I think that's a decent analogy in that accounting 'profit' and cash received usually moved in opposite directions.
With SGH, they booked profits on their WIP based on an expected amount collected by a certain time - so the timing, size and loss rate of the 'harvest' of the WIP were the big assumptions, obviously these turned out to be based on hopelessly optimistic projections and they had a large restatement of past accounts that exposed their lack of genuine profitability and lack of cash flow.
With QIN, the bear argument is that the assumptions underlying the biological assets (effectively WIP) on the balance sheet are also based off hopelessly optimistic projections:
View attachment 551613
Yield
Now from the project level accounts, the average projected yield at harvest for the 2002-2015 projects is 12.1kg/tree with a high for the 2011-2015 vintages of 15.7kg/tree - clearly that's because those trees are too immature to measure how they are tracking in size vs the model. Of the projects that have moved away from the 15.7kg assumption (which is every project older than 5 years), the average is only 10.5kg/tree, and no projects have been revised up.
|
Column 1 |
Column 2 |
1 |
Project |
kg/tree |
2 |
2002 |
10.5 |
3 |
2003 gold |
10.6 |
4 |
2003 |
10.9 |
5 |
2004 prem |
8.4 |
6 |
2004 |
7.7 |
7 |
2005 |
8.7 |
8 |
2006 |
8.7 |
9 |
2007 |
10.5 |
10 |
2008 |
12.1 |
11 |
2009 |
13.3 |
12 |
2010 |
14.8 |
13 |
2011 |
15.7 |
14 |
2012 |
15.7 |
15 |
2013 |
15.7 |
16 |
2014 |
15.7 |
17 |
2015 |
15.7 |
So it is difficult to work out how to tally the 19.8kg/tree that underpins the balance sheet (and ultimately any future cashflows at harvest time) with the realised experience with the MIS projects of around 10.5kg.
Pricing
The company accounts seem to project a price of USD2800/kg of sandalwood oil into perpetuity, despite QIN claiming that by 2025 they are going to be producing 9x the entire size of the current global market. These pricing projections are based on a report from an undisclosed related party. That means that they believe prices won't adapt to a monstrous increase in global supply of sandalwood, despite them needing to develop totally brand new markets - that assumption doesn't even begin to pass economics 101.