Excerpts from CIMB-GK's report dated Apr 9....
Analyst: Ho Choon Seng, CFA.
We believe that most of the S-chips which were not directly associated with the negative publicity during the last crisis have stronger fundamentals and are less likely to repeat the mistakes which brought down their peers. Investors eschewing the sector due to ‘snake bite’ effect may present potentially attractive return opportunities.
Our top picks for the sector are Sound Global (previously known as Epure) and Yangzijiang (YZJ), which present potential upside of 39% and 25% respectively based on our target prices. Key catalysts for these stocks include more newsflow on dual listings and new order wins.
Attractive risk-reward opportunities. Privatisations and offers to privatise in the Schips space have helped to lift investor sentiment and confidence in the S-chips.
Aggressive investors who had invested in China Lifestyle, Hongguo, Sihuan and Man Wah, which have been privatised or are in the process of doing so, when the investment community was eschewing them due to ‘snake bite’ effect would have made significant returns.
With the worst of the crisis behind us, we believe that the most of the S-chips that were not directly associated with the negative publicity during the crisis are likely to be those with stronger fundamentals, and are less likely to repeat the same mistakes as their peers which have gone under.
We think that attractive risk-reward opportunities still exist in the S-chips space as investor confidence and interest in the space is still recovering.
Dual listings remain a key theme. Dual listings continues to be the key theme catalyzing the S-chips as more S-chips seek dual listings to obtain higher valuations, with the Taiwan and Hong Kong stock exchanges being the favourites, and the Oslo stock exchange recently coming into the picture.
We had previously highlighted some of the S-chips under our coverage which are/were seeking a dual listing including China Fishery, China XLX, Midas, Pacific Andes, Sound Global, and Yangzijiang. The stock prices of many of these stocks have since risen significantly.
We note that China XLX’s stock price has averaged around 20% higher since the dual listing in Hong Kong. However, we believe that part of the good performance is likely also due to stronger fundamentals from the improving global economy and the stock market recovery.
