Analyzing Bargain Stocks

Texhong (‘company’) is engaged in cotton textile manufacturing and is the second largest operator in China by revenues. Its primary products are yarn (78% of revenues), and knitted garment fabrics (20%). It also sells grey fabrics and non-woven fabrics. Its profits are primarily generated in China (49%) and South East Asia (48%), along with the US and others. Tangible assets are primarily located in China (90%) and the rest in South East Asia (mostly Vietnam). Its primary raw material is cotton and is exposed to escalations in prices, which hit decade highs in 2021. Trade payables are denominated mostly in US$. Sales and profits rose in 2021 compared to 2020 to 26.5b rmb and 2.7b rmb respectively (PY: 19.6b and 530m) – primarily due to finished goods pricing increases. Though revenues in the primary yarn segment were up 34%, volumes were up only 9%. The results appear to be a result of abnormally good operating conditions. Taking normal revenues of 22-23b rmb (achieved in 2019) a

China High Speed Transmission Equipment Group (‘company’) is a leading supplier of wind gear transmission equipment for wind turbine manufacturers. It also supplies industrial gears for the heavy equipment market. This combined segment (‘wind’) contributed 90% of profits. It concentrates on the 2MW-7MW wind turbine market though prototypes for 8MW-15MW are in the pipeline. It supplies the leading manufacturers in China as well as prominent overseas manufacturers such as GE, Siemens, Suzlon, and Doosan (15% export sales). In addition, it manufactures rail transport gear transmission equipment (2% of sales) and started a trading business in 2020 dealing mostly in refined oil, electrolytic copper, and steel products (30% of sales but only 5% of profits). Though sales in the wind segment were up 3.3% over the year, segment profit margins declined from 14.5% to 11%. In addition, operating cash flows were strained with large working capital requirements resulting in outflows of 1.5b rm