate
package, the sales value surged by 162.9% in 2010. Despite so, 2010’s sales turnover is only half of
the sales peak in 2007.
Prior to 2008, AC had contributed a significant proportion of net profits. Since 2008, subject has
reduced the resale of AC and focused on the production of PMA which generated a higher gross
profit margin. As a result, PMA has contributed most net profit since 2008.
0
50,000
100,000
150,000
200,000
2006 2007 2008 2009 2010
Sales Breakdown
AC PMA
0
5,000
10,000
2007 2008 2009 2010
Gross Profit Breakdown
AC PMA
0
50,000
100,000
150,000
200,000
2006 2007 2008 2009 2010
Annual Sales
-2,000
0
2,000
4,000
6,000
2006 2007 2008 2009 2010
Net Profit
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
2005 - 2009
ACGR = 17.08%
2010 - 2015
ACGR = 7.72%
000' RMB 000' RMB
000' RMB
000' RMB
000' Ton
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2007 2008 2009 2010
PMA AC
Consumption of
Modified Asphalt
Total length of
highway
2006 - 2010
ACGR = 27.6%
Page 5/15

6. AAA Road Material Co., Ltd Company Analysis
9 Financial Analysis (Continue) Exhibit: Key liquidity indicators
DuPont Analysis
2006 2007 2008 2009 2010
11.70% 2.40% -4.90% 2.30% 3.60%
0.59 3.83 1.24 0.99 3.17
2.59 1.7 1.2 1.4 1
17.88% 15.63% -7.29% 3.19% 11.41%
Exhibit: Receivables drive the liquidity condition
2006 2007 2008 2009 2010
22,872,639 12,041,484 5,008,138 8,285,360 346,833
62.90% 7.00% 13.90% 22.90% 0.30%
46.80% 41.40% 31.30% 34.80% 1.90%
1.31 1.61 3.33 2.32 15.15
3. Cash Flow Analysis
2. Liquidity
Exhibit: Subject's CFO and CFF is unstable
2006 2007 2008 2009 2010
Current Ratio 1.31 1.61 3.33 2.32 15.15
0.89 1.06 1.56 1.65 11.01
0.1 0.14 0.5 0.33 8.92
Subject’s cash flow is unstable due to the volatility of account receivables and payables. When
the period of receivables gets longer or payment period of payables gets shorter, subject has to
borrow short-term loan in order to maintain business, as a result, the CFO is negative
correlation with CFF (see the chart below). If the past pattern of cash flow was maintained, the
availability of short-term loan would determine the sustainability of business in future. In the
scenario when banks tight theirs credit, subject would face the trouble of insufficient cash flow,
resulting in a decline of sales value or liquidity problems.
As can be seem in the chart on the right, receivables had taken a significant proportion of
current assets from 2006 – 2009. Furthermore, the receivable-sale-ratio is negative correlated
to current ratio. In other words, if receivable took a bigger proportion of current assets,
subject’s liquidity would be tight. Normally, clients’ term of payment vary from 3 months to 6
months, sometime, it takes a longer period. Subject’s liquidity largely depends on the
condition of collection of receivables.
Receivables (RMB)
Receivables/Sales
Receivables/CA
Current Ratio
Subject’s current ratio has been greater than one and the quick ratio has been increasing
during the past 5 years, which means subject’s liquidity is good in general. Especially, the
liquidity was improved significantly in 2010, resulting from the decline of receivables (see the
table on the right). The volatility of account receivables is the most important factor driving
the change of liquidity.
Quick Ratio
Cash Ratio
Subject’s ROE appears to be highly volatile during the past 5 years. ROE is highly correlated
with net profit margin which is sensitive to the volatility of costs of raw materials. Assets
turnover is in a weakly correlation with ROE. For example, in 2007, the assets turnover
surged but the ROE declined, and in 2009, the assets turnover declined slightly but the ROE
increased.
Subject’s financial leverage has declining since 2006, except for the year of 2009. It’s an
indicator of improved liquidity.
Net Profit Margin
Asset Turnover
Financial Leverage
ROE
0.00
1.00
2.00
3.00
4.00
5.00
2006 2007 2008 2009 2010
Assets Turnover Financial Leverage
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
2006 2007 2008 2009 2010
Net Profit Margin ROE
0
2
4
6
8
10
12
14
16
2006 2007 2008 2009 2010
Current Ratio Quick Ratio Cash Ratio
-10,000
-5,000
0
5,000
10,000
15,000
20,000
2006 2007 2008 2009 2010
CFO CFF
RMB
Page 6/15

7. AAA Road Material Co., Ltd Company Analysis
9 Financial Analysis (Continue) 2) Working Capital
4. Solvency
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
1.59 0.7 0.2 0.4 0.04 Current Ratio 1.31 1.61 3.33 2.32 15.15
2.59 1.7 1.2 1.4 1.04 Quick Ratio 0.89 1.06 1.56 1.65 11.01
0 104.20% 44.40% 82.50% 0 Cash Ratio 0.1 0.14 0.5 0.33 8.92
97.20% 54.30% 19.70% 10.00% 39.80%
*The Payables include Account Payables and Other Payables. 3) Third-party guarantee
5. Earning Quality
10 Financial Projection
2006 2007 2008 2009 2010
55,208,807 41,966,980 26,924,831 32,219,169 19,124,787 1) Average Selling Price (ASP) Unit: RMB/Ton
36,664,862 10,435,064 -117,626 1,887,628 1,196,950 Product 2009(A) 2010(A) 2011(F) 2012(F) 2013(F) 2014(F)
18,543,945 31,531,916 27,042,457 30,331,541 17,927,837 PMA 3,885 4,618 5,200 5,460 5,740 6,030
15.22% 51.87% 15.33% 11.47% 51.40% AC 2,965 3,902 4,200 4,410 4,630 4,860
6. Capacity to repay 2) Sales Volume
1) Cash flow Product 2009(A) 2010(A) 2011(F) 2012(F) 2013(F) 2014(F)
PMA 7,106 11,554 15,000 15,900 16,900 18,000
AC 2,399 9,432 9,432 9,432 9,432 9,432
Utilization% 6.49% 10.55% 13.70% 14.52% 15.43% 16.44%
* The utilization include only PMA. The capacity of PMA is 300 ton per day.
2008(A) 2009(A) 2010(A)
246,999 397,773 612,220
2,470,629 -2,704,053 15,232,885
10 -6.8 24.88
-445,960 1,988,479 3,382,941
4,882,375 10,387,628 1,196,951
-0.09 0.19 2.83
* Fund from Operation = Net Income + Depreciation + Amortization
3) COGS takes 91% of sales turnover. Subject is able to pass the extra increased cost of raw
materials to downstream companies.
4) Days Receivable = 45 days, Days Inventory = 20 days, Days Payable = 1 days.
5) No CAPEX.
6) Interest rate of STL = 7.02% (prime*1.2).No long-term liabilities.
7) The minimum cash balance is RMB 3,000,000.
8) Average depreciation period of fixed assets = 8 years.
9) No dividend payout.
Subject’s D/E ratio has been in a declining trend during the past 5 years, from 2006’s 1.59x
to 2010’s 0.04x. Subject has no long-term liability, the decline of D/E ratio results from the
reduction of proportion of payables and short-term liabilities. In addition, the short-term loan
appears highly volatile.
D/E Ratio
A/E
STL/CL
Payables /CL*
Net Operating Assets
Accruals Ratio
The firm’s working capital is an important source of liquidity which can be used for the
repayment of debt. Subject’s current ratio has been greater than one and quick ratio has been
increasing during the past 5 years, which means the liquidity is good in general. Especially, the
liquidity was improved significantly in 2010, resulting from the decline of receivables.
The SBLC to be issued by BBL HO will guarantee subject’s capacity to repay. Thus, the risk
exposure taken by BBC Beijing Branch is minimal.
The key assumptions of the financial projection (2011 – 2014) are as below:
Subject’s accruals ratio appears highly volatile due to the high volatile of net operating assets
(NOA), especially in the year of 2007 and 2010. This condition suggests that subject’s
sustainability of earning is low.
Operating Assets
Operating Liabilities
The primary resource for repayment of debt is cash flow. Hence, an analysis of operating cash
flows is critical to understand the subject's capacity to repay.
Subject’s cash flow ratios fluctuated widely in 2008 and 2009. In 2009, the firm’s CFO
wasn’t enough to cover its interest expense due to the increase of receivables (the receivable-
sales-ratio increased from 2008’s 13.9% to 2009’s 22.9%). In 2010, subject’s CFO increased
significantly as a result of the decline of receivables (the receivable-sales-ratio reduced to
0.3%). In conclusion, the amount of receivables influences weather subject could generate
sufficient CFO to repay its liability.
Funds from Operation/Total Debt*
Interest Expense
CFO
CFO/Interest Expense
Funds from Operation
Total Debt
Page 7/15

8. AAA Road Material Co., Ltd Company Analysis
10 Financial Projection (Continue)
Exhibit: Subject's Receivable Days in the past
Exhibit: Summary of Financial Projection (Base Case)
2009 (A) 2010 (A) 2011 (F) 2012(F) 2013(F) 2014(F)
35,514,251 92,864,251 97,831,466 102,723,039 107,859,191 113,252,150
-1.49% 161.48% 5.35% 5.00% 5.00% 5.00%
816,447 3,364,691 1,196,667 1,360,303 1,537,825 1,710,385
2.30% 3.62% 1.22% 1.32% 1.43% 1.51%
3,461,849 10,730,245 3,000,000 3,000,000 3,000,000 3,000,000
6,794,207 5,418,989 16,202,499 17,012,624 17,814,448 18,705,171
23,836,273 18,564,047 44,053,169 46,002,427 47,931,714 50,074,900
35,681,018 29,855,032 54,190,624 55,105,543 56,104,783 57,409,178
10,387,628 1,196,951 25,462,046 25,016,663 24,478,078 24,072,088
10,387,628 1,196,951 25,462,046 25,016,663 24,478,078 24,072,088
25,293,390 28,658,081 28,728,577 30,088,880 31,626,705 33,337,090
2.29 15.51 1.73 1.84 1.96 2.08
0.41 0.04 0.89 0.83 0.77 0.72
3.23% 11.74% 4.17% 4.52% 4.86% 5.13%
11 Sensitivity analysis
1) CFO/CFF to Receivable Days
2) CFO/CFF to COGS
Cash Flow 2011(F) 2012(F) 2013(F) 2014(F) Unit: RMB
CFO -3,207,331 2,833,825 3,110,450 3,372,768 COGS/Sales Cash Flow 2011(F) 2012(F) 2013(F) 2014(F)
CFF 0 0 0 0 91% CFO -9,130,046 2,161,612 2,353,795 2,492,391
CFO -9,130,046 2,161,612 2,353,795 2,492,391 CFF 1,199,801 -2,325,972 0 0
CFF 1,199,801 -2,325,972 0 0 92% CFO -10,026,243 1,171,890 1,337,967 1,370,999
CFO -15,252,653 1,113,751 1,300,492 1,399,585 CFF 2,095,998 -1,371,890 -1,537,967 -312,312
CFF 7,322,408 -1,313,751 -1,500,492 -1,599,585 93% CFO -10,922,439 180,188 178,118 87,856
CFO -21,375,261 63,909 103,168 5,120 CFF 2,992,194 -380,188 -378,118 -287,856
CFF 13,445,016 -263,909 -303,168 -205,120 94% CFO -11,818,636 -811,515 -981,731 -1,265,241
CFF 3,888,391 611,515 781,731 1,065,241
95% CFO -12,714,833 -1,803,217 -2,141,580 -2,618,337
CFF 4,784,588 1,603,217 1,941,580 2,418,337
As shown in the chart above, from 2007 to 2010, subject’s Receivable Days varies from 1.36 days to
85.15 days and the average is 40.72 days. According to the sensitivity analysis, even in the worst
scenario that Receivable Days is 85 days, subject’s liquidity is still good. So, the liquidity risk caused
by the uncertain Receivables Days is minimal unless some worse conditions happen together, for
example, sales drop, price hikes of raw materials and delay of receivables take place at the same time.
Let’s discuss this topic in the scenario analysis.
The price hike of raw material effects liquidity and profitability. When the COGS-Sales ratio goes up,
subject will generate less operating cash flow and consequently obtain less working capital to repay
its short-term loan.
Holding other assumptions unchanged, change the COGS-Sales ratio as below:
As shown in the table above, when the COGS-Sales ratio is less than 94%, subject’s liquidity is good
and need only short-term financing in 2011. When the COGS-Sales ratio is greater than 94%, the
CFO will keep negative from 2011 to 2014. As a result, subject will have to keep borrowing in order
to finance the negative CFO. In this situation, the availability of financing resource would determine
whether subject is able to continue business.
Equity
Current Ratio
25
45
65
85
Receivables Days is key a factor determining liquidity. According to subject’s historical performance, the
Receivable Days fluctuated widely. If the Receivables Days is relative short, subject’s liquidity would be
good and the liquidity risk would be low. Holding other assumptions unchanged, change the Receivable
Days as below:
Unit: RMB
Sales Turnover
Sales Growth Rate
Net Profit
Net Profit Margin
Cash Equivalent
Inventory
Current Assets
Total Assets
Total Current Liability
Total Liability
Receivable Days
D/E Ratio
ROE
As can be seem in the table above, when the Receivables Days is 25 days, subject’s liquidity is very good,
and doesn’t need any short-term loan.
When the Receivables Days is from 45 days (base scenario) to 85 days, subject’s liquidity is good, and
just need short-term loan in 2011. The amount of short-term loan in need increases as the Receivable Days
increases.
0
20
40
60
80
100
2007 2008 2009 2010
Receivables Days Average Receivables Days
Page 8/15

9. AAA Road Material Co., Ltd Company Analysis
11 Sensitivity analysis 12 Scenario Analysis
Exhibit: Subject's COGS/Sales Ratio
Scenario
COGS/Sales
*Please check Page 12 to see the Financial Projection of the Base Case
The Summary of Financial Projection (Worse Case)
Unit: RMB
2010 (A) 2011 (F) 2012(F) 2013(F) 2014(F)
Sales Turnover 92,864,251 105,854,600 118,122,480 132,292,890 148,403,790
3) CFO/CFF to Sales Sales Growth Rate 161.48% 13.99% 11.59% 12.00% 12.18%
Net Profit 3,364,691 485,559 696,968 937,713 1,179,552
Net Profit Margin 3.62% 0.46% 0.59% 0.71% 0.79%
Cash Equivalent 10,730,245 3,000,000 3,000,000 3,000,000 3,000,000
Inventory 5,418,989 5,394,234 6,019,392 6,723,081 7,541,832
Unit: RMB Current Assets 18,564,047 35,113,306 38,595,367 42,514,840 47,075,193
Total Assets 29,855,032 45,250,761 47,698,483 50,687,909 54,409,472
Total Current Liability 1,196,951 17,233,292 18,984,046 21,035,760 23,577,770
27% CFO -10,381,240 -292,800 -336,335 -564,447 Total Liability 1,196,951 17,233,292 18,984,046 21,035,760 23,577,770
27% CFF 2,450,995 92,800 136,335 364,447 Equity 28,658,081 28,017,469 28,714,437 29,652,150 30,831,702
12% CFO -8,426,644 2,017,796 2,263,695 2,426,996 Current Ratio 15.51 2.04 2.03 2.02 2.00
12% CFF 496,400 -1,622,571 0 0 D/E Ratio 0.04 0.62 0.66 0.71 0.76
5% CFO -7,514,500 2,815,796 2,968,754 3,036,432 ROE 11.74% 1.73% 2.43% 3.16% 3.83%
5% CFF -415,745 -710,426 0 0
-5% CFO -6,242,638 3,745,939 3,585,045 3,362,208 The complete financial projection is the Appendix III
-5% CFF -1,126,171 0 0 0
As shown in the table above, as the sales growth rate rise, subject’s liquidity worsens. But,
the gap of working capital is not big. For example, if subject kept the growth rate of 27%
(ACGR from 2005 to 2010) for the next 4 years, the company would borrow RMB 2.4M in
2011, and then, the annual new borrowing would decline. It isn’t difficult to finance such gap
of working capital given subject’s good credibility.
93%
12% 12% 5%
2014(F)Sales Growth rate for
2010 to 2014
2011(F) 2012(F) 2013(F)
20
As shown in the chart above, from 2007 to 2010, subject’s COGS/Sales ratio varies from
79.2% to 94.6% and the average is 87.3%. In 2010, the ratio is 90.8%, above the average
level. According to the sensitivity analysis, if the COGS/Sales ratio broken 94%, subject
would has to face the liquidity problem and the liquidity risk would increase as the increase
of the ratio. Luckily, there is still a margin between the current COGS/Sales ratio to the
breakpoint. The margin can buffer the impact of the price hikes of raw materials.
Given cash cycle and profit margin unchanged, the increase of sales growth rate would
reduce working capital as the increased receivables and inventory would occupy more cash.
As a result, subject’s liquidity would be tighter and the possibility of liquidity risk would rise.
Holding other assumptions unchanged, change the sales growth rate as below:
65
45 85 85
20
Remark
Sales Growth
Rate
Receivable
Days
Inventory
Days
Normal expected sales
growth rate
Normal expected prices
hike of raw materials.
Normal risk of delay of
receivables.
Base Case* Worse Case Worst Case
91% 93%
Lower expected sales growth
rate.
Higher expected prices hike of
raw materials.
Higher risk of delay of
receivables.
Higher expected prices hike of
raw materials.
Higher risk of delay of
receivables.
70.00%
75.00%
80.00%
85.00%
90.00%
95.00%
100.00%
2007 2008 2009 2010
COGS/Sales Average COGS/Sales
Page 9/15

10. AAA Road Material Co., Ltd Company Analysis
12 Scenario Analysis (Continue)
The Summary of Financial Projection (Worst Case) Unit: RMB
2010 (A) 2011 (F) 2012(F) 2013(F) 2014(F)
Sales Turnover 92,864,251 97,831,466 102,723,039 107,859,191 113,252,150 2) Customers are over-concentrated
Sales Growth Rate 161.48% 5.35% 5.00% 5.00% 5.00%
Net Profit 3,364,691 (171,214) (58,155) 71,153 185,526
Net Profit Margin 3.62% -0.18% -0.06% 0.07% 0.16%
Cash Equivalent 10,730,245 3,000,000 3,000,000 3,000,000 3,000,000
Inventory 5,418,989 16,202,499 17,012,624 17,814,448 18,705,171
Current Assets 18,564,047 44,053,169 46,002,427 47,931,714 50,074,900
Total Assets 29,855,032 54,190,624 55,105,543 56,104,783 57,409,178
Total Current Liability 1,196,951 26,829,928 27,803,003 28,731,090 29,849,959
Total Liability 1,196,951 26,829,928 27,803,003 28,731,090 29,849,959
Equity 28,658,081 27,360,696 27,302,541 27,373,694 27,559,219
Current Ratio 15.51 1.64 1.65 1.67 1.68
D/E Ratio 0.04 0.98 1.02 1.05 1.08
ROE 11.74% -0.63% -0.21% 0.26% 0.67%
The complete financial projection is in the Appendix IV
3) Risk of Price Hikes of Raw Materials
15 Future plan
14 Competitiveness
4) Risk of Labor Cost
15 Risks/Risk mitigating factors
1) Liquidity Risk
The most important raw material is Asphalt Concrete which is extracted from crude oil. The price
of Asphalt Concrete is positive correlated to the price of crude oil. Driven by the price hike of crude
oil during the past 3 years, the COGS/sales ratio increased from 2008’s 79.2% to 2009’s 84.5% and
then to 2010’s 90.8%. The recent fluctuation of oil price made the price of Asphalt Concrete
fluctuated widely. As a result, it has become more challenging to manage the costs of raw materials.
Mitigating factors : subject imports 60% raw materials from its parent company which operates
Asphalt Concrete refinery factory in Malaysia in order to reduce the cost of raw materials for
manufacturing. Therefore, as compared to other competitors, subject is more likely to withstand the
fluctuation of oil price.
Driven by the inflation expectation and labor shortage, China’s labor costs have been rising during
the past years. Any further rise of labor costs will squeeze subject’s profits in future.
Mitigating factors : As a capital-intensive industry, asphalt production industry uses a high
proportion of capital and a low proportion of labors. Currently, there are 28 employees in the
company and 4 out of the 28 employees are workers. Labors costs account for a tiny proportion of
total costs. Therefore, the impact of rising labor costs will be limited.
Mitigating factors : as a subsidiary of TIPCO in China, subject has strong finance support from the
parent company. If subject face a liquidity problem, subject is very likely to get additional liquidity
from the parent company through shareholder loan or capital injection.
The sales from the two largest clients account for 50% - 60% of total sales value. If such large
clients reduced or terminated cooperation with subject, the company would face a negative impact
on its sales.
Mitigating factors : subject has cooperated with such big clients for many years, the relationship
among them is solid and stable. It’s unlikely that such big clients terminate cooperation suddenly
without any pre-notice.
In addition, subject’s shareholder, Hebei Tonghua Road Material Co., Ltd, is an enterprise owned
by Hebei Traffic Bureau (government agency) which is in charge the construction and maintaining
of roads in Hebei Province. Any construction of highways in the Province must be approved by the
bureau before starting. If the existing large clients reduced purchasing due to the impact of
economic recession or change of government’s policy, subject was capable of developing new
clients backed by its solid relationship with the bureau.
Subject is focusing on the expansion of market share. Since the utilization rate of capacity is low,
subject has no plan of expansion of production capacity in the coming years.
Strength: A wealth of experience in asphalt manufacturing, strong R&D capacity
and high quality of products.
Weakness: The range of products is narrow. Price is higher than local producers.
As to other asphalt producers, subject normally purchases raw materials 2 to 3 months earlier
before a boom season. Subject purchase 60% raw materials from its parent company in Thailand
with a payment term of 2-3 months. The rest 40% raw materials are purchased from local
agencies with COD payment. On the other hand, although most clients are required to pay within
2 months according to the sales contracts, due to strong barging power held by the clients,
sometimes, they paid 6 months later after the delivery of goods. If such condition happend in
future, subject had to face the risk of insufficient liquidity. If the liquidity was dried up and there
was no available financing resources, subject would loss the capability of maintaining daily
operations.
The entry of new competitors. Change of Chinese government’s policy.
Price hikes of raw materials.
Opportunities: China’s fast growth of asphalt consumption.
Threat:
Page 10/15

11. AAA Road Material Co., Ltd Company Analysis
16 Business prospects
17 Other information
a
b Environmental protection issue
c Working capital in need based on the financial projection of 2011
Days
45
20
1
64
Modified asphalts are widely used in the construction of highway, airport and buildings.
The most important factor which drives the consumption of modified asphalt is
construction and maintenance of highway. According to the 12th Five-year-plan, Chinese
government plans to increase the length of highway to 100,000 km by 2015. Holding the
advantage of R&D and high product quality, subject is able to capture the opportunity of
the fast growth of Chinese market. In order to support the fast growth, subject is likely to
apply a higher credit limit in future. In addition, subject agreed to save RMB deposit in
BBC at the end of 2011. The amount of deposit depends on subject’s cash balance at that
time.
Subject's credit record has been good as per PBOC's Bank Credit Consulting System. No
default record was shown and loan card status is valid. (Loan card No:
Since the production process and industrial emissions of subject is in compliance with the
local environmental protection requirements, the subject has sewage permit granted by the
local government.
Amount (RMB)
18,560,807
105,854,600
13,050,567
Annual Sales in 2011
Average Receivable Days
Average Inventory Days
Average Payable Days
5,800,252
290,013
Working Capital in need in 2011
Page 11/15

12. Appendix I: Financial Statement
AAA Road Material Co., Ltd
Financial Ratios Profit and Loss Statement Balance Sheet
2010(A) 2009(A) 2008(A) 2010(A) % 2009(A) % 2008(A) % 2010(A) % 2009(A) %2008(A)
GROWTH (%) Net Sales [4] 92,864,251 100 35,514,251 100 36,051,732 100.0 CURRENT ASSETS
Less Cost of Sales 84,287,451 90.8 30,016,539 84.5 28,539,837 79.2 Cash & banks 10,730,245 35.9 3,461,849 9.7
Sales 161.48% -1.49% -78.93% Gross Profit 8,576,801 9.2 5,497,712 15.5 7,511,896 20.8 Notes & accounts receivable (trade) 346,834 1.2 8,285,360 23.2
Net Profit Growth 312.11% 145.99% -142.76% Other receivable 67,980 0.2 5,067,216 14.2
Operating Expenses 4,114,626 4.4 3,110,310 8.8 7,047,515 19.5 Inventory [1] 5,418,989 18.2 6,794,207 19.0
LIQUIDITY Depreciation & Amort. Exp. [5] 18,250 0.0 1,172,032 3.3 1,329,483 3.7 Prepayments 2,000,000 6.7 216,762 0.6
Operating Income (Loss) 4,443,925 4.8 1,215,370 3.4 (865,102) -2.4 Other current assets 0 0.0 10,879 0.0
Current Ratio 15.51 2.29 3.29 Total Current Assets 18,564,047 62.2 23,836,273 66.8
Days Inventory 23.47 82.62 109.82 Non-Operating Income 23,092 0.0 122,953 0.3 4,617 0.0
Days Receivable 1.36 85.15 50.70 Non-Operating Expenses 59,035 0.1 124,103 0.3 5,505 0.0 Long-Term Investment 0 0.0 0 0.0
Days Payable 0.19 0.01 0.01 Profit Before Interest and Tax 4,407,982 4.7 1,214,220 3.4 (865,991) -2.4 Property, Plant & Equip.
Cash Cycle 24.64 167.77 160.52 Costs [2] 19,403,446 65.0 19,840,641 55.6
Less Interest Expenses 612,220 0.7 397,773 1.1 246,999 0.7 Less accumulated depreciation 11,775,204 39.4 11,756,955 33.0
PROFITABILITY (%) Income Tax 431,071 0.5 0 0.0 662,454 1.8 Net Value 7,628,241 25.6 8,083,686 22.7
Due From Related Co. 0 0.0 0 0.0
Gross profit margin 9.24 15.48 20.84 Profit before Extraordinary Items 3,364,691 3.6 816,447 2.3 (1,775,443) -4.9 Other Assets [3] 3,662,744 12.3 3,761,059 10.5
Net Profit Margin 3.62 2.30 (4.92) Extraordinary Items 0 0 0 0 0 0.0
Return on Assets 11.27 2.29 (6.05) TOTAL ASSETS............................................29,855,032 100.0 35,681,018 100.0
Return on Equity 11.74 3.23 (0.07) Net Profit 3,364,691 3.6 816,447 2.3 (1,775,443) -4.9
CURRENT LIABILITIES
SOLVENCY (Times) Dividend Payout 0 0 0 Short-term loans 0 0.0 8,500,000 23.8
Notes & accounts payable (trade) 43,900 0.1 450 0.0
Leverage (D/E) 0.04 0.41 0.20 * The financial reports were audited by Langfang Yihua Certified Public Accountants Co., Ltd. Accrued expenses 608,194 2.0 256,264 0.7
Interest Coverage 7.20 3.05 -3.51 Current L/T Liabilities 0 0.0 0 0.0
Other current liabilities 544,857 1.8 1,630,915 4.6
DIVIDEND PAYMENT Total current Liabilities 1,196,951 4.0 10,387,628 29.1
Dividend Payout Ratio 0.0% 0.0% 0.0% Long-Term Liabilities 0 0.0 0 0.0
Due To Related Co. 0 0.0 0 0.0
Other Liabilities 0 0.0 0 0.0
TOTAL LIABILITIES…………………………….1,196,951 4.0 10,387,628 29.1
SHARE HOLDERS' EQUITIES
Capital 17,396,371 58.3 17,396,371 48.8
Exchange rate gain (loss) 0 0.0 0 0.0
Capital reserve 0 0.0 0 0.0
Legal reserve 0 0.0 0 0.0
Surplus reserve 1,126,171 0.0 0 0.0
Retained Earnings (deficits) 10,135,539 33.9 7,897,019 22.1
Total Shareholders' Equities 28,658,081 96.0 25,293,390 70.9
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITIES......... 29,855,032 100.0 35,681,018 100.0
Page 12/15

13. (Unit : RMB)
2008(A) 2010(A) 2009(A) 2008(A)
Net Income 3,364,691 816,447 (1,775,443)
Add : Depreciation/Amortization 18,250 1,172,032 1,329,483
Change in Trade & Other Receivable 12,937,762 (8,281,739) 10,049,424
Change in Inventories 1,375,219 1,792,936 1,816,492
Change in Prepayments (1,783,238) (216,762) 10,082
Change in Trade Payable 43,450 0 (8,440,932)
Change in Other Current Assets 10,879 7,781 1,593,282
Change in Oth. Cur. Lia., Accu. Exp, Tax Payable (734,127) 2,005,254 (2,111,758)
----------------------------------------------------------------------- ------------------- ------------------- -------------------
NET CASH FROM OPERATING ACTIVITIES 15,232,885 (2,704,053) 2,470,629
----------------------------------------------------------------------- ------------------- ------------------- -------------------
CASH FLOW FROM INVESTING ACTIVITIES
Change in Property, Plant and Equipment 437,195 35,550 47,522
Change in Short Term Investment 0 0 0
Change in Long Term Investment 0 0 0
Change in S-T Loan to Related Companies 0 0 0
Change in L-T Loan to Related Companies 0 0 0
Change in Receivables & Loans to Directors 0 0 0
Change in Intangible Assets 0 0 0
Change in Other Long Term Assets 98,315 195,865 195,865
----------------------------------------------------------------------- ------------------- ------------------- -------------------
NET CASH FROM INVESTING ACTIVITIES 535,511 231,415 243,387
----------------------------------------------------------------------- ------------------- ------------------- -------------------
CASH FLOW FROM FINANCING ACTIVITIES
Change in Short Term Bank Borrowing (8,500,000) 3,500,000 (3,000,000)
Change in Long Term Liabilities 0 0 0
Change in Loans from Directors 0 0 0
Change in S-T Loan from Related Companies 0 0 0
Change in L-T Loan from Related Companies 0 0 0
Change in Other Long Liabilities 0 0 0
Change in Paid-up Capital 0 0 0
Change in Minority Interest/Reserve 1,126,171 0 0
Change in Premium on Share Capital 0 0 0
Adjusting to Retained Earnings (1,126,171) 36,430 41,378
----------------------------------------------------------------------- ------------------- ------------------- -------------------
NET CASH FROM FINANCING ACTIVITIES (8,500,000) 3,536,430 (2,958,622)
----------------------------------------------------------------------- ------------------- ------------------- -------------------
NET INCREASE (DECREASE) IN CASH 7,268,396 1,063,792 (244,606)
Cash on hand at the Beginning 3,461,849 2,398,058 2,642,664
Cash on hand at the Ending 10,730,245 3,461,849 2,398,058
Operating Cash Flow
0.00
TOTAL BANK DEBTS/CASH FLOW FROM
OPERATING ACTIVITIES
(3.14) 2.02
Page 12/15

14. Appendix I: Financial Statement
AAA Road Material Co., Ltd Company Analysis
The notes of the financial reports
[1] Receivables
The receivables include RMB 5,006,750 from a related company TIPCO Asphalt (Xinhui) Co., Ltd.
[3] Inventory
Unit: RMB
2010 2009 2008
Raw Materials 4,887,813 4,926,002 7,067,751
Finished Goods 485,974 1,824,364 1,479,304
Semi-products 45,200 43,840 40,087
Total 5,418,989 6,794,206 8,587,142
* In 2008, the reported inventory revaluation reserve was RMB 3,762,804.
[4] Other Assets
Unit: RMB
2010 2009 2008
3,563,482 3,755,239 3,946,996
[5] Accrued Expenses in 2008
The accrued expenses include payable tax of RMB -1,661,617 due to the loss in 2008.
[6] Sales Breakdown Unit: RMB
2010 2009 2008
PMA 53,354,342 27,605,330 31,051,732
AC 36,807,476 7,112,490 4,242,173
Others* 2,702,433 796,430 757,827
Total 92,864,251 35,514,250 36,051,732
* Other income includes PMA processing, materials sale and storage leasing.
[7 Depreciation
The depreciation period of the production line is from 1999 – 2009 (11 years). In 2009, the production line
had been depreciated completely. Therefore, 2010’s depreciation is lower than that in 2009.
[2] Other Receivables in 2009
Land Use Right
(LUR)
The payment terms for wholesales clients and retail clients are 1-2 months and COD respectively.
In 2008 and 2009, the revenue from wholesales accounted for a larger proportion of total sales, so the
receivables was high as compared to 2010’s level.
Page 13/15

15. Appendix II: Financial Projection
AAA Road Material Co., Ltd (Unit : RMB)
Financial Ratios Profit and Loss Statement Balance Sheet
2014 (F) 2013 (F) 2012 (F) 2011 (F) 2014 (F) % 2013 (F) % 2012 (F) % 2011 (F) % 2014 (F) % 2013 (F) % 2012 (F) % 2011 (F) %
GROWTH (%) Net Sales 113,252,150 100.0 107,859,191 100.0 102,723,039 100.0 97,831,466 100.0 CURRENT ASSETS
Less Cost of Sales 105,324,500 93.0 100,309,047 93.0 95,532,426 93.0 90,983,263 93.0 Cash & banks 3,000,000 5.2 3,000,000 5.3 3,000,000 5.4 3,000,000 5.5
Sales 5.00% 5.00% 5.00% 5.35% Gross Profit 7,927,651 7.0 7,550,143 7.0 7,190,613 7.0 6,848,203 7.0 Notes & accounts receivable (trade) 26,301,729 45.8 25,049,266 44.6 23,921,804 43.4 22,782,670 42.0
Net Profit Growth 11.22% 13.05% 13.67% 46.57% Other receivable 68,000 0.1 68,000 0.1 68,000 0.1 68,000 0.1
Operating Expenses 5,096,347 4.5 4,853,664 4.5 4,622,537 4.5 4,402,416 4.5 Inventory 18,705,171 32.6 17,814,448 31.8 17,012,624 30.9 16,202,499 29.9
LIQUIDITY Depreciation & Amort. Exp. 638,791 0.6 730,047 0.7 834,339 0.8 953,530 1.0 Prepayments 2,000,000 3.5 2,000,000 3.6 2,000,000 3.6 2,000,000 3.7
Operating Income (Loss) 2,192,513 1.9 1,966,433 1.8 1,733,737 1.7 1,492,257 1.5 Other current assets 0 0.0 0 0.0 0 0.0 0 0.0
Current Ratio 2.08 1.96 1.84 1.73 Total Current Assets 50,074,900 87.2 47,931,714 85.4 46,002,427 83.5 44,053,169 81.3
Days Inventory 65.00 65.00 65.00 65.00 Non-Operating Income 105,000 0.1 100,000 0.1 93,000 0.1 125,000 0.1
Days Receivable 85.00 85.00 85.00 85.00 Non-Operating Expenses 17,000 0.0 16,000 0.0 13,000 0.0 21,700 0.0 Long-Term Investment 0 0.0 0 0.0 0 0.0 0 0.0
Days Payable 1.00 1.00 1.00 1.00 Profit Before Interest and Tax 2,280,513 2.0 2,050,433 1.9 1,813,737 1.8 1,595,557 1.6 Property, Plant & Equip.
Cash Cycle 149.00 149.00 149.00 149.00 Costs 19,403,446 33.8 19,403,446 34.6 19,403,446 35.2 19,403,446 35.8
Less Interest Expenses 0 0.0 0 0.0 0 0.0 0 0.0 Less accumulated depreciation 14,931,911 26.0 14,293,120 25.5 13,563,073 24.6 12,728,735 23.5
PROFITABILITY (%) Income Tax 570,128 0.5 512,608 0.5 453,434 0.4 398,889 0.4 Net Value 4,471,535 7.8 5,110,326 9.1 5,840,372 10.6 6,674,711 12.3
Due From Related Co. 0 0.0 0 0.0 0 0.0 0 0.0
Gross profit margin 7.00 7.00 7.00 7.00 Profit before Extraordinary Items 1,710,385 1.5 1,537,825 1.4 1,360,303 1.3 1,196,667 1.2 Other Assets 2,862,744 5.0 3,062,744 5.5 3,262,744 5.9 3,462,744 6.4
Net Profit Margin 1.51 1.43 1.32 1.22 Extraordinary Items 0 0.0 0 0.0 0 0.0 0 0.0
Return on Assets 2.98 2.74 2.47 2.21 TOTAL ASSETS............................................57,409,178 100.0 56,104,783 100.0 55,105,543 100.0 54,190,624 100.0
Return on Equity 5.13 4.86 4.52 4.17 Net Profit 1,710,385 1.5 1,537,825 1.4 1,360,303 1.3 1,196,667 1.2
CURRENT LIABILITIES
SOLVENCY (Times) Dividend Payout 0 0 0 0 Short-term loans 23,184,317 40.4 23,604,010 42.1 24,154,930 43.8 24,612,777 45.4
Notes & accounts payable (trade) 287,772 0.5 274,068 0.5 261,733 0.5 249,269 0.5
Leverage (D/E) 0.72 0.77 0.83 0.89 Accrued expenses 600,000 1.0 600,000 1.1 600,000 1.1 600,000 1.1
Interest Coverage N/A N/A N/A #DIV/0! Current L/T Liabilities 0 0.0 0 0.0 0 0.0 0 0.0
Other current liabilities 0 0.0 0 0.0 0 0.0 0 0.0
DIVIDEND PAYMENT Total current Liabilities 24,072,088 41.9 24,478,078 43.6 25,016,663 45.4 25,462,046 47.0
Dividend Payout Ratio 0.0% 0.0% 0.0% 0.0% Long-Term Liabilities 0 0.0 0 0.0 0 0.0 0 0.0
Due To Related Co. 0 0.0 0 0.0 0 0.0 0 0.0
Other Liabilities 0 0.0 0 0.0 0 0.0 0 0.0
TOTAL LIABILITIES…………………………….24,072,088 41.9 24,478,078 43.6 25,016,663 45.4 25,462,046 47.0
SHARE HOLDERS' EQUITIES
Capital 17,396,371 30.3 17,396,371 31.0 17,396,371 31.6 17,396,371 32.1
Exchange rate gain (loss) 0 0.0 0 0.0 0 0.0 0 0.0
Capital reserve 0 0.0 0 0.0 0 0.0 0 0.0
Legal reserve 0 0.0 0 0.0 0 0.0 0 0.0
Minority interest 0 0.0 0 0.0 0 0.0 0 0.0
Retained Earnings (deficits) 15,940,719 27.8 14,230,335 25.4 12,692,510 23.0 11,332,207 20.9
Total Shareholders' Equities 33,337,090 58.1 31,626,705 56.4 30,088,880 54.6 28,728,577 53.0
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITIES.........57,409,178 100.0 56,104,783 100.0 55,105,543 100.0 54,190,624 100.0
Page 14/15

16. MB) (Unit:RMB)
2014 (F) 2013 (F) 2012 (F) 2011 (F)
Net Income 1,710,385 1,537,825 1,360,303 1,196,667
Add : Depreciation/Amortization 638,791 730,047 834,339 953,530
Change in Trade & Other Receivable (1,252,463) (1,127,462) (1,139,134) (22,435,857)
Change in Inventories (890,722) (801,824) (810,125) (10,783,510)
Change in Prepayments 0 0 0 0
Change in Trade Payable 13,703 12,336 12,463 205,369
Change in Other Current Assets 0 0 0 0
Change in Oth. Cur. Lia., Accu. Exp, Tax Payable 0 0 0 (553,051)
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
NET CASH FROM OPERATING ACTIVITIES 219,693 350,921 257,847 (31,416,851)
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES
Change in Property, Plant and Equipment 0 0 0 0
Change in Short Term Investment 0 0 0 0
Change in Long Term Investment 0 0 0 0
Change in S-T Loan to Related Companies 0 0 0 0
Change in L-T Loan to Related Companies 0 0 0 0
Change in Receivables & Loans to Directors 0 0 0 0
Change in Intangible Assets 0 0 0 0
Change in Other Long Term Assets 200,000 200,000 200,000 200,000
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
NET CASH FROM INVESTING ACTIVITIES 200,000 200,000 200,000 200,000
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES
Change in Short Term Bank Borrowing (419,693) (550,921) (457,847) 24,612,777
Change in Long Term Liabilities 0 0 0 0
Change in Loans from Directors 0 0 0 0
Change in S-T Loan from Related Companies 0 0 0 0
Change in L-T Loan from Related Companies 0 0 0 0
Change in Other Long Liabilities 0 0 0 0
Change in Paid-up Capital 0 0 0 0
Change in Minority Interest/Reserve 0 0 0 (1,126,171)
Change in Premium on Share Capital 0 0 0 0
Adjusting to Retained Earnings 0 0 0 0
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
NET CASH FROM FINANCING ACTIVITIES (419,693) (550,921) (457,847) 23,486,606
----------------------------------------------------------------------------------- ------------------ ------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN CASH (0) (0) 0 (7,730,245)
Cash on hand at the Beginning 3,000,000 3,000,000 3,000,000 10,730,245
Cash on hand at the Ending 3,000,000 3,000,000 3,000,000 3,000,000
Operating Cash Flow
TOTAL BANK DEBTS/CASH FLOW FROM OPERATING
ACTIVITIES
67.26 93.68 (0.78)105.53
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17. Appendix II: Financial Projection
AAA Road Material Co., Ltd
Key Assumptions
Revenue
2010(A) G% 2011F G% 2012F G% 2013F G% 2014F G%G%
Product A - PMA
- Total Capacity Ton/Year 73,000 73,000 73,000 73,000 73,000
Utilization Rate % 15.83% 17.45% 19.20% 21.15% 23.30%
- Actual Production Ton 11,556 12,739 10.23% 14,016 10.03% 15,440 10.16% 17,009 10.17%
- ASP Yuan/Ton 4,618 5,200 12.60% 5,460 5.00% 5,740 5.13% 6,030 5.05%
Yuan 53,365,146 66,240,200 24.13% 76,527,360 15.53% 88,622,730 15.81% 102,564,270 15.73%
Product B - AC
- Total Capacity Ton/Year 36,500 36,500 36,500 36,500 36,500
Utilization Rate % 25.84% 27.15% 28.50% 30.00% 31.50%
- Actual Production Ton 9,432 9,432 0.00% 9,432 0.00% 9,432 0.00% 9,432 0.00%
- ASP Yuan/Ton 3,902 4,200 7.64% 4,410 5.00% 4,630 4.99% 4,860 4.97%
Yuan 36,802,103 39,614,400 7.64% 41,595,120 5.00% 43,670,160 4.99% 45,839,520 4.97%
5.0%
Total Revenue (RMB) 90,167,249 97,831,466 8.50% 102,723,039 5.00% 107,859,191 5.00% 113,252,150 5.00%
Expenses
COGS/Sales % 86.0% 93.0% 93.0% 93.0% 93.0%
Operating Expense/Sales % 4.5% 4.5% 4.5% 4.5% 4.5%
Cash Cycle
Days Receivable Day 0.7 85 85 85 85
Days Inventory Day 11.7 65 65 65 65
Days Payable Day 1.0 1 1 1 1
Cash Cycle Day 13.4 149 149 149 149
Minimum Cash Balance Yuan 3,000,000 3,000,000 3,000,000 3,000,000
CAPEX
Expansion Capital Expense 0 0 0 0
Replacement Capital Expense 0 0 0 0
Total CAPEX 0 0 0 0
Fixed Assets & Depreciation
Beginning Book value 19,840,641 19,403,446 19,403,446 19,403,446 19,403,446
CAPEX - - - -
Ending Book value 19,403,446 19,403,446 19,403,446 19,403,446 19,403,446
Previous Net Fixed Assets + CAPEX 7,628,241 6,674,711 5,840,372 5,110,326
Residual Value of Fixed Assets - - - -
Depreciable Year 8 8 8 8
Depreciation Expense 953,530 834,339 730,047 638,791
Ending Net Fixed Assets 7,628,241 6,674,711 5,840,372 5,110,326 4,471,535
Accumulated Depreciation 11,775,204 12,728,735 13,563,073 14,293,120 14,931,911
Borrowing & Interest Expense
Beginning LT Loan - - - -
Change of LT Loan - - - -
Ending LT Loan - - - - -
Current LT Loan - - -
Interest Rate 6.30% 6.30% 6.30%
Interest Expense - - -
Beginning STL 126,000,000 0 0 0
Change of STL -126,000,000 0 0 0
Ending STL 126,000,000 0 0 0 0
Interest Rate 7.02% 7.02% 7.02% 7.02%
Interest Expense 0 0 0 0
Beginning Shareholder Loan - - - -
Change of Shareholder Loan 0 0 0
Ending Shareholder Loan - - - - - -
Interest Rate 1.00% 1.00% 1.00%
Interest Expense - - -
Total Annual Interest Expense - - - -
Revenue From Product B
Revenue From Product A
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