First of all, please don’t comment “don’t buy china stocks” and stuff like that. Obviously, the risk in buying HK stocks looks of being way higher than the risk of buying SP500. If you don’t want to think about a particular Hong Kong stock, please stop reading this.
Health care/pharma stocks in Hong Kong have been beaten up in the past months, the cause is regulatory fears. I have decided to try to do: “buy the fear, sell the greed”. There are many pharma/healthcare companies in China, even Legend Holdings (that is controlled by Chinese Science Academy) has invested in Byer Dental, and through its subsidiary Legend Star into Zonsen Peplib Biotech, Rghenta Therapeutics, etc., some details: https://www.crunchbase.com/organization/legendstar/recent_investments
So while I understand that CCP wants to make healthcare more accessible and less expensive to people (doesn’t the US want it as well?), I don’t think they will kill the industry and its stocks.
So I was looking into buying opportunities. By looking into Hong Kong Pharma stocks, I have stumbled on China Shineway (http://www.aastocks.com/en/stocks/quote/quick-quote.aspx?symbol=02877 ) and these are the reasons I have bought it:
– the company has no debt
– the current price of a stock is 7.75HKD, while the company had 6.0HKD in cash according to the last financial report: http://api.aconnect.com.hk/Attachment/68080 . As the ex-dividend date passed, the company should have at least 71% of its market cap in cash. Unbelievable.
– in that financial report, the company had a very good first half of 2021.
– over the past 5 years, the company has increased cash values per year and is profitable, even with the current price it trades approximately at its book value, while at this time PE TTM is 13.047.
– the company raised its dividend and made a statement that it plans of increasing the dividends in the future, and the current yield TTM is 9.4%.
Sounds too good to be true. I have checked a dividend history: http://www.aastocks.com/en/stocks/analysis/dividend.aspx?symbol=02877 and the company has 16 years of dividend history. It’s a small cap, so it’s risky, but it doesn’t look like a fraud.
By looking into its products, it is mostly in traditional Chinese medicine products, which is a fairly big segment in China. I’m located in Europe, and in my country, when people are sick, they tend to buy some traditional medicines (along with medicines) by knowing that it won’t hurt them. My assumption is that Chinese people have similar buying habits when they are sick. The company has OK website for Chinese standards. I don’t know much about medicine, but for me, it’s the same boat if I look into this or Caterpillar or a Goldwind, a wind turbine manufacturer – I don’t know much about their products, their competitors, or the company outlook.
Shineway Pharma has very strong insider ownership, 72.6% out of which one person holds 72.39%. It looks to me he is holding the company strong financially through the years and decided to start unloading the accumulated cash pile (through dividend increase). No registered insider buying on selling in the past 1 year in HKEX.
So I took this as a value pick. Assuming the company continues to unload the cash through the dividend (and lowers its book value) the market cap would go down and its PE value would increase (assuming the company performs the same Y2Y) until equilibrium is found.
Have I overlooked something? Did I do a fundamental analysis very well?
(BTW, in January I have picked China Medical System http://www.aastocks.com/en/stocks/quote/quick-quote.aspx?symbol=00867 on 8.9HKD, the current last price is 14.98HKD, unfortunately, I haven’t sold this on 20HKD+ on the nice gain, still that gain is currently more than Microsoft, … I’m hoping a good decent performance of this position, but at least if I don’t lose the money, that will be fine).