Ka Shui International Holdings Limited
Ka Shui (‘Company’) is engaged in the manufacturing and sales of magnesium,
zinc, and aluminum alloy die castings, plastic injection products and
components, trading of lighting products and home appliances, and provision of
motor vehicle repair services.
It generates 46% of its revenues from the plastic injection segment, 34%
from magnesium alloy die castings, 8% each from zinc and aluminium alloy die
castings, and 4% from other segments.
Its plastic products are used primarily in mobile phones and its magnesium
products are used primarily in notebook computer casings. Its products also
have applications in precision components, automotive, and construction industries.
The company has achieved leading positions in its industries and caters to established
brand names in the PC and automobile industries.
The company was hit hard by the US-China trade tensions as customers
reduced orders due to tariffs. The pandemic added further uncertainty and
diminished sales further.
This is evident in the trend of the company’s sales declining to $1.5b
in the last twelve months compared to a peak of $1.9b in 2018. However, it has achieved
operational efficiencies and after integrating its production processes in
2019, it reported higher earnings in the last twelve months – ebitda of $241m
and net profits of $125m compared to 2018 (2018: $227m and $114m respectively).
We estimate it can achieve at least $110m in earnings going forward,
which is conservative. Free cash flows (net of capital expenditures) have
averaged $60m/year in the last five years.
The financial position is strong with $73m in net cash. The current and
liquid asset ratios were satisfactory.
The stock sells for $483m, which is about 4x conservative earnings with
a free cash flow yield of over 12%/year.
Management have been fairly conservative with dividend payouts – paying about
$27m in final and interim dividends in the last twelve months, yielding 5.6%.
The company has good prospects with increased demand for 5G compatible
mobile phones, and increased demand for efficient light-weight heat dissipation
products for notebook computers and energy-efficient automobiles. It is also exploring
ASEAN countries for setting manufacturing bases (to offset tariffs), and as
potential markets.
The current valuation appears to undervalue the quality of this company.