Friday, 11 May 2018

Thoughts on Qingling Motors (HKEX:1122)

Financial and Company Details
Stock Name: Qingling Motors
Stock Ticker: HKEX:1122 (H-Share)

Business Model: Selling of Trucks, Van, Suvs under Isuzu brand in China. Trucks types include light, medium, heavy duty, pick up.
Business Sales: 0.05% of FY 2017 is exported to Japan, the rest of sale is done in China.
Shareholding Structure: Qingling Motors (Group) Company Limited 50.1%, Isuzu Motors Limited 20%. Allianz SE 4.11%, Edgbaston Investment 2.77%.

Price as of 11 May: 2.60 HKD
Issued Shares: 2,482,268,268
PE Ratio: 12.99
PB Ratio: 0.67
Cash on Hand: 2.64
Dividend Yield: 7.63%. After Dividend withholding tax = 6.86%

What I like about this Company

  • Cash on Hand > Market Cap. Effectively buying the company is buying over the portion of cash it has.
  • Shareholding Structure. Ensures there is interest on both sides to work towards making this company a success
  • Good Dividends despite a cash rich company.
  • Niche Focus. Instead of targeting luxury segment, Qingling Motors focus more on the industrial side of the automobile segment. Which means luxury car makers like Geekly, Dongfeng, Byd etc are not their close rivals.
  • Interest Income increased  by 45.83% yoy. Contributing to 29.79% of Profit Before Tax
  • Venturing into Wealth Management via the use of their excess cash. To invest in capital protected products, could signal higher interest income.
  • Preferential Tax Treatment of 15%
  • No debt
  • A good company to ride the logistics and property boom as these vehicles are needed for such industries and growth in these industries would inevitably contribute to the 'industrial vehicle demand'. Coupled with One Belt One Road Policy, the demand might increase.

Some Concerns about the Company
  • The company's product might be subjected to obsolete by tight government polices over emissions.
  • Qingling Motors sells diesel and petrol engines, which might be less environmental friendly compared to natural gas, hydro and solar etc.
  • High R and D Expense,  FY 17's spending is 117% higher than FY 16
  • Macro Factor: Government to open up automobile sector might pose increased competition to Qingling

I do think that this is a good company to buy and hold for its dividends. The dividends currently are sustainable and the current price reflects owning the profitable business for free. However, investors out of China will have to take note of the 10% dividend withholding tax H-shares have.

Will look to be vested if my financial circumstances allow (student not much funds to rotate around...)

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