Analyzing Bargain Stocks

Consun (‘Group’) sells modern and traditional Chinese medicines via its ‘Conson’ (87% of sales) and ‘Yulin’ (13%) segments respectively. The group’s kidney medicines – Uremic clearance granules - contributes 70% of sales. These are sold along with contrast medium used in magnetic resonance imaging (MRI), orthopedic medicines, dermatologic medicines, and medicines for women and children among others. It holds leading market positions in uremic clearance granules and contrast medium segments. The effects of Covid-19 decreased sales of all product lines except the kidney medicines (which reported a modest increase), and impaired some of the aged receivables. In 2019, management wrote down all the goodwill on the Yulin segment ($350m) due to significant declines in sales and diminished prospects. These factors depressed TTM and 2019 earnings. TTM sales were $1.7b – down from a high of $2.2b in 2018. TTM ebitda was $539m (2019: $638m) and ttm net profits were depressed at $41m (2019: $91m)

Dawnrays (‘Group’) is in the business of manufacturing and selling non-patented pharmaceutical medicines - including a) intermediate pharmaceutical and bulk drugs (22% of sales); and b) finished drugs (78% of sales). It generates 90% of its sales within China and exports the rest primarily to Russia, Turkey, and Pakistan. The group also has an investment in a joint venture to research and develop biopharmaceutical products and technologies (currently loss-making). Covid-19 reduced patient visits to hospitals and intake of the group’s drugs. The group also suffered supply bottlenecks as some production had to be suspended. However, the major varieties of its products are sold via centralized procurement by the state – for which it won several bids. This stabilized revenues and reduced production costs arising from enhanced scale. The group reported ttm sales of $1.05b (2019: $1.08b), ebitda of $433m (2019: $462m) and net profits of $260m (2019: $290m). The financial position w

Design Capital (‘Company’) is engaged in three business segments: It a) sources and supplies furniture to the US market via third-party e-commerce channels (70-80% of revenues); b) sources and retails furniture to the Singapore market via its own branded retail stores (12%-16%); and c) provides interior design services in Singapore. Most of the segment profits are also generated by US furniture sales (67-92% of pre-tax profits in the last two years). The Singapore furniture segment results are comparatively marginal and the interior design service earnings fluctuate with the local property market. The US segment performed well during the pandemic with increases in sales and profits as customers opted for e-commerce purchases of furniture. This performance was enough to offset the declines in the Singapore segments, which suffered from lockdowns. The US operation was affected, however, by increased tariffs that reduced gross margins. The company reported ttm sales of $663m (2019: $662m)

Qilu (‘Company’) is the toll operator of the Jihe expressway in Shandong province. It entered into a build-operate-transfer agreement with the Shandong transport authority to operate the expressway till 2034. The latest balance sheet as at June 30 th is relatively simple with intangibles representing the toll operating rights of $2.9b and excess net cash of $1b – arising from a public offering in 2018 to acquire other toll rights. Net book value was reported at $3.9b. Average net earnings (after amortization) were roughly $530m/year. The stock sells for $3.5b representing apparently attractive multiples of 6.6x earnings and a modest discount from book value, along with a 9% dividend yield. But this misses a significant acquisition made after the interim report that changes the face of the financials. On September 14 th , the company acquired toll rights to two expressways from Qilu Transportation, which were: a) Deshang expressway (expiring in 2040) and b) Shennan expressway (expiring

Asia Standard Hotel (‘Group’) owns and operates five hotels ('Empire') in Hong Kong. It is also engaged in four residential property development projects in Vancouver via joint ventures. The group also owns a substantial portfolio of listed non-investment grade debt – mostly lent to property developers in China. Since the value of this group is based on its tangible assets, we begin with the balance sheet (all figures are as at March 31, 2020 as the latest interim report isn’t released yet): The net tangible assets are reported as $3.52b. This includes gross borrowings of $6.79b with interest rates of 1.49% to 3.82% - of which, $1.10b was due within one year. To offset this, there were listed debt investments of $6.22b and cash of $331m. The debt was valued at 81 cents of face value and rated at ‘B’ or below (non-investment grade). These had interest rates of 7.75% to 15.50% with maturities before June 2025 and were mostly US$ denominated ($5.80b). The above market values were

Vedan (‘Group’) is engaged in the business of manufacturing and selling Monosodium Glutamate ‘MSG’ (64.4% of revenues), modified starch (17.4%), specialty chemicals (5.3%), fertilizer and feed products (6.8%), and others including trading of coffee beans and bulk food ingredients. These products are sold to food distributors, international trading companies, and operators in the paper, textiles, and chemical industries. The group sells its products in Vietnam (47% of sales), Japan (18%), China (12%), USA (7%), Taiwan (6%), ASEAN countries excl Vietnam (7%), and others. Its production assets are also primarily based in Vietnam (87% of assets) along with China (11%) among others. The group experienced only a moderate decline (<1%) in revenues in the last six months as decreases in sales to Vietnam and Japan were offset by increases in China. Gross profits declined by 12%, however, because of increases in raw material costs that couldn’t be passed on to customers. The primary raw m

Ming Fai (‘Company’) manufactures hospitality supplies (86% of 2019 revenues), trades operating supplies and equipment (7%) – both segments catering to hotels - and manufactures healthcare and hygiene products (7%). Its hospitality supplies segment is diversified across the world with sales to China (33% of 2019 segment revenues), North America (21%), Hong Kong (16%), Asia Pacific (15%), Europe (12%), Australia (2%), and others. The above segment was badly impacted by Covid-19 and US-China trade tensions. Hotel occupancy fell dramatically, and customers deferred purchase orders. Further, tariffs impacted the North American operations. Revenues for the hospitality and operating supplies segments were down 52% and 32% respectively. However, the company deftly switched production lines to manufacture various healthcare products to counter the pandemic such as alcoholic disinfectant hand sprays, wet wipes and anti-epidemic travel kits – all meeting Hong Kong regulatory quality standards. A

Luks (‘Group’) is engaged primarily in the following businesses a) cement (24% of net assets) b) property investment (48%) and c) hotel operations (22%) among others. The investment property portfolio generates most of the group’s profits currently (via rental income) followed by the cement business. The hotels segment is loss-making. The group holds several properties in Vietnam, Hong Kong, and China – but the queen jewel is the Saigon Trade Centre located in the central business district of Ho Chi Minh. The pandemic hasn’t significantly affected this property with an occupancy rate of 81% (vs 82% in 2019), which was offset by a 7% rental increase. It operates the cement business out of central Vietnam and sells domestically as well as to nearby countries – Philippines, Bangladesh, and China. The pandemic has depressed the construction industry as infrastructure and transportation projects are suspended. It operates one hotel in Hong Kong – ‘Pentahotel Tuen Mun’, which began operation

This is a case of a live acquisition offer. Amvig (‘Company’) is in the business of printing cigarette packages (98% of revenues) and manufacturing transfer paper and laser film. It generates 90% of sales within China. Golden Vision Buyout Fund (‘Acquirer’) has acquired 47.63% of the shares from the previous largest shareholder. Under Hong Kong rules, it is obligated to make an offer for the remaining shares on the same terms. Their offer is $2.18/share in cash - valuing the company at just over $2b. The stock is currently trading at $2.17/share. Shareholders have until December 9 th to accept the offer. There’s a 6c interim dividend payable to shareholders on record at December 4 th . After that, the offer will be adjusted downward to $2.12/share. The question before existing shareholders is whether to accept the offer or ignore it. The primary consideration is whether the company is worth far more than the offer price. The secondary consideration is if there are competing bids (none

Weiqiao (‘Company’) is engaged in the manufacture and sale of fabrics (66.2% of sales), and generation and sale of electricity and steam (33.8%). In its fabrics segment, it sells cotton yarn (over 400,000 tons constituting 38.8% of fabric sales), grey fabric (over 830m meters - 55.4%), and denim (over 60m meters - 5.8%). The company sells 2/3rds of its fabrics within China and the balance is exported - mostly throughout Asia. This division has generated losses since 2018 due to the declining price of cotton and sluggish demand in the domestic and overseas markets. The electricity and steam segment generates all the profit currently – and 45% of it is sold to the parent company. It has an installed thermal power generation capacity of 2760 megawatts, generates about 17,000 million kWh and sells about 15,000 million kWh. The pandemic has further reduced sales in both segments as a result of delays/suspensions in orders of fabrics and lower downstream electricity demand. The company gener

Chinney (‘Group’) is engaged in the provision of building-related contracting services (42% of revenues), foundation piling/ground investigation (31%), building construction (14%), and trading plastic/chemical products (8%) among others (5%). This group owns 74.5% of Chinney Kin Wing Holdings Limited (CKW), which we covered here: https://analyzingbargainstocks.blogspot.com/2020/10/chinney-kin-wing-holdings-limited-ckw.html . The group’s revenues fell as a result of Covid-19 and social unrest in Hong Kong, which delayed several projects. Further, its major projects were at their initial stages impacting revenue recognition. Moreover, the plastics/chemicals business was badly affected by US tariffs. The group reported TTM revenues of $4.9b (2019: 5.2b), ebitda of $241m (2019: $286m) and net profits of $98m (2019: $131m). This compares to peak revenues of $6.1b in 2018. We think enhanced revenues due to government focus on new housing supply, and slightly lower margins due to competition,

Jiashili (‘Group’) manufactures and sells biscuits within China via a network of distributors.  It sells over 53,000 tons of biscuits/year under the following categories: breakfast, crisp, sandwich, wafers, coarse grain, and others. Its sandwich and breakfast biscuits are the two largest product segments – each contributing 27% of sales, and 31% and 23% of gross profits respectively. The group had to halt manufacturing for a month during the pandemic lockdown. Further, its sandwich biscuits segment saw declines in sales for the first time as the prolonged suspension of school reduced demand from the younger customers it serves. TTM sales were $1.76b (2019: 1.81b); ebitda was $175m (2019: $202m) and net profits were $104m (2019: $124m). The financial position is reasonably stable with a marginal net cash position. The liquid asset ratio was below par at 0.9:1 but not a major cause for concern. Management have made questionable capital allocations of $112m to a partnership inve

Henan Jinma (‘Company’) is a leading vertically-integrated manufacturer of coke and coke-related products (from coal) supplying central and western China. It is engaged in producing refined chemicals (benzene-based and coal tar-based), energy products (coal gas and LNG), trading (coke, coal, refined oil, mining equipment), and other activities (railway storage and logistics, etc.) Its revenue share from the business segments are: Coke (53%), Refined Chemicals (15%), Trading (25%), and Energy (7%). The vast majority of profits (86%) are from the coke segment. The coke segment is primarily dependent on the spread between coal and coke prices. This spread was fairly tight before 2017 and has widened since then. The primary demand is from the iron and steel industries. The coal-based chemicals and energy businesses compete with petrol-based businesses, and are therefore dependent on petrol prices. The trading business is derived from the company’s long-standing relationships with coal supp

Kinetic Mines (‘Company’) is a leading integrated coal producer with production facilities in inner Mongolia. It’s involved in the entire coal production chain – mining, washing, loading, transportation, and trading. It has an annual processing capacity of 5m tons/year and has access to coal resources of 413m tons plus reserves of 165m tons – which is over a century of production at the current rate. The industry suffered a decline in demand for electricity as factories reeled from the effects of the Covid-19 pandemic and US-China trade tensions. The supply of coal was fairly well maintained, however, resulting in lower average coal prices during 2020. The company performed well during this period by controlling costs. It reported TTM sales of $3b (2019: $3.1b), ebitda of $1.2b (2019: $1.2b) and net profits of $890m (2019: $945m). Coal prices were about 7.5% lower over the year but the company sold 7.5% higher volumes. We think the company can continue to achieve sales of $3.1b

Tian Chang (‘Group’) manufactures e-cigarettes on an OEM basis, and plastic moulds and components. Recently it also entered the production of face masks (meeting international standards) under the medical consumables segment. It generated 59% of its revenues from e-cigarettes, 40% from plastics, and the residue from the nascent medical consumables business. The group manufactures e-cigarettes for the “Blu” brand owned by tobacco giant Imperial Brands. Blu has the third highest market share in the world at 4.2%. The group has been producing for the brand since 2013. Its ultimate sales are spread across Netherlands, USA, China, and UK among others. Its plastic components are used in office furniture, electronic products, home appliances, communication products, and automobiles. It boasts of customers such as Canon, Panasonic, Brother, and Herman Miller. Its revenues fell over 56% in the last six months due to the Covid-19 pandemic as customers delayed or suspended orders. Moreove

China Bluechemical (‘Company’) manufactures chemical fertilizers and chemical products. Its immediate and ultimate parent is the state-owned China National Offshore Oil Corporation (CNOOC), which holds 59.4% of the shares. 38.4% of the shares are listed on the Hong Kong stock exchange. The company has plenty of dealings with state-owned enterprises from purchase of materials to investments in associates and joint ventures, which may be considered a source of strength in this context. Its primary segments are fertilizers: Urea (42% of revenues), Phosphate and Compound fertilizers (18%); chemical products: Methanol (22%); and others (18%): port operations, transport services, trading of fertilizers/chemicals, manufacture of bulk blending fertilizers, polyformaldehyde, and woven plastic bags. The demand for fertilizers is essential for grain farming, and this is a priority for the government. The chemical product prices are directly proportional to crude oil prices. Apart from flu

West China Cement (‘Company’) produces and sells cement primarily in Western China. It operates several cement plants around the region and pursues acquisitions of cement plants in relatively under-developed (nearby) provinces. Separately, about 20% of its capital is employed in loan financing – mostly secured sale and leaseback transactions for two years and under at 10% to 15%/year. Its manufacturing business currently has a total production capacity of 29.2m tons of cement, 15.1m tons of aggregates, and 8m cubic metres of commercial concrete. The primary concern with the cement business is its inherent cyclicality. The company is a market leader in its area and has managed its expansion reasonably well. Its recent half-yearly revenues dropped 9% as a result of Covid-19, which halted production from late January to late February. It enjoyed cost decreases in coal (22%) but this was offset by increases in limestone costs (15%). The company implemented cost control and efficiency measu

Tianyun (‘Company’) is a leading player in the business of manufacturing processed fruit products and trading of fresh fruits. It manufactures processed fruit products under its own brands in China and also for OEMs on five continents. Its approximate revenue split is: Own brands (52%), OEM (39%), Trading fresh fruits (9%). The coronavirus pandemic dented sales in the first quarter of 2020 by dampening retail demand and disrupting manufacturing and logistics. Operations were fully halted between late January and late February. This resulted in a 33% decline in revenues in the first half of the year and similar declines in earnings. Sales in the last twelve months were $1b compared to a peak of $1.2b in 2019. Net profits were $163m (ttm) and $192m (2019). Ebitda margins have been fairly stable at about 25%. The company has been constantly adding production capacities (next batch operational in late 2021) and implementing operational efficiencies. Considering this and the stable