Hi, Abb,
The economic slowdown in China has adversely affected the business of Fujian ZY over the past one and a half year. According to its 1H12 report, Fujian ZY’s EPS had declined to 14 cts(RMB) although its NAV had risen to RMB 5.58 with Cash & Cash Equivalent of RMB 323M & borrowings of RMB 33M. I do not expect its 2H12 to be good or any significant improvement in its share price in the near future, unless China’s economy has a sustainable recovery or the management takes “the privatization route”. The latter looks highly unlikely as the major shareholders seem to be rather contented with their existing position and they hold 80 million of the 115 million issued shares that are also not listed in the SGX. Assuming the EPS for 2H12 is zero, Fujian ZY’s PE for FY12 would only be 5x at 14 cts. With its very high cash value & NAV, any downside to its much depressed share price appears limited, with any upside also limited, for now.
Fujian Zhenyun’s FY12 results have turned out to be better than what I expected. Below are some salient data:
1H +2H = FY2012
Revenue: RMB 170.5M + RMB 203M = RMB 373.5M
Nett Profit: RMB 15.7M + RMB 21.2M = RMB 36.9M
EPS: 14 cts + 18 cts = 32 cts(RMB) or around 6.3 cts(S)
Dividend: 2.47 cts(RMB) or around 0.48 cts(S)
NAV: RMB 5.76 or about S$1.14
Borrowings: RMB 30.6M; Cash & Cash Equivalents: RMB 373M
PER: 2.5x at 15.8 cts
Fujian’s second half result was a good improvement over the first half. According to the management, the Chinese economy experienced its slowest GDP growth in 13 years in FY 12 and infrastructure projects were not readily available as before. Competition for projects had intensified affecting gross profit margins. Green shoots of economic recovery only appeared in 4Q 12. The management is cautiously optimistic of its current year’s performance.
Fujian is seen as among the better-managed S-chips. It has been profitable and declaring dividends every year since its IPO in 2007. At the current selling price of around 16 cts, which is a fraction of its NAV of S$1.14, and cash-riched, Fujian ZY may be considered as one of the outstanding undervalued stocks. However, the stock is very illiquid and only good for those investors with spare money to get “stuck”, and have the patience to wait for the next great Bull Run or a re-rating to take place (that only God knows when).
This one could turn out to be a good long-term buy, in my view. Reasons: Infrastructure development in China will continue to pick up, the company pays a dividend, and is currently in major net cash position. PE is so low. Just my 2 yuan worth.