In the table, should be Norm. 2023 PE, not 2022. Forgot to update it. 2022 is probably going to be a slaughterhouse for a lot of those stocks due to zero Covid. FYI :) .
"Controlled companies" are also a huge issue in Brazil, Philippines (e.g. when I hear certain family names being associated with a company local or non-local media might be touting, I literally start laughing!!!), and many other markets BUT one must remember that most big Silicon Valley tech names are also controlled companies... And things are not much better there! (e.g. think Twitter and bots vs real users OR members of the media being on a certain company payrolls!)
i have narrowed down my hk review to these four schloss type situations, would be interested to know if you see any red flags.... HKSE:00050, HKSE:00212, HKSE:00289, HKSE:00662 thanks......
Well if they don't return capital they will be value traps. Probably not likely to see activist involvement due to controlling stakes of insiders. I have a major focus on capital returns with Hong Kong stocks, so that is what I would look for.
I like Noah holdings best out of your suggestions. It seems like a top tier business + insiders and by the looks of it, they are going to return a lot more capital going forward.
most sites have noah share count screwed up, correct data is approx 60% tbv/15% earnings yield..... hk ferry returned more than their current mc in dividends over the last two decades, seems decent....
good post, hk getting cheaper and cheaper........ looking at some profitable large tbv discount situations, hard to believe how cheap some of these are.... for example 6686 (noah) or 889 (datronix)...wonder what you think of these....
Thanks I will check them out. Just curious, is there some sort of catalyst for datronix? A special dividend/liquidation or return to profit? At first sight it looks like a money losing value trap.
agree, looking a bit deeper, a significant portion of the cash has been transferred to re and capex with no clarity on if/when/how this will benefit minority shareholders....
A recent reminder of what can to wrong is a holding in Tianyun International. Food processing business in China. Trading stopped in April 2022 due to fraud at a subsidiary. These positions need to be sized appropriately given the risks involved.
There were red flags tho. Earning nearly 100% ROIC on canned food when it listed? Only selling shares at 9x earnings in IPO. Then receivables turnover steadily declined, and they spent huge amounts on capex. Fixed asset turnover declined from 9x to 2x! And a dividend payout that was abysmal. Stocks like this is why you don't make exceptions when it is cheap IMO.
A few other interesting examples are Huisheng, Tenwow, Youyuan int. Tianyi Summi, China Shengmu milk, Ecogreen int. , Boshiwa, Rexlot.
I use TIKR. I kind of eyeball it roughly. The main issue with this is if a company has grown faster in the past it will have traded at a higher multiple. So if it grows much slower from now on it will never again reach that multiple again.
For example Consun traded at 13-17x+ earnings when it grew faster and Chinese government was much looser with medical spending. I don't think it will ever trade to that multiple again now that government is much more tightfisted with increased risk of price cuts + lower revenue growth + Consun's failure with acquisition + general bearish macro backdrop that will likely persist over the next few years.
Liquidity can be an issue, and nowadays I try to go for more liquid stuff. K&P still has about $10k USD of average trading volume per day though. You want it to be absurdly cheap the more illiquid it is. K & P paid a 14% dividend and trades at <4x earnings with large insider buys recently. But how sustainable are those earnings?
Jiashili isn't a bad hold here. The main reason profit got hammered is because of spiking palm oil and wheat prices. But they seem to have come down again. So probably 2023 will be a good year for them? Unless there is another spike.
Thank you for the update on Jiashili as hard to follow. Im in China Feihe, ANHUI CONCH CEMENT, SHANDONG LONGDA, ZHONGCHAO so a bit over my head. Seems like the general market isn't as hostile to HK/China so hopefully it continues.
In the table, should be Norm. 2023 PE, not 2022. Forgot to update it. 2022 is probably going to be a slaughterhouse for a lot of those stocks due to zero Covid. FYI :) .
Great advice article - I linked to it at https://emergingmarketskeptic.substack.com/p/emerging-markets-week-may-16-2022?s=w and on my site under tips http://www.emergingmarketskeptic.com/category/frontier-market-emerging-market-investing-tips/ as its relevant for many "emerging" markets - not just HK...
"Controlled companies" are also a huge issue in Brazil, Philippines (e.g. when I hear certain family names being associated with a company local or non-local media might be touting, I literally start laughing!!!), and many other markets BUT one must remember that most big Silicon Valley tech names are also controlled companies... And things are not much better there! (e.g. think Twitter and bots vs real users OR members of the media being on a certain company payrolls!)
What do you mean?
(e.g. when I hear certain family names being associated with a company local or non-local media might be touting, I literally start laughing!!!)
i have narrowed down my hk review to these four schloss type situations, would be interested to know if you see any red flags.... HKSE:00050, HKSE:00212, HKSE:00289, HKSE:00662 thanks......
Well if they don't return capital they will be value traps. Probably not likely to see activist involvement due to controlling stakes of insiders. I have a major focus on capital returns with Hong Kong stocks, so that is what I would look for.
I like Noah holdings best out of your suggestions. It seems like a top tier business + insiders and by the looks of it, they are going to return a lot more capital going forward.
most sites have noah share count screwed up, correct data is approx 60% tbv/15% earnings yield..... hk ferry returned more than their current mc in dividends over the last two decades, seems decent....
good post, hk getting cheaper and cheaper........ looking at some profitable large tbv discount situations, hard to believe how cheap some of these are.... for example 6686 (noah) or 889 (datronix)...wonder what you think of these....
Thanks I will check them out. Just curious, is there some sort of catalyst for datronix? A special dividend/liquidation or return to profit? At first sight it looks like a money losing value trap.
agree, looking a bit deeper, a significant portion of the cash has been transferred to re and capex with no clarity on if/when/how this will benefit minority shareholders....
A recent reminder of what can to wrong is a holding in Tianyun International. Food processing business in China. Trading stopped in April 2022 due to fraud at a subsidiary. These positions need to be sized appropriately given the risks involved.
There were red flags tho. Earning nearly 100% ROIC on canned food when it listed? Only selling shares at 9x earnings in IPO. Then receivables turnover steadily declined, and they spent huge amounts on capex. Fixed asset turnover declined from 9x to 2x! And a dividend payout that was abysmal. Stocks like this is why you don't make exceptions when it is cheap IMO.
A few other interesting examples are Huisheng, Tenwow, Youyuan int. Tianyi Summi, China Shengmu milk, Ecogreen int. , Boshiwa, Rexlot.
A really excellent writeup. It summarizes very well my experience of investing in HK stocks for the past 12 years.
Thanks for this interesting article. Some queries:
1/ Which data source do you use for calculating your normalised P/e range and other metrics?
2/ Low liquidity can be good for individual investors ...but *no* liquidity can be a challenge!
Eg; K&P Int (#675) is quoted at $0.85 and due to pay a $0.08 (9.4%) final dividend at
the end of May ....but it had *zero* shares traded on Friday 13/May.
I use TIKR. I kind of eyeball it roughly. The main issue with this is if a company has grown faster in the past it will have traded at a higher multiple. So if it grows much slower from now on it will never again reach that multiple again.
For example Consun traded at 13-17x+ earnings when it grew faster and Chinese government was much looser with medical spending. I don't think it will ever trade to that multiple again now that government is much more tightfisted with increased risk of price cuts + lower revenue growth + Consun's failure with acquisition + general bearish macro backdrop that will likely persist over the next few years.
Liquidity can be an issue, and nowadays I try to go for more liquid stuff. K&P still has about $10k USD of average trading volume per day though. You want it to be absurdly cheap the more illiquid it is. K & P paid a 14% dividend and trades at <4x earnings with large insider buys recently. But how sustainable are those earnings?
just curious if you have looked at 6686 (noah) or 889 (datronix) both look exceptionally cheap....
You happen to know if there is a dividend tax difference between holding the ADRs or the Hong Kong shares?
0% dwt, should also apply to adr, https://taxsummaries.pwc.com/quick-charts/withholding-tax-wht-rates.... however, noah is domiciled in the cayman islands and the head office is in shanghai, not sure if that changes the situation....
Im in Jiashili and Greatview and punished. I still think they are honest businesses so hopefully some appreciation at some stage :)
Jiashili isn't a bad hold here. The main reason profit got hammered is because of spiking palm oil and wheat prices. But they seem to have come down again. So probably 2023 will be a good year for them? Unless there is another spike.
Thank you for the update on Jiashili as hard to follow. Im in China Feihe, ANHUI CONCH CEMENT, SHANDONG LONGDA, ZHONGCHAO so a bit over my head. Seems like the general market isn't as hostile to HK/China so hopefully it continues.