Qingling Motors (1122.HK)

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#1
I would like to ask VB's opinion on this company. This is what I know:

Qingling motors produces and sells Isuzu trucks in China. (Mostly the traditional type, although they started making some running on hydrogen)
It is 20% owned by Isuzu and 50.1% by the Chinese government.

It has a long dividend record starting from 2000.
Looking at more recent history, it paid a consistent annual dividend of 0.16 RMB in the years 2015-2019 with a significant drop in FY2020, paying only 0.1 RMB. At today's price, the yield is around 8.9%.
With Isuzu and the Chinese government being the biggest shareholders, I imagine there is incentive to continue to pay dividend if profits allow.

Free cashflow fluctuates from year to year, but if I were to take the average of the past 4 years, FCF yield is around 11%.

Balance sheet is clean, with little debt. If we deduct total liabilities from cash, we get net cash of about 1.19 RMB per share. At today's price of 1.38 HKD, it is currently trading at 0.94 of net cash, or 0.36 of book value.

Business outlook for the overall truck industry in China seems negative, according to https://ihsmarkit.com/research-analysis/...orate.html

Reasons cited are:
- Overhang of inventory due to trucks that that do meet the latest emission standards
- Semicon shortage
- Power storage curtailing businesses that use trucks

Also, I imagine the property downturn could be another reason, as well as the current war.

Full year result will be out around end of this month. Since there are no profit warnings, I am guessing that 2021 profit would not deviate greatly from 2020 (which is rather depressed, compared to the precovid levels)

I am not sure about the long term business prospects of Qingling, but current valuation seems excessively cheap for a consistently profitable non-distressed company with little debt and respectable (average) cashflow. It is obviously not a growth stock, but can be consider a "secondary" tier company as described by Graham in the Intelligent Investor.
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#2
(09-03-2022, 04:42 PM)gzbkel Wrote: I would like to ask VB's opinion on this company. This is what I know:

Qingling motors produces and sells Isuzu trunks in China. (Mostly the traditional type, although they started making some runninng on hydrogen)
It is 20% owned by Isuzu and 50.1% by the Chinese government.

It has a long dividend record starting from 2000.
Looking at more recent history, it paid a consistent annual dividend of 0.16 RMB in the years 2015-2019 with a significant drop in FY2020, paying only 0.1 RMB. At today's price, the yield is around 8.9%.
With Isuzu and the Chinese government being the biggest shareholders, I imagine there is incentive to continue to pay dividend if profits allow.

Free cashflow fluctuates from year to year, but if I were to take the average of the past 4 years, FCF yield is around 11%.

Balance sheet is clean, with little debt. If we deduct total liabilities from cash, we get net cash of about 1.19 RMB per share. At today's price of 1.38 HKD, it is currently trading at 0.94 of net cash, or 0.36 of book value.

Business outlook for the overall truck industry in China seems negative, according to https://ihsmarkit.com/research-analysis/...orate.html

Reasons cited are:
- Overhang of inventory due to trucks that that do meet the latest emission standards
- Semicon shortage
- Power storage curtailing businesses that use trucks

Also, I imagine the property downturn could be another reason, as well as the current war.

Full year result will be out around end of this month. Since there are no profit warnings, I am guessing that 2021 profit would not deviate greatly from 2020 (which is rather depressed, compared to the precovid levels)

I am not sure about the long term business prospects of Qingling, but current valuation seems excessively cheap for a consistently profitable non-distressed company with little debt and respectable (average) cashflow. It is obviously not a growth stock, but can be consider a "secondary" tier company as described by Graham in the Intelligent Investor.

I am vested in this net net coy too. Do note that recently we see a spike in their chasis sale and they have a joint venture with Bosch to sell hydrogen fuel cell trucks. Even though this new segment is still loss making, its another potential growth segment for them.

One should always be cognizant that as a public H-shares investor you will be the minority —with the Chongqing government and Isuzu having the most say.

Management intentions with cash (currently to sit on it waiting for good acquisitions or investments, when asked management seems to have a very conservative attitude on their future plans with this cash and want to guarantee a good return when its used)

Excess competition and the cyclical nature of truck-making

Increasing raw material costs to company, such as steel
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#3
The reason why many H shares related to SOE companies are depressed is because of the global aversion to China companies

Many are trading at low valuations. I do not think it has much to each individual business outlook because it means global investors are forecasting gloomy outlooks for almost every China SOE company.
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