China Gaoxian

A correct reflection of its PE on Korea Exchange now showing a low PE of 4.31x. The Korean must be scratching their head and covering their shorts now. Singapore chart showing a morning star (bullish). we should be able to see it going back to 40 cents level.

The easy money to be made from investing in China Gaoxian may well be over, at least for now. The big drop in Gaoxian’s share price after the dual listing makes the stock looks cheap especially taking into account the price offered to the Korean institutions and the hype over the very high valuation of Gaoxian peers in Korea. Question: Is Gaoxian still a good stock to invest in at Friday’s closing price of 33.5 cts?
The answer to this question could well depend on each individual’s investment objectives and targets. Gaoxian is no longer an undervalued, out-of-favour stock of a few months ago and its fundamentals are also no longer the same after the dual listing. While the good points on Gaoxian have been quite well covered earlier in Nextinsight, there emerged some areas of concern that potential investors of Gaoxian could not afford to ignore. These are -

1. Earnings dilution & reduced growth potential – Gaoxian’s EPS for FY10 is expected to be around 6 cts(S) before dilution and 4.2 cts(S) after the dilution. Its recent production expansion capacity could restore its EPS to the pre-dilution level at best. With the number of issued shares at 2.04 billion, it would require a nett profit of 204 million just to raise its EPS by 10 cts(RMB) or 2 cts(S) – a daunting task notwithstanding its ambitious growth plan for the next few years.
2. Likely Share Overhang – Many small investors have been lured into Gaoxian shares during the recent big upsurge in its share price and trading volume. Many who bought at the high end would now be waiting anxiously for a chance to come out of the “roasting pot” – (speaking from past experience of similar nature). History has shown that in a situation of this nature, it usually takes a long time before the share price can recover to its previous high as no “big boys” would be foolish enough to come along to take over the losing position of the retailers at increasingly higher price at this stage. Thus, there are likely to be numerous sellers dying to come out of their losing position at every price level.
3. Valuation – While it is a fact that the valuation of Gaoxian peers in Korea is at very much higher level, the Korean fund managers would not be so foolish as to pay a high price for Gaoxian shares on its dual listing in Korea, when they could get it much cheaper in Singapore. Many could have already bought into the stock immediately after the announcement of the dual listing. The downside risk to them then, was extremely low as Gaoxian was very undervalued.

Bro, You do an excellent posting...... I think still a buy for long term investors who have holding power.... but may not be good for short term punt....

What if Koreans (or Singaporeans) re-rate stock to 12x pe?
Stock would be 48 cents?

What if 4Q earnings show strong jump?

I don't really see value in this counter or even other textile companies like Taisan. The managment and its advisors in Gaoxian probably tried to create some hype to move their share price and failed.  So far, I don't find their strategy compelling. I am glad I took profit when a research company posted cautious of this counter. I am now more careful with Taisan. Any thoughts? 

terrywong, could u elaborate on what you mean by 'don't see value in this counter & other textile companies'?
U mean they are too expensive on PE & PBV basisw?
Or what financial metric are u referring to - such as op cashflow?

conversely, what stocks do you consider to meet your criteria? I don't mind investing in such stocks after studying their financials.