4 Stocks This Week (China Small Caps) [3 Aug 2018] China Everbright Water; Delong; Hi-P International; Techcomp
This week, Apple’s market capitalisation crossed the US$1 trillion ($1.36 trillion) mark for the first time on Thursday, making it the first US company to reach the 13-digit milestone. Apple’s share price continued to inch upwards on Friday and closed with a market cap of US$1.01 trillion. To put things into perspective, Apple would be worth more than Indonesia’s Gross Domestic Product (GDP), which was US$1.004 trillion in 2017.
However, growing US-China trade tensions could be a real headache for Apple. On Wednesday, the Trump administration said it was considering imposing a 25% tariff on over US$200 billion of Chinese goods. Amongst the major tech players, Apple has been identified as the most vulnerable to an all-out trade war, given that China accounts for nearly 20% of Apple’s revenue.
On the other side of the US-China trade war, China’s GDP growth for Q2 2018 slipped to 6.7%, making it the slowest quarter since Q3 2016.
The Renminbi (RMB) has also depreciated by 8% against the US dollar since April, hitting a one-year low. Chinese equities have been amongst the worst performers this year, with the Shanghai composite plummeting nearly 18% year-to-date (YTD). This caused Japan to overtake China to become the world’s second largest stock market for the first time since late 2014.
On this week’s edition of 4 Stocks This Week, we will analyse 4 small-cap companies based in China listed on the SGX.
China Everbright Water Limited (SGX: U9E)
China Everbright Water (CEW) Limited is an integrated environmental water services provider in China. It derives 100% of its revenue from China.
In April, CEW announced that it secured RMB1.52 billion ($304.1 million) worth of sub-contracts in Shandong province in China. In May, CEW announced that it won the contract to construct Phase 2 of the Dalian Pulandian wastewater treatment project. The investment is valued at RMB 82 million ($16.4 million).
For Q1 2018, CEW reported revenue of HKD 1.04 billion ($181 million), which represented a 35% increase YOY. The increase was primarily driven by higher construction revenue, operation service income and finance income. Net profit rose by HKD 63.6 million, or 56% YOY to HKD191.1 million.
CEW has focused on expanding its presence in tier-1 and tier-2 Chinese cities, which have higher industrial production and thus generate more wastewater than lower tier cities. Looking forward, CEW is expected to be a beneficiary from the Chinese government’s plans to upgrade urban sewage facilities and increase the rates of wastewater treatment.
With a market cap of $1.09 billion, CEW’s share price closed at $0.41 this week.
Delong Holdings Limited (SGX: BQO)
Delong Holdings Limited is a steel manufacturing and trading company which derives 99.7% of its revenue from China.
In May, Delong announced that its revenue in Q1 2018 fell by RMB 36.7 million year-on-year (YOY) to RMB 2.95 billion ($590 million), or 1.2%. Delong attributed the decline to weaker sales, which decreased by 92,000 tonnes or 10.1%, which was partially mitigated by notable rise in hot-rolled steel coil prices. Combined with higher raw material prices and administrative costs, net profit for Q1 2018 fell sharply by RMB 107 million to RMB 280.8 million ($56.2 million), or 27.6% YOY.
On 1 June, Best Decade Holdings Limited, a company owned by Delong’s CEO Ding Liguo and his wife Zhao Jing, purchased nearly 19.1 million shares at US$100.9 million. This transaction increased their deemed interest in Delong by 17.33%, from 58.23% to 75.56%.
This vote of confidence was shared by investors, causing Delong’s share price to surge. Delong’s share price is up over 112% YTD. With a market cap of $631.3 million, Delong’s share price closed at $5.69 this week.
Hi-P International Limited (SGX: H17)
Hi-P International is a leading contract manufacturing provider of smartphones, tablet, computers and other consumer electronics. Hi-P International derives 58.8% of its revenue from China.
Hi-P reported that its Q2 2018 revenue rose 8% to $302 million, driven by higher sales volumes. However, due to a change in product mix, more competitive pricing, and higher administrative costs, Hi-P’s net profit fell by 18.7% YOY, to $12.3 million. This caused Hi-P’s net profit margin to fall from 5.4% to 4.1%.
Looking forward, Hi-P’s CEO Yao Hsiao Tung said talks of a trade war and emerging competitors from China has led to a more challenging business environment. He also said the company will continue to diversify its customer base and pursue merger and acquisition opportunities within the automotive and medical industries to overcome these challenges.
The news sent Hi-P’s stock plunging by 9.4% on Thursday, before declining by another 5.2% on Friday. This was despite Hi-P buyback efforts, which saw Hi-P spend $774,000 to buy back 700,000 shares between 2 Aug and 3 Aug.
Hi-P’s stock has fallen nearly 43.8% YTD, reaching a one-year low. With a market cap of $877.1 million, Hi-P’s share price closed at $1.09 this week.
Techcomp (Holdings) Limited (SGX: T43)
Techcomp Limited is a company headquartered in Hong Kong, which is involved in the manufacturing and distribution of analytical instruments, life science equipment and laboratory instruments. Techcomp derives 73.1% of its revenue from China.
In March, Techcomp reported its 2017 results. Revenue for 2017 was US$199.4 million ($271.9 million), up 8.9% compared to 2016, which helped net profit jump 60.6% to US$986,000 ($1.35 million) for 2017. In April, Techcomp announced that its company would be split in two, after Baodi International Investment Company agreed to acquire 61.6% of Techcomp. This sent Techcomp stock prices jumping nearly 62% overnight.
However, the completion of the Sale and Purchase Agreements, which was initially expected to take place on 1 August, was delayed. This sent Techcomp shares tumbling over 21% from its all-time high of $0.69 on 18 July.
Despite this, Techcomp’s share price has increased 86.2% YTD. With a market cap of $148.8 million, Techcomp‘s share price closed at $0.54 this week.