Analyzing Bargain Stocks

This is a case of a live special situation – a ‘take private’ offer by the controlling shareholders to the minority shareholders - at $4.19/share. Changshouhua (Company) is a Hong Kong listed company engaged in the manufacture and distribution of edible oils.   It operates via three segments: a) Own brand edible oil (‘Longevity Flower’) – 78% of sales; b) Non-branded/bulk edible oil – 8%; and c) Corn meal – 15%. It has an extensive distribution network of 1,437 wholesale distributors and 150 retailers – totaling 390,000 sales locations – covering all provinces of mainland China. Management plans to expand its product offerings to include other condiments to create a retail brand, and it intends to expand further in China. Sales were $3.2b and net income was $333m for the last twelve months. The company moved towards focusing on its own brand sales over recent years, and profit margins picked up as a result. Covid-19 has disrupted business – but the own-brand business held u...

MS Group (group) is a Hong Kong listed company engaged in the manufacture of plastic bottles and cups for infants and toddlers, and plastic sports bottles. It operates via two segments a) Production for original equipment manufacturers (OEM) for overseas markets (85% of total sales) - primarily in the USA (two customers account for 91% of OEM sales); and b) Production under its own brand ‘Yo Yo Monkey’ for the China market (15% of sales). It has suffered a reduction in orders due to Covid-19 as retail shopping was curtailed. It has also suffered from US tariffs on its products (this can get exacerbated with further tariffs). The company generated fairly steady sales peaking at $262m in 2019 and declining to $236m (ttm). Ebitda margins have compressed over the years though it has turned upwards in the last twelve months (to 13.2%) due to the drop in plastic resin (raw material) prices and labour/production cost control measures. Net income (ttm) was $14m. The company listed its ...

Sinomedia is a Hong Kong listed company engaged in the provision of television advertising, creative content production, and digital marketing services. It operates through four segments: a) Television media resources management (80% of revenues), b) Integrated communication services and content operations (5%), c) Digital marketing and internet media (9%), and d) Rental income from investment properties (6%). The company owns China CCTV’s advertising agency business with the clout to place advertising on several of its prominent channels. It also has exclusive advertising agreements with CNBC and Fox Network. Moreover, it boasts a prominent client base in its integrated communication services segment including various national and provincial governments. The advertising market was weak from the year ended 2019 and this was exacerbated by Covid-19 with sales down 17% over the year. The company reported operating losses over the last 1½ years. Operating cash flows have been positive...

Wong’s Kong King (‘Group’) is a Hong Kong listed group engaged in two activities: 1) the trading and distribution of chemicals, and materials used in the manufacture of printed circuit boards and electronic products; and 2) Manufacture of electrical and electronic products. In a normal year (2019), the revenue is split 40/60 for trading/manufacturing activities. EBITDA margins for both segments are below 5% but manufacturing activities have been harder hit during the Covid-19 pandemic resulting in losses for the segment in the last six months. Customers couldn’t visit the manufacturing facilities to finalize orders as a result of border closures. After finance costs, the group reported overall losses for the last six months. Sales have been steady at about $5bn and ebitda of $140m-$200m over the last five years. Ttm print for sales and ebitda were $4.8b and $138m. After depreciation and taxes, normal earning power averaged $80m. The group’s financial position is healthy with $571...

Computime is a Hong Kong listed company manufacturing electronic control products. It operated in two segments: a) Smart Solutions and b) Contract manufacturing services. ‘Smart solutions’: Building, home control, and appliance control products (‘Internet-of-Things’ or IOT devices). It generates 36% of sales. ‘Contract manufacturing’: Commercial and industrial control products, generating 64% of sales. The company generates 50% of sales from Europe, 30% from North America, and 20% from Asia. Sales have been stable at $3.2b. Ebitda margins have averaged 5-6% resulting in $169m in the last year. Net profits, however, have been anaemic in the last two financial years – at $10-11m – primarily due to a reduction in gross profits. The US-China trade tensions (some of the company’s products were hit by 25% tariffs) and Brexit caused apprehension in the US and European markets causing customers to be more conservative with orders and shipment scheduling from China. Sales reduced further due to...

IPE is a Hong Kong listed company engaged in the manufacture of high-precision metal components used in automotive parts, hydraulic equipment, hard disk drives, and electronics. Its customers are top-tier multi-national companies in information technology, fluid power, automotive, and electronic sectors where optimal precision is vital. Its major sales by country are split as follows: China (44% of sales), Europe (20%), US (19%), Malaysia (12%) The business is highly capital intensive and has high operating leverage. Such a cost structure reduces profits substantially during downturns. The company has been hit by Covid-19 with mandated disruptions in its production and shutdowns of its customers operations. Prior to that, it was hit by US tariffs on its products. The business generated peak sales and ebitda in 2017 of $940m and $281m respectively – falling to $747m and $130m in the last twelve months. High depreciation charges reduced the net profits to $27m (ttm). Net profits ...

361 Degrees is engaged in the manufacture and distribution of sports footwear, apparel, and accessories – with a leading presence in third and lower-tier cities throughout China. It sponsors various high-profile events (including the Hangzhou Asian Games in 2022), the Chinese national team in several sports, and several celebrities. It operates primarily in two market segments – Adults (85% of sales) and Kids (15% of sales). Product segments within Adults is primarily comprised of footwear (42% of total sales), and apparel (41%). Sales and earnings were hit due to Covid-19, with both dropping by 16 and 17% respectively over the previous year. Overall gross margins dropped by 3% to 38%. In addition, receivables have increased to help distributors cope with adverse operating conditions during these months. Further, the company has pursued partnerships to increase its e-commerce distribution. Sales and earnings grew steadily to $6.4b and $490m respectively in 2019. Ttm sales and earnings ...