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I received an email and a very interesting chart on China Minzhong from a reader, RayNg, this evening.
See what he had to say:
Historically, Mr. Market paid ~10X PER during the first 2 years of IPO. It went down south due to EU crisis and bearish outlook of China economy. I think the main concern is its high account receivable (double from fy11).
However, the fy13, its account receivable and cashflow is back to norm and this might ease investors’ concern.
CMZ’s current PE is ~ 4X (base on EPS of 0.244). If Mr. Market is willing to pay 5X or 6X, then its potential share price will be $1.22 and $1.46, respectively. I think this is possible because China has bottomed out and is in recovery phase. In fact, looking at past 3Q/fy13 result, I believe its EPS will be > 0.244.
I bought some shares during the consolidation period (Jun-Aug 2012) when the price was ranging around 55-65c. That was the time when the PE was ~3X. The reason I bought this counter is because it has good fundamentals, low PE with high ROE, strong balance sheet (retain earning) and low gearing ratio. Still holding.
Yes, I do have some concern on S-chips as most people are very scared of S-chips.
So, let us see if Mr. market is willing to pay 5-6X PER for China Minzhong's shares.
RayNg
Related post:
China Minzhong: Breakout or fake out?
Bloggy Award
2 comments:
First 5X PER hurdle clear... today close at 1.20 or gap up 17%.
With the positive result and Indo Food invested (even bigger than GIC), I think Mr. Market will pay fair value at 6X PER.
Will it happen? Only time will tell. :)
Hi RayNg,
I am concerned that there would be a 13% dilution to the EPS with the new shares issued to Indofood and in my last blog post, I mentioned that $1.20 now is the old $1.38 in terms of valuation.
So, post issuance of the new shares, the price of $1.20 a share is closer to a PER of 6x, all else remaining equal.
Of course, if Mr. Market is willing to ascribe an even higher PER to China Minzhong now, it doesn't matter what we think. ;)
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