Analyzing Bargain Stocks

Able Engineering (‘Company’) is engaged primarily in building construction works focused exclusively in Hong Kong. It specializes in executing public sector contracts for housing and hospitals. Three customers accounted for 87% of its revenues. The social unrest in Hong Kong and political wrangling over funding affected the progress of tenders and awards of public sector projects in the recent financial year. Further, Covid-19 caused suspension in site works this year. Moreover, the company decided to demolish and re-build its investment property resulting in a loss of $7m/year in rental income for the time being. The company accounts for revenue using the output method based on customer certifications of contract progress. The company reported revenues of $1.5b in the last financial year, which declined from $2.4b in 2019 (representative of the recent past). Operating earnings before depreciation and taxes fell correspondingly to $100m from $190m in 2019. The balance sheet w

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

Come Sure (‘Group’) is Hong Kong listed and engaged in the manufacture and sale of corrugated paperboards and paper-based packaging products. It occupies a leading position in this industry with a diversified customer base. It generates 80% of its sales in mainland China, 13% in Hong Kong, and 7% in Macau. The industry has stagnated recently primarily as a result of factory shutdowns caused by the pandemic and reductions in orders from customers exporting to the US caused by the Sino-US trade tensions. Further, the Chinese government has recently instituted stringent environmental protection regulations, which has placed additional operational burdens on several smaller players in the industry. This has created opportunities, however, for larger players like the Group to seize market share and participate in growth in demand for paper packaging as it replaces plastic packaging. The group reported sales of $1b, ebitda of $79m, and net profits of $12m in 2020. It didn’t operate its

Lonking (‘company’) is a Hong Kong listed manufacturer of construction machinery - dealing in wheel loaders (50% of revenues), excavators (20%), forklifts (20%), components (9%), and road rollers (1%). It generates 95% of its revenues from mainland China, and 5% from exports. It is the domestic market leader in wheel loaders (with its flagship ZL50 model) and holds leading positions in the other product segments. Covid-19 hit the construction industry but recovered after March due to the government’s infrastructure investment policy. The company managed well during this period recording less than a 4% decline in revenues over the previous year and increasing earnings as a result of cost control measures. It reported steadily growing sales over the years generating $12.7b in the last twelve months (2019: $13.3b). Ebitda margins have been reasonably well maintained in the 14-15% range. Ttm ebitda was $1.9b and consistent with normal margins. Deducting depreciation and taxes results

Lion Rock (‘Group’) is a Hong Kong-listed provider of printing services to international book publishers, publishing conglomerates, and print media companies. All of its revenues are generated outside Hong Kong with the USA, Australia, and UK contributing 85% of revenues. The pandemic has severely impacted the book industry with customers suspending or cancelling orders resulting in 25% lower sales in the last six months compared to the previous period. Further, the Sino-US trade spat has imposed additional tariffs on the group’s production in China and Hong Kong. However, its Singapore subsidiary has received additional orders to offset this. It has also increased investments in a Malaysian subsidiary to further mitigate the impact of the tariffs. For diversification, it has increased investments in its associate (and top five customer) - Quarto Group, a leading non-fiction publisher incorporated in the USA and listed in London – by purchasing stakes at quoted market value from an

Sanbase is a small Hong Kong listed company that is a leading provider of one-stop interior fit-out solutions for Grade A offices – primarily in Hong Kong, and also in mainland China. It listed in January 2018 and is operationally well run with a consistent track record of revenues and profits. It operates with an array of subcontractors and concentrates on quality as well as cost control. As a result, it has generated higher earnings despite a 19.3% fall in revenues as a result of Covid-19. Customers have delayed or suspended fit-out activities and further, the company faced intense pressures in winning new contracts and collecting payments. It reported sales of $604m and earnings of $17m in the last twelve months. We consider 2019 sales and earnings of $650m and $28m, however, to reflect normal operating conditions. The balance sheet was strong with excess cash of $35m and a liquid asset ratio of 1.2:1. The stock recently sold at $92m ($0.46/share) or just over 3x normal ea

China Starch (‘Company’) manufactures and sells cornstarch (70-80% of revenues), lysine, starch-based sweetener, modified starch, and related products. It’s one of the leading manufacturers in China. The industry is currently experiencing overproduction, which has dampened selling prices and margins. Further, corn kernel prices (main raw material) keep hitting new highs. It is characterized by heavy capital expenditure and fairly low returns on tangible assets. The company, however, has powered through the pandemic hitting new records in sales due to additional production facilities coming onboard in the last six months. It also benefited from raising prices on animal feed products due to restrictions on imports arising from lockdowns in other countries. It reported sales of $8.6b, ebitda of $381m, and net profits of $178m in the last twelve months. It’s ebitda margins have fluctuated between 3.1% and 11.5% in the last five years. Average current earning power can be estimated at