Research a New Company

7/26/2019 Research a New Company

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Jack Chan


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Review listing prospectus

Consult independent industry research

Study financial reports

Go through street views

Interview management

Read Charts


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Latest industry development and future trend.

Examples : Big advisory firms like, Mckinsey & Co. ,BCG, Big 4s in accounting, Business Monitor, etc.

They advise senior executive on industry strategy.Always contain persuasive statistic about theiropinion.

Industry specialist research, such as Gartner in IT,

Alphaliner in Container, Drewry in maritime, Spears& Associates in Oil & Gas drilling, Union in Gaming,etc.


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Go through 3~5 years financial reports, build basicfinancial models accounting policy andaggressiveness.

Review business outlook and managementdiscussion section in detail look for consistencyand implementation track record


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Brokers initiation reports, update notes andfinancial models. After reviewing their publications,conduct meetings with corresponding analysts.


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First meeting with investor relations to go throughquestions that raised from previous research,update with recent corporate development andstrategy. Understand more in-depth on key

financial variables, internal KPI and budgets, etc.


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After first meeting, construct a detailed financialmodel. Identify key concerns and formulatequestions for senior management.

Conduct second meeting with chef executives. Gothrough key concerns and their business outlookand review.

Read managements personal characteristics


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Price charts and valuation charts match historicalevents to price actions and market sentiments.

Learn recent sentiments about the company


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Quantifying The Qualitative & Fundamental Research


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>).,81#."8+ 7#%#89:3 Rank companies using 5 categories: Business Model,

Management, Industry, Product and Valuation. Score of1 to 5 will be given, lower the better.

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Good business model : strong cash flows, highoperating leverage, high margin / ROE, highfranchise value, scalable, etc.

Examples : Apple, Coke Cola, Fast food chain, etc.

Bad business model : poor cash flows, huge workingcapital required, highly geared, low margin / ROE,hard to expand, etc.

Examples: Assembly business, Mining companies,Airlines, etc.


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Good Management : Founder, share-ownership,visionary, passion, proven track record, excellentimplementation skills, conservative accounting, etc.

Examples: Steve Jobs, Elon Musk, Ma HuaTeng, Ma

Yu, etc

Bad Management : No share-ownership, lack oftrack record, strong agency problem, relationship-dependence, aggressive accounting, make lousy

acquisitions, etc.

Examples: SOE CEOs, ex-Esprit CEO, etc.


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Good industry : continuous breakthrough intechnology, high entry barriers, demand overweight supply, policy support / protected, etc.

Examples : Internet, Mobile applications, Natural

Gas exploration, etc.

Bad industry : lack of innovation, over-capacity,lower entry barriers, supportive measures expired,structurally replaced, etc.

Examples : Steel, Container shipping, Miningmachinery, etc.


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Cheaper is better, in terms of earning, book valueand cash flows multiples. Should consider a rangeof valuation method.

Consider both absolute and relative valuations.


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Internet/MobileOil & Gas Services and Equipment

Macau

Handset EquipmentLEDAuto-Parts


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CVV Y A#+:' /."+ 5#0#+

Business Model : Improving gearing, expanding to newarea, such Russia, Philippines and Spain. 3!2

Management : Lawrence Ho proves his effort to expandto other market, he leads to the success of premium

mass market. 3!2

Industry : Keep expanding to new markets. 2!1

Product : keep improving its floor layout to fit premiummass uniqueness, benefits from nearby new hotel rooms.3!2

Valuation : previous discount in valuation to be narrow.2!3


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CVV Y A#+:' /."+ 5#0#+


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BBI[ Y \*.D3#.


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BBI[ Y \*.D3#.


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CVB[ Y --D 2#:3 Business Model : Major customers deteriorating, shifting from high volume

design to low volume design, margin and cash flows still strong. Begins tohorizontal expansion in new area. Margin is at higher pressure fromcustomers, new competitors and material costs 2!3

Management : Founder still runs the company, good track record,recently missed forward guidance and horizontally expand into already

highly competitive area. 1!2

Industry : Lack of innovations, high-end handset upgrade trend peaked,increasing competition. 1!2

Product : Shifting attention to mid-low end product, more commoditizedand highly competitive with lower margin. 2!3

Valuation : Earning multiples still reflect high expectation, premium bookvalue also implies strong innovation and margin. 3!4


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CVB[ Y --D

T., 'F %189" ,#0*:# *..'08"*'.% Mkt cap HKD$ 45,865m, trading @ PE 15x 2013

The Groups Company designs, manufactures and distributesa comprehensive suite of acoustic and non-acoustic products

for mobile devices. After benefiting from innovations andtechnology breakthrough in smart devices, the company istrading at rich multiples, high expectation and over-owned .

Earning growth at 12% CAGR from 2013 to 2015

Declining innovations in recent launch from handset makers,disappointed sales from premium smart devices, marginpressure from increasing competition.


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CC[C Y AMA D3*.8 Business Model : Casino operator in Peninsula Macau, strong cash

flows. 2!2

Management : Pansy Ho has less involvement and aggressivenessin gaming business. Grant Bowie has low incentive. James Murrenis more a deal-focused and corporate finance executive. 3!3

Industry : growth slow down due to fewer new property on board.Potential threats from Chinese government to fight corruptionand money laundering. New visitation policy should not havehuge impact. 3!3

Product : Property located in Peninsula which lack of hotel roomsupply, design is not attractive to premium mass, location is noteasy to access by mass markets. 3!3

Valuation : Earning and multiples boosted by spike in hold rate.3!5


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CC[C Y AMA D3*.8

]0#9$9*:#, G A*%).,#9%"'', 69'N"3 Mkt cap HKD$ 94,430m, trading @ EV/EBITDA 15x 2013

Casino operator in Macau, over-priced growth due tounsustainable growth in VIP and Mass. VIP only boosted by

reallocated VIP area. Mass hold rate unsustainable high at35%, 25% higher than theoretical, 16% higher than average.Questionable mis-match in higher mass hold rate and lowerEBITDA margin.

EBITDA growth at 10% CAGR from 2013 to 2015

Increasing policy risk from China to fight corruption, moneylaundering and gang activity


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Consumer StablesFood & Beverage

IPP

IndustrialsHK REITs

Auto-Parts


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BBC[ Y ^=.. A8:8) Business Model : Casino operator in Peninsula Macau, strong cash

flows, margin declined in pass two quarters, starting business withlower-tier junkets. 2!3

Management : Investor relations wouldt reach easily. Trackrecord in building premium resort is well proven. 3!3

Industry : growth slow down due to fewer new property on board.Potential threats from Chinese government to fight corruptionand money laundering. New policy on visitation has limitedimpact. 2!3

Product : Property located in Peninsula which lack of hotel roomsupply, floor design rarely change, players getting bored. 2!3

Valuation : Earning and multiples still reflect premium buildingattractiveness. 4!5


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BBC[ Y ^=.. A8:8)

_' +'.6#9 8 $9#1*)1 '$#98"'9 Mkt cap HKD$ 139,026m, trading @ EV/EBITDA 16x 2013

Casino operator in Macau, over-priced for its historicalpremium operation. Its growth far behind the market, revenue

grows at only 2.6% yoy, despite the industry is growing at 15%.Also, premium EBITDA margin has been declined for 2consecutive quarters.

Consensus EBITDA growth at 8% CAGR from 2013 to 2015, butfurther de-rating is expected from its poor operationalperformance.

Increasing policy risk from China to fight corruption, moneylaundering and gang activity


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BOOO Y A8. ^83 `'+,*.6 Business Model : Premium sofa maker, strong cash flows, low gearing,

recovering net margin, potential expansion and acquisition in domesticmarket. 3!2

Management : Founder still runs the company, good track record,continuous improve to manufacturing process. Delivered its cost savingplan, and new product launch. Recently, deal-focused Chinese PE

initiated stakes at company. 3!2

Industry : US housing market bottomed and recovering, domesticdemand for high end sofa is strong. 3!2

Product : Premium product, brand value globally recognized, launchednew materials in making sofa. New product leathe-Aire well received byoversea customers as new order in recent industry expo grew 60% yoy.3!2

Valuation : Consensus Earning growth at 13% CAGR from 2013 to 2015,upside surprise to earning would be expected from higher domesticdemand and acquisition. 2!2


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BOOO Y A8. ^8323# -$$+# *. !'F8

Mkt cap HKD$ 10,764m, trading @ 16x 2014(Mar)

Design and manufactures sofas. Man Wah has proved its

innovation in designing sofa materials and structural parts.They came up with new product leather-Air, which is leatherlike sofa. Also they re-shaped sofa structural so that it would beblended and save up space for container shipping.

Consensus Earning growth at 13% CAGR from 2013 to 2015,

with utilization only at 55% annually, upside surprise to earningwould be expected from better demand.


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ICJ Y A*."3 M9')$

Business Model : Auto exterior parts maker, capitalintensive, stabilized margin, strong margin and balancesheet. 3!2

Management : Founder still runs the company, good

track record, continuous to expand to oversea markets.3!2

Industry : Stable demand to out source autocomponents. 3!3

Product : Customers are sticky and rarely change

suppliers. 2!2

Valuation : Fairly priced. 3!3


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Mkt cap HKD$ 17,479m, trading @ PE 14x 2013

Leading auto exterior parts supplier, including body structure

parts, decorative parts and trims. Sales of Japanese brandsrecovering, solid growths from upcoming auto demand up-cycle and a fast growing oversea business.

Earning growth at 10% CAGR from 2013 to 2015, but further re-rating is expected from its good operational performance.

Dividend grew 25% CAGR in past 5 years.


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Business Model : Sportswear maker and retailer with themulti-brand strategy, such as Kappa, Phenix, etc. strongcash flows business, margins recovering. 3!3

Management : Founder still runs the company, early

mover to write-off inventory. 3!

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Industry : Over-capacity and inventory level still high indistribution channel. 5!4

Product : Kappa and Phenix are both internationalbrands. 2

Valuation : deeply discounted to near cash level. 1!1


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Mkt cap HKD$ 6,588m, Net cash per share around~$0.85 RMB

The company design and manufactures sportswear with multi-brands, such Kappa, Phenix, etc. The market deeply discounted thepoor industry environment and ignore company specifics.Improvements on inventory was noted in its recent financialstatements from wrote-back. Coming sports event like World Cup -in next year, demand would be likely being boosted. Also, its peers,Anta just released its 1H13 results, which shown order improvementand indicate a recovery is coming.

With the huge net cash position, and investments in Alibaba, leadinge-commerce company, $HKD1.7 including investment in Alibaba, i.e.downside is protected.


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Industrial papersShipping

Coal

Iron Ore / Steel


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D-2 Y D8"#9$*++89 Business Model : Mining and construction equipment and machinery

maker, cyclical business, declining margin, fairly levered. 3!4

Management : CEO, Douglas R. Oberhelman, has strong financebackground, he was ex-CFO of the company. Suspicious and aggressiveaccounting as identified in mis-match between accounting profit andfree cash flows, lowered but still missed forward guidance, lousy

acquisition made in recent two years. 3!4

Industry : Further decline in mining capex, especially in coal mining, sincenatural gas is going to replace most of the coal demand, increasingcompetition from emerging market players. Recently its largest publicdealer, Finning, reported highest inventory ratio in seven quarters. 4!5

Product : More commoditized product, losing brand value. 2!3

Valuation : growth expectation is still richly priced. 4!4


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SportswearFast food

Retailers/Apparels

Clean energyGlass manufacturing


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[c[ Y \*.=* M+8%% Business Model : Diversified glass maker, fairly levered, margin

recovering and bottomed. Lowered gearing from recent top-up placement. Potential spin-off in solar business would furtherimprove its financing platform. 4!3

Management : Founder still runs the company, good track

record, continuous expand to higher margin business. 1!1

Industry : Cyclical segments bottomed and recovering,entering in higher growth segment. 4!3

Product : Commoditized product, strong reputation incustomers, substitutable . 3!3

Valuation : Earning and multiples expansion from marginrecovery and new business growth. 1!2


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[c[ Y \*.=* M+8%%(8:? '. "98:?

Mkt cap HKD$ 27,449m, trading @ 13x 2013

A leading diversified glass manufacturer in China. 2 of itscyclical business, solar and float glass, had bottomed, asshown from its latest interim result, margin recovered fromdistressed level. Demand for its low-e glass has been boostingits sales volume and margin in construction glass. Futureexpansion in electronic glass will help to keep its margin athigh level.

Consensus Earning growth at 22% CAGR from 2013 to 2015


45/48

JH[ Y -a*%#. Business Model : Premium Japanese noodle fast-food chain,

strong cash flows business, per store profitability recoveringfrom the incident and anti-japan event. 3!2

Management : Founder still runs the company, good trackrecord, proven skills in crisis management. Recent results show

recovering brand value and store profitability. Scandal in itsCOO hire should not be exaggerated. 2!3

Industry : Premium fast demand still strong. 3!3

Product : Reputation is strong and recovering from theincident , substitutable, . 4!3

Valuation : Premium was given in the past, now trading atdiscount. 3!2


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JH[ Y -a*%#.!"*++ Z#+*#0# *. 6'', #S#:)"*'.

Mkt cap HKD$ 8,298m, trading @ EV/EBITDA 13x 2013

Ajisen was once a beloved company for many investors. Itoperates fast-food Japanese noodle in greater China region.

It was once very profitable, with ROIC at 45%. However, it washit by two negative incidents in past 2 years the disputebetween Chinese and Japanese, and use of an additivesorbitol, in its noodles. The company is making effort to bringback its profitability on per store level, and it has alreadydelivered a good 1H2013 result.Recent COO scandal lead to cautious attention but should

not have impact on its turnaround.

Expect per store EBITDA will grow at 20% CAGR to catch up itshistorical earning.


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C[J Y (d5T

Business Model : Strong balance sheet, improving cash flows,acquiring new customers for higher margin business. 5!4

Management : Miss most of the smartphone trend, acquiringnew customers, recently signed contract prove its capability.

4!3

Industry : Lack of innovations, high-end handset upgradetrend peaked, increasing competition. 1!2

Product : Commoditized modules, past capacity and trackrecord in feature phone still has brand value . 5!3

Valuation : Earning expansion from margin and businessrestructuring. 3!2


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C[J Y (d5T- Z*6 :'1#Z8:?

Mkt cap HKD$ 7,751m, trading @ 9x 2013

BYDE is a handset component maker and EMS/ODM service

provider. After 2 years of profit declines, it is making a hugebreakthrough in metal casting technology. Its already seeingHTC and HP selected as their new product suppliers. Expectingit will keep enlarge customer base and improve margin frommetal casting business.

Consensus Earning growth at 32% CAGR from 2013 to 2015

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