Best Hong Kong listed China stocks

More evidence of a recovery in China today with the latest PMI data just reported.

After seasonal adjustment, HSBC China Manufacturing PMI for October was 49.5 (compared with 47.9 in a month earlier), confirming a trend that China's manufacturing sector is recovering. The latest PMI data rebounded to eight-month high, showing tjat the manufacturing industry has stabilized and indicating, if trends continue, that it will likely grow in Q4.
 
We are likely to add EPRO (HK Stock code 008086) to our BUY list shortly. So far, based on our research we like what we see. We plan to meet with this company shortly as we always, where possible, try to make a direct visit to companies before deciding to invest.

This company, like NANDASOFT, has a similar profile of strong growth opportunities, and given its current size and current stock price, it seems to have potential for significant price increases. We like to try to time the market bottom and will then buy based on our perception of value.

Stay tuned for an update as we conclude our research on this one.
 
EPRO (HK Stock code 08086) rated STRONG BUY by HKT.

Current price $.65
Target price (12 months) $1.4
Target price (24 months) $.2.6

EPRO provides information technology contract and maintenance services, and IT software development and integration services, e-marketing services and mobile computing solutions. There will of course be huge demand for these products and services in the coming decade in China.

EPRO also operates e-commerce and provision of online sales platform DealExtreme - Cool Gadgets at the Right Price - DX Free Shipping Worldwide which we believe have huge potential for growth and revenues as China’s on-line shopping portals are set to boom over the next decade.

DX.com is a simple, efficient shopping platform and we are very encouraged by its growth in usage to date. DX.com targets at overseas customers and sells high-quality and unique products from China to global consumers. The website has over 100,000 products for sale, across 15 categories and over 200 sub-categories. We met with management staff who operate this website recently, and they confirmed to us that the business is operating well and growing fast. The website now has regular buyers from over 200 countries and is seeing especially strong demand from countries such as Brazil, Russia and Israel. If you have not yet seen this website take a look!

EPRO also operates China Wholesale - Buy wholesale products from Chinese wholesalers on MadeInChina.com

EPRO’s areas of business have the potential to be highly profitable, and we have identified EPRO as another smaller company, along with Nandasoft, that is placed to benefit significantly under China’s 12th 5 year plan over the coming 3 years. (We are also looking at a 3rd company now and we report on that if we conclude that we like what we see).

The company’s Return on Equity, and Return on Total Asset, two key ratios we look for, has grown every year since 2007. We believe this trend will accelerate over the next few years.

EPRO’s turnover and operating profits have grown strongly each year, and again we believe this trend is poised to accelerate. We are hopeful of positive news confirming this when the company reports earnings in December 2012.

Also noteworthy is that DIGITAL CHINA (HK stock code 0861) has been increasing its stake in EPRO over the last few months, as has EPRO’s chairman. Both of course are encouraging signs for the company’s stock price.

Other investors might wonder why, given EPRO’s prospects, we have not valued it’s expected stock price growth at a higher percentage compared to its current stock value. The reason for this is that based on our own assessment of the stock’s value, we believe the stock’s current price is already fairly high (which reflects that the fact that it is not just us, but other investors who already expect a lot from this company). We determine stock value based on fundamentals, and it is on this basis that we value EPRO at 1.3 per share based on currently available information (approximately double the company’s current stock value). Of course, companies like this also have the potential to see their stock price jump crazily high as and when positive news goes “mainstream” and local and foreign investors pile in wanting a piece of the action. If this happens we will carefully monitor the price vs our assessment of value, and we might then sell accordingly if we believe the stock price is overvalued.

We will accumulate EPRO over the coming year until it hits a price of $1.3 which we consider to be fair value for this company, but may consider revaluing the company (upwards or downwards) depending on its upcoming earning’s report.
 
We are very satisfied to see that Nandasoft today announced that achieved a turnover of approximately RMB404,115,000 for the nine months ended 3h September 2012. This represents an approximately 33.4% increase as compared with that of the corresponding period in 2011. Net profit was around RMB 14,749,000.

For the three months and nine months ended 30th September 2012, the unaudited turnover was RMB164,668,000 and RMB404,115,000, respectively representing an increase of RMB24,108,000 and RMB101,190,000, or 17.2% and 33.4% in turnover as compared with that of the same period in 2011.

The company made its announcement after the close of trading in Hong Kong today, and the stock price closed slightly up at .34 cents per share prior to the earnings results.

The results are in line or slightly above our expectations and confirm our TP for this company of $.9 per share. This is a small company, but one we think has huge growth potential. We will continue to allocate funds to purchasing this stock until it reaches the target price or until our total portfolio allocation of this stock reaches 5% of our China portfolio. From the trading patterns prior to the announcement we don’t see any evidence of insider trading or information leakage, which is a factor we also like when we consider a company’s governance.

The report noted that the company continued to focus on research and development of mobile communication applications, and that it was focused on developing an electronic government procurement system based on an android tablet PC, but also that it was researching and development on Mobile Virtual Desktops with the aim of achieving seemless operation of the desktops of desktop computers, tablet computers and mobile phones.

Nandasoft also commented on the research and development of Smart Home based on its concept of the “Internet of Things”, which aims to connect household appliances through platform software via devices such as PCs, mobile phones and tabets.

The Company continued to research and develop on the secured electronic document management system based on domestically produced hardware and software.

Nandasoft’s areas of focus are all areas that we believe are very strategically placed to benefit from Government support over the next few years, along with the trend and opportunities that come with cloud computing.

Nandasoft’s website is here:http://www.njusoft.com/

Details of Nandasoft’s earnings announcement here: http://www.hkexnews.hk/listedco/listconews/gem/2012/1102/GLN20121102175.pdf

We reiterate our valuation of Nandasoft as $.9 per share.
 
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China’s non-manufacturing industries rebounded from the slowest expansion in at least 19 months according to data released yesterday, adding to manufacturing gains that confirm that China is recovering from a slowdown that lasted seven-quarters.

The purchasing managers index rose to 55.5 in October (from 53.7 the previous month). This growth follows two reports last week that showed a pickup in manufacturing industries.

We further expect that China will still roll out mild stimulus measures in some sectors as it completes a once-a-decade power transfer this week. The nation’s central bank said the economy is expected to maintain “steady and relatively rapid growth”.

This data confirms our macro view that now is the time to be buying Hong Kong listed stocks with China exposure.
 
The LINIK REIT, the world's largest REIT, listed on the Hang Seng (HK Stock code 823) reported very solid half yearly earnings yesterday.

In our view, the results of the LINK REIT, at a simplistic level, demonstrate what will in general happen to most other Hong Kong stocks as the effects of QE take effect. Earnings will rise, asset prices will rise, and stock prices will rise (take a look at the stock price of the LINK REIT as a perfect example. The positive effects of QE are most likely to positively benefit property companies first, but this sill soon flow into other areas, such as retail, manufacturing, and then over time into the service sector, taking banking along with it positively as these trends gain momentum and feed off each other.

The interim LINK REIT results presentation file can be downloaded at:
http://www.thelinkreit.com/en/news/documents/20121107_interim_attachment.pdf

Highlights for the six months ended 30 September 2012:

Growth Momentum Continues
- Total revenue: HK$3,197 million, up 10.7%.
- Net property income: HK$2,256 million, up 10.5%.
- Interim distribution per unit (“DPU”) – 100% payout: HK71.08 cents, up 12.6%.

We already have some LINK REIT stock in our portfolio, having bought in mid 2009, and we have been accumulating since that time.

Our 12 month price target for the LINK REIT is $52 per share.
 
NANDASOFT (HK Stock code 008045) - trading volumes have risen significantly over the last few days, along with a rising price. We are not aware of any specific reason for the increased turnover and price, but we do think in general this is a trend that will continue as the company moves towards its mainboard listing. We continue to accumulate as we believe this company is trading below fair value and has great long term prospects.
 
Effect of Obama victory on Hong Kong stocks.

During the first two days since the election result, HK stocks have fallen (along with most world markets).

We believe the Obama victory is neutral to positive for HK stocks. Consistency of policy, and a follow through of QE from the Fed will be helpful to the HK stock market. We are relatively neutral on the effect of Obama's tax plans in terms of how it will affect the HK stock market.

We believe the post election drop in markets is perhaps more due to the focus on the upcoming fiscal cliff in the US. We belive this will be resolved, and that, after China's political transition, we are poised for a very good year next year, with the Hang Seng likely to be at 28000 to 32000 by the end of 2013.

For the next month, we expect prices to stay reletively flat, within a narrow range, with some volitility over the next month or so.
 
Some more positive news from China. This time, its retail sales in up 14.5% in October, ahead of market estimates.

Total value of retail sales of consumer goods in October jumped 14.5% year-on-year in nominal terms to RMB1.8934 trillion while total value of retail sales of consumer goods for January to October climbed 14.1% year-on-year in nominal terms to RMB16.8356 trillion.

Retail sales of consumer goods in city and towns rose 14.5% year-on-year to RMB1.6443 trillion. Retail sales of consumer goods in villages lifted 14.8% to RMB249 billion.

In our view, this supports our assessment that China's economy is on the rebound, and it also provides encouraging data that China is moving further towards internal consumption and retail spending, which we think is long term important for China's progress.

The news supports our view that China stocks are poised to rise over the next year.
 
EPRO (HK Stock code 008086 )NOTICE OF BOARD OF DIRECTORS’ MEETING

The board of directors of EPRO will meet on Monday, 12 November 2012 at 11:00 am to consider and approve the consolidated results of the Company and its subsidiaries for the three months ended 30 September 2012.

We will be watching closely to see if what growth the company reports with its fast growing e-commerce business dx.com, and also if they pay out any dividend.

We have seen no increase in stock price or trading prior to the announcement. People speculating on growth might want to buy EPRO stock either today before the HK market closes, or early Monday.

We are buyers of EPRO as we feel the price is undervalued, with huge upside.
 
China All Access (HK Stock code 00633) closed up 10% today. We still consider the company and stock very cheap, and have a very positive outlook on the company.

Some recent news on CH ALL ACCESS below:

Hong Kong, Nov 19, 2012 - (ACN Newswire) - China All Access (Holdings) Limited (Stock Code 633.HK) entered into an agreement with ZTE Corporation acquire 51% equity interest in Changfei Investment Company Limited of Shenzhen City, a controlled subsidiary of ZTE, whilst ZTE Hong Kong will subscribe to 112 million shares and HK$201 million-worth convertible bonds of China All Access.

Upon completion of the deal, China All Access will become the controlling shareholder of Changfei Investment, an investment conglomerate with capabilities in large-scale R&D and production of mobile terminals (including 4G terminals). In turn, ZTE, the world's leading player in telecommunications and China's largest publicly-listed telecommunications equipment manufacturer, will become the second largest shareholder of China All Access.

CAA will draw from the cross-investment arrangements significant advantages of vertical integration, significantly expanding its leading edge and innovative R&D capacities of CAA's mobile terminals (including 4G terminals) in extensive public administration and industry applications, and effectively upgrading the asset scale and profitability.

Changfei Investment is China's top-tier investment conglomerate specializing in providing comprehensive mobile terminals (including 4G terminals) solutions, with an investment business spanning all stages of R&D, integration and manufacturing for mobile terminals and auxiliary products. Buttressed by ZTE's expansive industry platform, Changfei Investment has developed strong terminal R&D capabilities and production infrastructure over the past few years. This investment will realize for CAA multiple synergic advantages in product development, technology R&D, marketing, and business development. It is also expected to provide powerful impetus for China All Access's existing business in the R&D and production of wireless data terminals (Jinwutong and 4G mobile terminals), as well as satellite communication equipment terminals.

Mr. Alfred Shao, CEO of China All Access, said, "As China's leading public and industry communications solution provider, China All Access is proud of our special advantages in the fields of emergency communication, public security and comprehensive urban management, where we have built a solid foundation across the public security, traffic police, fire control, civil defense and radio management sectors. As government and business clients constantly raise the bar on our products in terms of the level of sophistication, confidentiality and security, the acquisition of Changfei Investment will enable the organic integration of our design, R&D and manufacturing abilities and bring China All Access's public and industry communications solution business to new heights. We are confident as a result of this deal, our leadership in the industry will be further consolidated, which spells ever more robust and sustainable profit growth and ever better returns to our shareholders. "
 
So, China is looking GREAT right now, in terms of China stocks being poised for a strong rally in 2013.

Anyone who invested based on our HKT China stock picks so far, will already be up nicely.

If you have cash on the sidelines, now is the time to put it into the Hang Seng. We expect the Hang Seng to end the year of 2013 between the 28000-32000 range, and we think if one picks the right type of stocks such as those we invest in, those stocks could double to triple over the year.
 
SIJIA GROUP (HK Stock code 01863) rated STRONG BUY by HKT.

Current price $1.39
Target price (12 months) $.2.80
Target price (24 months) $.3.90

We belive SIJIA GROUP is at its absolute bottom in terms of stock price. The company, based on our fundamental valuation approach, looks solid to us, and based on our methodology we value the stock at $2.8 per share. In accordance with our usual approach, we will plan to buy and will hold until we believe fair value has been achieved.

SIJIA's core business is the design, development, manufacture and sale of polymer processed high strength polyester fabric composite materials and other reinforced composite materials and downstream related inflatable and waterproof products targeting the outdoor leisure, recreation and sports consumer market.

We believe that demand for the products of SIJIA will start to increase as the company's key export countries stabilize and recover, and that there is also likely to be increase domestic demand the the company's products as the China consumer's retail spending power increases.

Sijia utilises self-developed facilities and techniques on which has acquired national patents, to produce architectural membrane, waterproofing membrane, TPU materials, air tightness materials, inflatable materials, biogas tank materials, tarpaulin materials, wader and protective garment materials. Such materials all have certain common characteristics, including high tensile strength, antitearing, anti-stripping, flame retardancy, anti-bacteria, anti-corrosive, durable, low temperature resistance and sunlight resistance. Sijia has also expanded into high margin downstream end products (the “End Products”) business, with factories located in Xiamen, Wuhan and Chengdu, which develops and manufactures clean energy products such as biogas tanks and outdoor leisure sports consumer products such as wader and protective clothing, inflatable boats, and large inflatable toys.

We like the company's emphasis on R&D and technological innovation which we believe will help the company retain its leading position in new products that are high-tech-oriented, high value-added, and high margin.

We believe that Sijia's profit margins will surge, and that it will hit a record turnover and operating profits next year.
 
So to reiterate our strong buy reccomendations for China stocks to date (all of which are now part of our small-cap China fund):

KUNMING MACHINE (HK Stock code 00300)
Target price (12 months) $4.00

CHINA ALL ACCESS (HK Stock code 00633)
Target price (12 months) $2.4
Target price (24 months) $3.5

NANDASOFT (HK Stock code 008045)
Target price (12 months) $.9
Target price (24 months) $.1.4

CHINA STARCH (HK Stock code 03838)
Target price (12 months) $.6
Target price (24 months) $.9

HISENSE KELON (HK stock code 00921)
Target price (12 months) $4.20
Target price (24 months) $6.50

EPRO (HK Stock code 08086)
Target price (12 months) $1.4
Target price (24 months) $.2.6

SIJIA GROUP (HK Stock code 01863)
Target price (12 months) $.2.80
Target price (24 months) $.3.90

We have placed all our STRONG BUY reccomendations and our rationale for the reccomendations here. If you want to make some good money in China stocks, please do give our suggestions some good considerations. We are still hunting and researching for other companies that meet our investment criteria, and we will report on those in the coming weeks/months.
 
Well how about that. One day after we initiated a strong buy rating for Sijia (HK stock 1863) in rose 14.5% today in trading with a volume 14 times the usual number of shares traded.

We reiterate our strong buy rating for this stock, and as value investors we will hold long term until our fundamental valuations are reached.

Again, Sijia Group looks cheap, currently with a PE of 3.07, a yield of 5.44% and a historical 52 week of high of $3.00. We are now around 40% invested of our fund valued allocated to small-cap China value stocks, and will aim to get at least another 40% into the market over the next few quarters on the basis that China has fundamentally bottomed and will be one of the best performers for 2013. It may interest others following HKT that we keep our remaining "unallocated" cash primarily invested in a mixture of currency (AUD and SGD) and the HK listed stock LINK REIT, all of which to us are great "capital preservation" assets with some basic upside.
 
For all those who hold HISENSE KELON (HK stock code 00921), I hope you have been enjoying the recent rally in the stock price. Up around 10% today. We still view it as undervalued and maintain our 2013 price taget of $4.00.
 
An respected bank just came out with a .90 price target for 3838. Nice to see people agreeing with me, but remember where you heard it first guys!
 
HI HKT , your posts are excellent so please keep up the good work.

Do you also look at the S-chips ? I would be interested to know of your views on the chinese companies trading in Singapore, they have been very unloved as of late and I would be interested to hear if there are any you like ?
 
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