S-Chips Portfolio

[MrValue]

I believe many earlier participants in S-chips got burnt (myself included), and many swear that they will not touch S-chips with a ten-foot pole.
That explain the generally still very attactive valns of S-chips in terms of PE and P/B today.

As Value investors, we are to look where others are ignoring.

The average corporate governance standard of these PRC run companies might be low, and some of their account books might be fictitious, but I believe S-chips as a group is still very much underpriced and offer a reasonable margin of safety.

I thus wish to build a portfolio of low PE & P/B S-chips of perhaps 5 to 10 companies, and treat this investment as a single group which I believe should outperform the mkt on a 5-10 years time horizon.
I hereby seek fellow forummers opinion on which companies could be included in such a S-chips portfolio.

[Musicwhiz]

I believe many earlier participants in S-chips got burnt (myself included), and many swear that they will not touch S-chips with a ten-foot pole.
That explain the generally still very attactive valns of S-chips in terms of PE and P/B today.

As Value investors, we are to look where others are ignoring.

The average corporate governance standard of these PRC run companies might be low, and some of their account books might be fictitious, but I believe S-chips as a group is still very much underpriced and offer a reasonable margin of safety.

I thus wish to build a portfolio of low PE & P/B S-chips of perhaps 5 to 10 companies, and treat this investment as a single group which I believe should outperform the mkt on a 5-10 years time horizon.
I hereby seek fellow forummers opinion on which companies could be included in such a S-chips portfolio.

Well, I guess the point here is to assess if a company is worth investing in based on the usual quantitative metrics and qualitative characteristics. This will work for any company, be it a Singaporean one, American one or Chinese one. Of course, one has to take the legal, political and regulatory environment into consideration as well (under qualitative factors); but most of the rest of the conditions are similar. This is why a value investor, armed with knowledge on how to analyze companies and delve into numbers, will theoretically be able to invest internationally assuming he understands the jurisdictions' laws and regulations well. But I do emphasize that one needs to understand the country environment well enough to ensure one's investment does not suddenly cave in - most companies are subject to certain governmental rules and restrictions which may curtail operations (e.g. Mining laws, pollution laws), so it will be good to know how these may affect your investment.

The scandals over the last few years of S-Chips have really cast a pall over the entire S-Chip universe, but there are still several good companies which pay dividends regularly (hence, the cash is REAL), and which have potential to grow (gross and net margins are reasonable, so less chance of them appearing to COOK the books). It is up to the investor to sieve out such companies, for I have currently not much interest in S-Chips as there are enough local companies to analyze.

Perhaps one can start with a 5-year analysis of an S-Chip to note the numbers and also the progress which has been made in the business which is being run. That would be a good starting point for analysis. This means down and dirty hard work - no doubt about it. Dig out the past 5-6 years' annual reports and go through them in detail. I am sure some of the forumers here do that....

[pianist]

which s-chips are incorporated in the mainland itself

[Jacques]

I believe many earlier participants in S-chips got burnt (myself included), and many swear that they will not touch S-chips with a ten-foot pole.
That explain the generally still very attactive valns of S-chips in terms of PE and P/B today.

As Value investors, we are to look where others are ignoring.

The average corporate governance standard of these PRC run companies might be low, and some of their account books might be fictitious, but I believe S-chips as a group is still very much underpriced and offer a reasonable margin of safety.

I thus wish to build a portfolio of low PE & P/B S-chips of perhaps 5 to 10 companies, and treat this investment as a single group which I believe should outperform the mkt on a 5-10 years time horizon.
I hereby seek fellow forummers opinion on which companies could be included in such a S-chips portfolio.

Has anyone had studied the financials of China Gaoxian? My view is that the stock is very much undervalued.

PE is about 3.5, ROE at above 20% and is generating strong cashflow for the past quarters since listing last year.

Would appreciate some opinions.

[BlackCat]

Perhaps one can start with a 5-year analysis of an S-Chip...

Hi MrValue, my old 2008 notes on China Susnine are at:
http://profithunting.blogspot.com/2008/1...snine.html

They were the first or second largest producer (in China) in a niche market. Back in 07, mgt said they want to grow market share to obtain pricing power. Would be interesting to see if they have done so since then...without sacrificing too much (taking on debt or issuing equity) to do so...

Not vested, and I have not kept track of them.

Downside was:

• Very illiquid, only 5m shares issued to retail investors
  
• Family controlled
  
• Low margin business (large working capital reqmnts) sensitive to raw material prices.
  
• And of course, S-Chip...frankly, this was why I stopped looking at them.
  

May take a look at them later if I don't find enough other companies worth tracking on SGX....

[thinknotleft]

For China Sunsine, the downside is the increase in tax rate in its next FY.

For China Gaoxian, Kevin at NRA Research has written two post on it. I have nothing to add.

I have some ex-post analysis on how one can avoid getting burnt in S-chips in one of my earlier post:
http://thinknotleft.blogspot.com/2009/04...-duds.html

[Jacques]

For China Gaoxian, Kevin at NRA Research has written two post on it. I have nothing to add.

China Gaoxian rallied strongly today from recent low of 18cts to 22cts.

Apparently, there are big buy ups in the afternoon, the catalyst being the announcement of EGM for shareholder's approval of the proposed KDR listing.

PE ratio had increased from 3.7 to about 4.5, but compared to closest peer Li Heng at PE 7, it is still relatively attractive.

With the KDR listing, I foresee the price to go higher, my target being 20% up from current price over a 6 months horizon.

Based on quantitative factors alone, it is worth taking a closer look as there not many counters commanding such a low PE with four quarters of relatively consistent earnings.

Am currently vested. Will consider accumulating further on price pullback.

Caveat emptor.

[Drizzt]

i look at Gaoxian as another C&G Tech all over again. great balance sheet but in a highly competitive business.

[Musicwhiz]

i look at Gaoxian as another C&G Tech all over again. great balance sheet but in a highly competitive business.

I think what Drizzt said highlights the inherent difficulties investors face when investing. Sometimes, it's not just about the numbers (i.e. Income Statement, Balance Sheet) but more too about the operating environment (i.e. industry characteristics, competitors). One can use a simple Porter's 5-Forces model to see if the elements contained within are favourable to the Company, or if they could cause market share erosion over time.

In a highly competitive business, price wars will be common and gross margins are difficult to maintain. Even if a company started out having a "great Balance Sheet", it could in time face significant difficulty in maintaining market share, and hence may suffer from declining sales and profits.

[Drizzt]

dun get me wrong man, C&G industries to this day is one which manages its balance sheet very well, even after switching business. sometimes a good company doesnt mean its a good stock thats my feel of things.