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Hong kong stocks


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Quite a lot of stocks on this exchange trade to absurd discounts to book value. Anyone know why? You can find stocks with a 80-90% discount to book value (mostly real estate). They hold little debt, usually quite a lot of cash and pay out 5-6% dividends. It seems they deserve more trust then most of the US traded chinese stocks.

 

A little observation is that they get higher dividend rates, and usually only trade higher when they start paying out shareholders. There are usually insiders who own v large stakes. You want to actually know they can be trusted (just not finding bad stuff on them isn't good confirmation). But if 10% of shareholders votes against a takeover, then it will not happen. So it seems minority shareholders are protected here against majority shareholders robbing the company from under their noses. It is also much harder to just run off with the assets in China somewhere vs those US traded Chinese stocks because of rule of law in Hong kong.

 

Anyone got burned by hong kong stocks? Seems like a lot of low hanging fruit.

 

One more thing is, they all like to hoard cash, I am not sure why. I guess insiders wouldn't have other ways to invest it, so they wait and keep it in the company for future investment opportunities? At least that seems true for the Hong kong real estate and hotel company's. Texhong , a stock i have my eye on, does pay out most of it's earnings that is not reinvested in the company.

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Quite a lot of stocks on this exchange trade to absurd discounts to book value. Anyone know why? You can find stocks with a 80-90% discount to book value (mostly real estate).

 

China. Real estate. Bubble.

 

They have built like 3.5B worth of housing when they only have 1.2 or so population. 

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

 

I was looking at the hk real estate companies but decided against pulling the trigger in the last min.... the key thing is: corporate governance, or protecting minority shareholders. Until I have a better understanding of their corp governance I will consider HK in the too hard pile.

 

 

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

 

I was looking at the hk real estate companies but decided against pulling the trigger in the last min.... the key thing is: corporate governance, or protecting minority shareholders. Until I have a better understanding of their corp governance I will consider HK in the too hard pile.

I think you have little say in operations, but it is pretty much impossible for insiders to take it private at some cheap valuation if only 10% of shareholders doesn't agree. So if management does a good job why is this a problem?

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I've traded the Asian markets, especially Hong Kong, since the 80's.  Accurate info is often hard to obtain. Its especially important to determine if management or related entities have special deals that siphon off earnings and/or equity. Liquidity for micro, small & mid cap stocks can be almost nonexistent in quantity. Commission can be high & you have to fade currency spreads. I realize that some of these considerations apply to domestic markets, but they're really exaggerated in Asia IMO. There are some fantastic bargains, but also lots of potential traps.

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

 

I was looking at the hk real estate companies but decided against pulling the trigger in the last min.... the key thing is: corporate governance, or protecting minority shareholders. Until I have a better understanding of their corp governance I will consider HK in the too hard pile.

I think you have little say in operations, but it is pretty much impossible for insiders to take it private at some cheap valuation if only 10% of shareholders doesn't agree. So if management does a good job why is this a problem?

 

Why is it a problem? I didn't know about the 10% law. That's why.  Thanks. Although I recall, looking at Wheelock or some company and they did try to take it private and failed.

 

But a second issue about minority interests is excessive management compensation. Do you have any comments about that?

 

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These two links on Chaoda Modern (HK 638) give a pretty good picture of the kind of problems you can face that are difficult to ferret out. I actually owned shares in this one, but was fortunate to escape because of crappy price action following what seemed like pretty good news for the company. Chaoda was an award winning respected company.

 

http://seekingalpha.com/article/259053-chaoda-modern-agriculture-a-green-giant-for-the-price-of-a-dwarf

http://seekingalpha.com/article/298783-alleged-fraud-at-chaoda-is-closely-connected-le-gaga-rotten-too

 

Asia has been an excellent value hunting ground for me. I hope good fortune will follow your efforts there.

 

 

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These two links on Chaoda Modern (HK 638) give a pretty good picture of the kind of problems you can face that are difficult to ferret out. I actually owned shares in this one, but was fortunate to escape because of crappy price action following what seemed like pretty good news for the company. Chaoda was an award winning respected company.

 

http://seekingalpha.com/article/259053-chaoda-modern-agriculture-a-green-giant-for-the-price-of-a-dwarf

http://seekingalpha.com/article/298783-alleged-fraud-at-chaoda-is-closely-connected-le-gaga-rotten-too

 

Asia has been an excellent value hunting ground for me. I hope good fortune will follow your efforts there.

thx for posting :). always nice to study a fraud , interesting  that 2 auditors resigned after each other, and authorities did and investigation. Would that happen with these chinese fraud stocks on US exchanges (the investigation)?

 

Also Frauds never seem to generate free cash flow. Either investing activities are huge or they just dont generate much net cash. And margins seem not believable at all for a farming company (15% return on assets lol). Not sure what to learn from that situation tho. most of the situations I look at have huge FCF and seem to have easy to verify real estate and large auditors that have not yet resigned.

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third ave has a lot of these.  real estate mostly.  presumably they did homework on safety/corp governance.  if i were interested in owning hk real estate conglomerates, i'd probably restrict myself to the names they trade in.  pretty sure their due diligence is more diligent than my own could be.

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

 

Asia Standard....man. This one frustrated me for a few years. As of 2011 they had a $2b HK market cap. For this you got:

 

~200MM HK operating earnings from a solid RE operation

$4B HK in securities yielding 190MM / yr in interest / dividends.

 

etc etc.

 

It was ~ .25 book.

 

What I missed was that it ALWAYS sells for .25 book. Going back to 2006.

 

I glanced at it recently and nothing has changed. They are doing just fine, but the stock just languishes.

 

Price Waterhouse was the auditor. I'm 99% sure it's legit.

 

It's a mystery. I can't figure out what I'm missing. I finally just threw in the towel.

 

 

 

 

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Yeah , I think you need stocks with cash flow (or future cash flows) and catalysts where capital is returned to shareholders, unless they can increase earnings a lot. It seems these hong kong stocks mostly trade on dividend yield. So if they hoard all the cash, price won't really go up.

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I have looked at some companies in HK, mostly industrial ones. One problem a lot of these have is that the minimum wage in China has increased significantly and that profitability has suffered. I'm worried that in the long run they will have to either shut down operations entirely or move production to countries with lower wages.

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yeah but that is not true for hong kong. And for example Keck seng has most of it's real estate in the US, europe or elsewhere in Asia. Texhong is trading at an absurd earnings multiple just because of some short term fluctuations.

 

Also Asia standard for example has hotels in hong kong, and is trading at like a 2.5x earnings multiple and close to net cash. Those hotels have like 95% + occupancy rates. And land will always be scarce in hong kong. This is not empty cities in china we are talking about, this is real estate outside of mainland china that is producing v nice and steady earnings in places where supply is scarce and demand gets higher and higher, and often only the value of the land itself is on the books. Not the appriciated real estate value itself.

 

And like I said, market is only looking at dividends on the short term, and usually not on a 2-3 year time horizon. Asia standard is building a few hotels in hong kong that will be ready in a few years. And if they cannot reinvest the cash, they probably pay it out as dividends. So there is some huge upside potential there.

 

Asia Standard....man. This one frustrated me for a few years. As of 2011 they had a $2b HK market cap. For this you got:

 

~200MM HK operating earnings from a solid RE operation

$4B HK in securities yielding 190MM / yr in interest / dividends.

 

etc etc.

 

It was ~ .25 book.

 

What I missed was that it ALWAYS sells for .25 book. Going back to 2006.

 

I glanced at it recently and nothing has changed. They are doing just fine, but the stock just languishes.

 

Price Waterhouse was the auditor. I'm 99% sure it's legit.

 

It's a mystery. I can't figure out what I'm missing. I finally just threw in the towel.

 

I was just looking at this today as well! Good assets, very cheap, and simple structure, but I don't ever see minority holders getting any money of this.

 

I was looking at the bottom of the chain (Asia Standard Hotels) and they're making HKD150M+ on their hotel properties, but it's all getting stashed away in debt/equity securities. Only 1% dividend to shareholders.

 

You've got HKD 8 billion+ of assets at market value selling for HKD 1.3 billion. These families also don't seem inclined enough to close the gap.. I don't get it.

 

To some degree, trading on dividend yield almost makes sense if you believe that you won't get any cash out of these companies within your lifetime!

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To some degree, trading on dividend yield almost makes sense if you believe that you won't get any cash out of these companies within your lifetime!

that is why im liking texhong so much now. These guys pay out almost everything they dont put back into growing the company. And they are really damn cheap.

 

I also own some keck seng. I do wonder what will happen with the cash they get out of selling those macau apartments. I kinda worry that they will just let it rot on the balance sheet.

 

I dont get it tho. What are they going to do with that cash? They can't really steal it from minority holders? Unless you own like 80% of the company, then you can slowly buy everyone out at cheap prices. But with keck seng they dont own nearly that %.

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Just want to quickly check if anyone has looked at Midland IC&I?

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/103327

 

The Co has recently published their FY13 results - a steep decline off previous years  - not surprising given the harsh market environment especially with the introduction of new regulation, stamp duty etc. But the Co is still making a little profit.

 

At current rate, its cash pile is almost as big as its entire market cap....

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