CE Huada Tech (85.HK) – A Growth and Turnaround Stock

I bought China Electronics Huada Technology (0085.HK) within the price range of $1.50 to $1.75 from 2 Nov to 7 Nov 2017 as I believed it would be a multi-bagger going forward. I thought I would have the time to recommend it to my followers at about the average price that I bought it but it was not to be. It closed at $1.70 today, 7 Nov 2017, up 16.44 percent within three trading days. However, at current price, it is still grossly undervalued and I will not be surprised if it becomes a 5-bagger within a year or so. I will load more of this gem if there is a substantial pullback.

(1)            About China Electronics Huada Technology Limited

China Electronics Huada Technology Company Limited (abbreviated to CE Huada Tech), formerly China Electronics Corporation Holdings Company Limited (before 21 Sep 2017), is a Hong Kong-based investment holding company principally engaged in the design of chips. The main businesses of the Company include the design, manufacturing, and sales of integrated circuits chips. Its main products include second generation identification (ID) cards, social security cards, fuel cards, telecommunication cards, electric cards, transportation cards, RFID and wireless networks equipment, among others.

(2)            Seemingly Poor 1H2017 result belying the actually very stellar performance

CE Huada Tech reported very poor 1H2017 performance with its net profit declined by 86.1% to $143 million compared to 1H2016’s figures.  However, its revenue had increased by 2.5% to $688 million and EPS was 7.04 cents.
I knew this could present an opportunity for me if I could go deeper to find out more about the details. This “poor result” has caused its share price to keep falling after the announcement of its 1H2017 result. However, the decline of the net profit was due to the one-off profit of $621 million derived in June 2016 through disposal of 100% equity interest in China Electronics Technology Development Co. Ltd (中電科技) to China Electronics Optics Valley Union Holding Company Limited “CEOVU” (中電光谷, 798.HK), for a consideration of 1,058,530,083 new ordinary shares of CEOVU and subscription in cash of HK$1,193,175,934 for 1,491,469,917 new ordinary shares of CEOVU which CE Huada Tech has now a 31.88% interest in. CEOVU has its shares listed on HKEx and is principally engaged in the business of development and operation of large-scale business parks in the PRC.

The value of 31.88% of CEOVU (798.HK) that CE Huada Tech owns is close to HK$1.87 billion, and market cap of CE Huada Tech is only HK$3.45 billion, which means the IC business of CE Huada Tech is worth only HK$1.58 billion, which is already worth twice the price of a shell company. “Cheap” is the only word that I can use to describe this stock.

(3)            Over-punished Depressed Prices Making the Stock Grossly Undervalued

Weekly Chart of CE Huada Tech

(a) Price and volume were both up recently, signifying the uptrend has started.

(b) The price hit the peak of $4.83 on 19 May 2015 when the net profit was only $177 million. The estimated net profit for FY2017 is about $360m and the forward net profit in 2018 will be $650m, and there is no logic for the price to remain at this current depressed level.

(c) With the 7 Nov 2017 closing price of $1.70, the forward p/e for 2018 is a very attractive 5.31x and this depressed valuation among its peers makes it a good candidate for it to be a multi-bagger hands down. 

(d) Its dividend yield at current price is 1.765%, which is very attractive for a growth and turnaround stock. 

(4)            The support from the government

The single commodity that China imports the most currently is neither food nor oil, but IC chips and the value involved is about US$230 billion in 2016.

China Electronics Corporation (中国电子信息产业集团有限公司, short name CEC which is the grandparent company of CE Huada Tech), Integrated Circuit Fund (国家集成电路产业投资基金股份有限公司 which is funded by China Ministry of Finance), and Sino-IC Ltd  (华芯投资管理有限责任公司 ) signed an MOU in Beijing on 18 July 2017 with the understanding that Integrated Circuit Fund will pump 20 billion RMB into CEC to support its development of IC-related business. It is highly speculated that most of this fund will go into CE Huada Tech.

CEC owns 100% of Huada Semiconductor which in turn owns 59.42% of CE Huada Tech. CE Huada Tech changed its name from China Electronics Corporation Holdings Company Limited in Sep 2017 to avoid being confused with its grandparent’s.

The China government gives CE Huada Tech the exclusive rights to produce IC chips for passports and identification cards, which involve the highest security level. What is noteworthy is the next three years will be the peak period for producing the IC chips for passports and identification cards and the profit margins for them and the stability of this exclusive business are both high.

Compared to other high tech stocks the China government supports that have an average p/e of above 30x, the price of CE Huada Tech can easily go up by 5 fold if 30x p/e is anything to go by.

(5)            The positive strategies of the grandparent company

The grandparent company, CEC, set a target in 2015 that they would securitise more of their IC design and manufacturing business in the following three years. These two years will be the critical period for CEC to consolidate and issue new shares for their IC business. It is very clear that CEC will pump more capital into CE Huada Tech soon and the price should rocket up following the move.
　　

(6)      Possibility to be included into the Shenzhen-HK Stock Connect

One of the rules for A+H stocks or stocks listed in HK stock exchange to be included in the Shenzhen-HK Stock Connect for both Shenzhen and HK investors to trade is that the market value has to be at least HK$5 billion. It is easy for CE Huada Tech to reach the threshold to be included in the Stock Connect as it has only about HK1 billion free float in the market. To achieve that, either the price has to be pushed up by market players to about $2.50 or the grandparent company has to inject new fund into it.

(7)            Conclusion

With the explosive growth rate in the coming three years, strong governmental support, the likelihood that its grandparent company CEC will pump in new capital, its current low p/e and its historically powerful surge at opportune moments in 2007 and 2015, I do not think my target price for CE Huada Tech at $3.00 within half a year is too ambitious. My target price a year from now is $5.00.

Superphang
https://superphang.blogspot.sg

Get good dividend while waiting for Emperor Capital (717.HK) to rocket up

I started to invest in Emperor Capital (717.HK) since early 2015 and I have made solid returns from it so far. It ever surged 43% in a day (on 13 April 2015) during its heyday in 2015 and I was vested then. However, after the big plunge in June 2015, the performance of this stock has lagged far behind Hang Seng Index and it is time we took a closer look at it, load up on it and bide our time to wait for its next big move while collecting its attractive dividends.

(1) Shrewd management with smart moves

I can see that the management of Emperor Capital has been shrewd and prudent from their moves so far.

They invited China Huarong Asset Management Co Ltd (2799.HK) in May 2016 to purchase 380 million new Emperor Capital shares at 66 cents apiece. China Huarong has now a market cap of HK$ 148.076 billion, and its share price has gone up 35.84% since the start of this year.

In late 2016, Emperor Capital invited another giant, China Taiping Insurance Holdings (966.HK), to purchase 613 million new Emperor Capital shares, also at $0.66 apiece. China Taiping Insurance has now a market cap of HK$89.132 billion and its share price has gone up 56.25% since the start of this year.

Both China Huarong and China Taiping Insurance have their businesses in China and they collectively own about 9% of Emperor Capital and they should be able to provide synergy to Emperor Capital now or in time to come.

If you buy Emperor Capital today, your price is only one cent more than the two giants’.

(2) Hot property market helping its mortgage loans to grow

The hot HK property market has helped Emperor Capital in boosting their mortgage financing business even long before the stock market started the run. Its EPS is expected to be 10 cents in FY2017 and 13 cents in FY2018.

(3) Many attractive factors for my purchase of 717 shares

I can think of the following attractiveness of Emperor Capital:

Taking 18 Oct 2017’s closing price of 67 cents, its rolling p/e is 7.67x and should be lowered to 5.15x next year. Its already attractive current p/b of 0.936x will be lowered further to below 0.73x next year. Its forward dividend yield for whole of 2017 should be more than 4%.

It has plunged about 71% from its height achieved on 27 April 2015. It ever surged 98.18% in a day, on 8 Dec 14, from $0.55 to $1.09, just that it had not been on my radar then. But at least I caught the second highest surge of 43% on 13 April 2015. I like its volatility at the picky time and I am prepared to catch the next crazy surge which I think is around the corner.

In HK market, stocks below HK$1 is considered penny and the probability of penny stocks to shoot up fast will increase as time goes by.

Next earnings announcement for Emperor Federal should be on 8 Dec 2017. It should be a solid result and higher dividends should be declared. The last time the major shareholder Albert Yeung Holdings Limited bought Emperor Capital heavily within a period was about half a year ago, with the highest price done then at $0.69, higher than the closing price of $0.67 concluded on 18 Oct 2017 when this post is written.

(4) Conclusion

Emperor Capital is in the midst of an exciting confluence of seemingly positive factors  --- Expected good growth, attractive dividend, shrewd management, a penny stock in second-half of a bull run, a laggard with explosive surge potential --- all driving towards one conclusion – My target price of $1 by 28 February 2018, an upside of 49% gain from here.

Superphang

https://superphang.blogspot.sg

Uptrend of China Vast (6166.HK) is intact

Click on the link below to read my earlier post on China Vast (6166.HK) dated 25 July 2017:

https://superphang.blogspot.sg/2017/07/solid-peg-ratio-and-rampant-insider.html

Wang Jianjun, Chairman of China Vast, kept buying his company shares before and after my post. Just 9 Oct, 10 Oct, and 11 Oct, in 3 consecutive days, he spent a total of HK$77.2163 million or S$13.35 million to purchase a total of 20.517 million shares at an average price of $3.763528 apiece, increasing his holding in his company shares to 68.94 per cent. 

There is no doubt that he has been highly confident of the performance of China Vast going forward. With the closing price of $4.31 on 13 Oct 2017, its rolling p/e is still a superb 6.008x even after the share prices has surged more than 62% since about two months ago.

I believe the next thing he could do is to privatise the company. He could also declare a bonus issue, or he could give fat dividends to himself and the shareholders like me. My imagination could be wrong but nobody can stop me from having a dream that is plausibly, if not highly, realistic.

I sold about 9% of my initial position and with these rampant purchase actions by the Chairman, I am more determined to hold my remaining shares for a higher target price now.

My hard work has brought me a total realised and paper gains of S$62,530 or 62.75% of my initial outlay, and this is achieved in two months and a day. Wow, spring has come early this year and definitely not bad an early angpao for me!   

Superphang

https://superphang.blogspot.sg/

Emperor Entertainment Hotel (296.HK) vs Emperor Capital (717.HK)

The insiders from the Yeung's family has been rampantly buying 296.HK quite recently and the highest price they bought was $1.90, very close to today's (13 Oct 17) closing price of $1.92.

The last time Yeung's family bought 717.HK heavily within a period was about half a year ago, with the highest price done then at $0.69, higher than today's closing price of $0.66.

Both stocks can be considered for long-term investment for their attractive dividend yields and p/e. But I will prefer 717.HK for its more explosive power of surge when the securities brokerage sector starts to move up after a period of sizeable increases in transaction volume on HKEx or Shanghai Stock Exchange.

The stage of the bull run has come to the second half which means second liners and penny stocks will be the BB's targets and 717.HK, from past experience, should be market’s darling soon.

I estimate earnings per share for 717.HK will be 13 cents for this financial year and this will translate its p/e to a superb 5.08x. I strongly believe that insiders of 717.HK will start buying the shares way before 8 Nov 2017 in anticipation of the good year-end earnings announcement.

I have started loading up on 717.HK and I am looking forward to a fat year-end angpao from this investment.

Superphang
https://superphang.blogspot.sg/

Is BYD (1211.HK) too high now?

BYD (1211.HK) closed on 22 Sep at $70.60, up 50% within 10 trading days. Is it too lofty to go in? What were the push factors in the past 10 days?

BYD boss believed that China will have all electric cars or hybrid electric cars on the road by 2030, a target which is much more ambitious than even the Europe zone's.

But 50% surge within so short a time can lead to a crisis to BYD share prices due to the following reasons:

1. The surge was driven by policy changes, not by compelling consumer demand or growth of the industry or new technology.

2. The crude oil prices are still very low for existing car owners to have the urge to change theirs to electric cars.

3. Too much exuberance in BYD share price which has not been backed by its financial performance. BYD’s half-year earnings actually retreated 24% and it has been estimated that the earnings will drop by 20% for the first 9 months compared to the same period in last FY. Its current p/e (ttm) is 33.79x (based on $70.6 closing price on 22 Sep) and it is almost certain that BYD will have negative growth in this FY. These figures are not compelling for shrewd investors to invest in it at this stage.

If anyone who have bought some BYD earlier, my suggestion is that they can sell it should the price retreat to $68 or/and when the stock opens-high-closes-low.

I tried to compare four China automotive stocks listed on the HK Exchange:

1.      Geely (175.HK): p/e (ttm) at 36.25, dividend yield at 0.51%

2.      BYD (1211): p/e (ttm) at 33.79x, dividend yield at 0.58%

3.      Brilliance (1114.HK): p/e (ttm) at 27.82x, dividend yield at 0.97%

4.      Dongfeng (489.HK): p/e (ttm) at 6.07x, dividend yield at 2.24%

The answer is clear that Dongfeng is my choice at this stage!

Superphang

https://superphang.blogspot.sg/

Get Nice (64.HK) Is Getting Nicer

My wife and I first bought this stock, Get Nice Holdings (64.HK), ion 5^th April 2016 and later added more on 1^st Aug 2017. Our average price was at $0.2748. This stock generally gave 2 cents dividend in a year, and the last declared dividend of 1 cent was xd just last week on 30 Aug 2017, and payable on 13 Sep 2017. We have treated our investment of this stock as our fixed deposit as we have been enjoying a solid dividend yield of 7.28% based on our purchase price. The price movements have been in the doldrums since we purchased it but we do not mind at all as long as the company maintains its low price-earnings ratio and delivers to us about 7% dividend yield a year.

It closed at 31.5 cents today, 4 Sep 2017, up 5%, with volume spike too. This was probably due to the recent rampant purchases by the Chairman and CEO of Get Nice, Mr Hung Hon Man, with the last being the purchase of 4,000,000 shares at 30.5 cents done on 28 Aug which increased his shareholding from 29.28% to 29.33%, which is very close to the 30% threshold for a general offer to be made under the Codes on Takeovers and Mergers.

The codes mandate that the interested party has to make a general offer to the rest of the shareholders with generally a higher bid vis-à-vis his last purchase price from the open market if the party's aggregate shareholdings amount to 30% or more of the voting rights of the company unless otherwise decided by the Securities & Futures Commission of Hong Kong.

Get Nice (64.HK) had some positive price movements lately. Its 72% owned subsidiary, Get Nice Finance (1469.HK) has surged in the past month much more in terms of percentage and its p/e is now 16.3x with the closing price at $1.79. The p/e of Get Nice (64.HK) is only 7.1x, still considered vastly undervalued.

Even if this does not end up a general takeover offer, I will enjoy the ride and the solid dividend yield of 6.35% at the current price, knowing that the CEO is confident of the development of the company.

Superphang
http://superphang.blogspot.sg

China Saite (HK:153) Breaking Out of Consolidation

China Saite (HK:153) closed at 59 cents today, 10 Aug 2017, breaking out of its "comfort zone" after 1.5 months of consolidation. I have invested some money in this company and I predict it will soon hit 67 cents which should be its next resistance.

(1)    About China Saite Group Company Ltd  (153:HK)

China Saite Group Company Limited ("China Saite") is an integrated steel and prefabricated construction solution provider headquartered in Yixing, Jiangsu Province, the PRC with an operation history of approximately 15 years. Their integrated construction solution services are customised to meet the technical specifications and requirements of different projects, and span from fabrication and assembly of steel structure parts and prefabricated construction materials at our workshops to the installation of these materials onsite, based on the secondary design (as to our steel structure projects) provided by them or their customers. 
China Saite is one of the 70 Grade One Steel Structure Engineering Professional Contractors in the Jiangsu Province. Grade One Steel Structure Engineering Professional Contractors is the highest national qualification in this aspect, awarded by Ministry of Housing in November 2005, which enables the Group to undertake all kinds of steel structure projects without limitation in span, contract sum, construction area or total weight of construction in the PRC. 

(2)    Solid Financials

Rolling p/e is very low at 3.944x even though the profit declined 19.4% in FY2016.

The One-Belt-One-Road initiative by the China government should benefit the company for the next few years.

(3)    Technical Analysis

The prices have consolidated well in the tight range between 56 to 58 cents in the past 1.5 months and it just broke out of that range to 59 cents and this was achieved remarkably amidst the weak sentiment of the HK broad market.   

China Saite (HK:153) daily chart

Superphang
http://superphang.blogspot.sg