Stock
Ticker: HKEX: 822
Stock Info:
A die casting of alloy and plastic injection business
Stock Price
as of 8 February 2021: 0.6 HKD
Implied
Market Cap: 536.26 million HKD
Financials:
A company
that has recorded profitability in all but 1 year from 2008 to 2019. I would
consider it impressive as it has recorded a profit even in 2008 where the
global financial crisis happened.
Perhaps a
red flag will be fluctuating earnings across years and 2015’s unprofitability
that has to looked into deeper on why so the case.
In 2015,
the company has recorded unrealized loss for foreign exchange contracts of 71m
and 22m of impairment. Which when after accounting both one-offs, resulted in a
loss.
However,
this worry can be chalked off as in its 2019 Annual Results, it has done away
with the forward contracts.
Balance
Sheet:
From the
snapshot, current ratio has always been above 1, equity has always increased
apart from 2015 where it was unprofitable.
Looks ok to
me.
Dividend
Record
Solid
Dividend Record with a Knack of rewarding shareholders every year. Apart from
2016 which it was unprofitable for the year ended 31 December 2015 which is
understandable.
Recent
Results
Recent
results have been a blast and a huge boon. With the company tripling its profits
on the back of margins improvement. Its something good to see as it highlights
that the company’s manufacturing processes has improved and could be a sign of
potential earnings value.
Even if not
counting the other income, the company is on track for a better year as it
tends to have more orders in the 2nd half of the year.
Assuming
Covid did affect demand in 1H 2020 and it outperformed a non covid 1H 2019, its
imaginable that 2H 2020 will likely be better than 1H 2020. Especially in 2019,
1H 2019 had 14m of profit while 2H 2019 had 74m of profit.
As such if
we assume similar allocations and 1H 2020 margins, we could be looking at 2H
2020 profits of 195 million in 2H 2020.
Is it time
to buy buy buy then?
Unfortunately,
there is potential red flags to consider before we jump into such a counter.
1)
Controlling
Shareholder dumping shares
Unfortunately,
in what is supposedly looking like a record year, the controlling shareholder
has decided to exit the shares at a price of 0.7358 to 0.8546. Although reasons
are unknown as it could be for personal reasons, it looks kinda shady and
profit taking. It is the main reason why the price has crashed and is trading
at 60 cents today.
2) Appointment of a CEO capable of crashing share
prices.
Share Price fell from above 1.25 in 2017 to 0.94 today
Sounds a bit misleading but a new CEO was named and will be taking over
from 1 February 2021. Chu Weiman who is previously the CEO from the trading
division of Leeport (Holdings) from September 2016 to December 2020. With
engineering background, surely it is relevant to the industry they are
operating in.
Unfortunately, the track record of the trading division is as follows
|
Year
|
2017
|
2018
|
2019
|
1H 2020
|
|
Operating
Profit
|
15,962,000
|
10,242,000
|
-
37,016,000
|
-5,498,000
|
Although
2017 and 2018 was profitable, 2019 lost all its profits and the loss trend did
not reverse in 2020. Hiring such a person to lead the company moving forward, I
have my doubts. The sole bright side would be that the controlling shareholder (Lee
Yuen Fat) will remain as the chairman of the board.
1) 3) Questionable
Sale of Subsidiary to Controlling Shareholder
In October 2016, an announcement was made whereby the company will sell
a subsidiary along with the land and building to its controlling shareholder.
In the very complex deal, it has been mentioned that it gives shareholders the
opportunity to consolidate its production lines and realise the fair value of
the group’s investment in the land and property with a gain.
However, a question would be if so why would the land be sold back to
the owner instead of the open market then? Well your guess would be as good as
anyone’s.
Conclusion
The company is cheap based on current valuations and should the 2H 2020
thesis occurs. On its website it has also been collaborating with a few parties
such as XPeng which opens up its exposure to the electric vehicle industry, a
new up and rising trend in China.
However, a few structural issues remained even though on paper it has
rewarded shareholders almost every year since 2008.
Looking at its long term stock chart,
The highest stock price came in 2013 and 2014 whereby dividends were at their highest. Whether such high amount of dividends would occur again would be anyone's guess but at least the trend is that the dividends go with tandem with good results and there is a decent chance there will be good results.Unless a guidance is given, and some explanation is given in some briefing with regards to the major shareholder selling the shares. If ever i would take up a position, it would a small portion for punting. A large position would be unlikely due to the lack of info available.
