Analyzing Bargain Stocks

Dynam (‘Company’) is incorporated in Japan but listed in Hong Kong. It is Japan’s largest ‘Pachinko’ game operator with 445 halls. Incongruously, it recently entered the aircraft leasing business. Pachinko halls offer two types of gaming machines: Pachinko and Pachislot. Pachinko is similar to pinball, and Pachislot is similar to slot machines. The company earns 20% revenue margins on average (gross pay-ins minus payouts) before expenses. The company had to shut down 97% of its halls during Covid-19 from April to June resulting in revenue declines of 40% and operating profit declines of 80%. Although it reopened in June, it has only been operating at 70-80% of its normal capacity. It entered the aircraft leasing business in 2018 and currently owns three narrow-body aircrafts (Airbus A320). The average age of the fleet is under two years and operating leases are for five years. Its annualized surface yield is 8.8%. Covid-19 practically decimated the aircraft leasing business – the compa

APT (‘Company’) is a Chinese state-owned enterprise controlled via China Aerospace Science and Technology Corporation, which holds 54.7% of the company’s shares. It is a leading regional satellite operator with five satellites in orbit, and provides transponder capacity and related services. Its five satellites are Apstar 7, 9, 6C, 5C, and 6D. 6D was put into orbit in July 2020 and is a high throughput (HTS) satellite. The company leases out its transponders to telecommunications and broadcasting customers. Its satellites span Asia, Australia, Middle East, and parts of Europe – covering 75% of the world’s population. It also generates revenues from gateway services – acting as a hub to connect other HTS satellites, processing satellite traffic, and providing network and hosting services. Further, it generates revenues via satellite project consulting services for other satellite operators. The business is suffering from an oversupply of transponder capacity and lower leasing ra

Changmao (‘Company’) manufactures organic acid products. It operates out of mainland China and sells its products in: China (50% of sales in 2019), Europe (22%), Asia Pacific (20%), America (6%), and others (2%). It is a leading operator in its industry and has benefited from ever-increasing stringency in environmental and safety regulations that have put smaller players out of business and consolidated the industry. The effects of Covid-19 reduced demand for its products and brought down selling prices and profit margins – it also had to suspend operations in some of its plants during the lockdown period. This resulted in declines of 26% in revenues and 64% in profits in the six months to June 2020 compared to the previous year. The company reported TTM sales of $462m (2019: $561m), ebitda of $74m (2019: $109m), and net profits of $34m (2019: $66m). Net profits have averaged $44m over the last five years, which incidentally is the target before which management and employee bonu

Cinda (‘Company’) is 63% owned by Cinda Securities Co. Ltd, which is indirectly controlled by China Cinda Asset Management Co. Ltd – and ultimately controlled by the Chinese Ministry of Finance. The company was formed in 1999 and the H-shares were listed in 2013. It provides asset management services (36% of latest six-month revenues), corporate finance services (44%), and sales/trading/brokerage services (21%). It acts as China Cinda Group’s service centre for overseas asset management with a focus on distressed and troubled assets. In its corporate finance business, it acts as advisor for equity and debt issuance. This includes equity issuance for Chinese companies looking to list in Hong Kong and overseas US$ bond issuances for Chinese companies. The sales/trading business benefits from increased trading activity on the Hong Kong stock exchange, and includes interest income on margin financing (8-13% p.a. in the recent period). The company reported TTM revenues (to June) of $320m (2

Thelloy (‘Group’) provides building construction services, repairs/maintenance/alterations/additions (‘RMAA’) services, and modular integrated construction services in Hong Kong as the main contractor. The group has several crucial construction licenses to execute projects for public works, housing authority, buildings department, etc. that confer competitive advantages. It experienced severe declines of 70% in revenues, however, in the six months to September due to the pandemic as customers suspended construction work, and suppliers suspended delivery of materials. The group reported TTM revenues of $297m (2019: $537m), which was down from a peak of $912m in 2018. TTM ebitda was $18m (2019: $31m) and net profits were $4m (2019: $13m). It reported cash balances, in excess of working capital requirements and debt, of $41m. It has committed $44.1m, however, towards a 49% interest in a joint venture (with external financing) to redevelop a 13-storey industrial building to a 23-storey bui

A.Plus (‘Group’) is a provider of financial printing services to listed companies in Hong Kong. It provides design, typesetting, translation, and printing services. It generates revenues from a) Results announcements/Financial reports (58% of sales); b) Company announcements/Shareholder circulars (27%); c) Debt offering circulars/IPO (11%); d) Fund documents (1%); and e) Others (3%) Revenues to September 2020 only fell marginally as debt and stock offerings in Hong Kong dried up compared to the previous year due to the pandemic and geo-political concerns – but this was offset by recurring work with results/other corporate announcements. Profits held up over the previous year due to the receipt of $5.2m of government grants in pandemic relief. The group reported TTM sales of $140m (2019: $147m), ebitda of $30m (2019: $37m) and net profits of $26m (2019: $26m). The group generated average earnings of $25-$28m and similar free cash flows. (This is after charging rental payments to

CCID (‘Company’) is 70% owned by the Chinese state. It is affiliated to the China Electronics Information Industry Development Research Institute - of the Ministry of Industry and Information Technology. It is one of China’s leading providers of research, consulting, and IT-related outsourcing services - and has a diverse roster of high-profile clients. It reports revenues under four segments: i) Management and strategic consultancy services – implementation of enterprise management applications (48% of 2019 revenues); ii) Market consultancy services – market research (9%); iii) Information Engineering Supervision Services – software, network, communication, and security projects (37%); and iv) Others (6%). The company was hit by quarantine during the Covid-19 outbreak which resulted in delays in customer acceptance of work done and hence, declines in revenue recognition during the period. As of date, however, it is back to full operational strength. The company reported TTM sa