Analyzing Bargain Stocks

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,