Full year result as at August 2009 showed a net loss of HKD 48.93 million (or 6.2 cents per share) but the loss had narrowed significantly compared with the previous year (2998: - HKD 397 m). And it was, in fact, the tax expense that dragged the bottom line into red (pre-tax profit HKD 8.28 m; 2008 pre-tax loss - HKD 349 m). With revenues of HKD 5.45 billion, gross profit was HKD 844 m, which is not bad at all, albeit it still was down 10.7% year-on-year). Down significantly y-o-y, SG&A expenses were still high - in any case this is a labour-intensive industry. Though the operation had shown marked improvement, the profitability last year hinged upon a profit of disposal of fixed assets (HKD 104 m). Otherwise the core operation was still loss-making.
This does not truly look attractive. However, there are a couple of attractions in it.
First, it's cheap (traded at HKD 1.3-ish, the price/book ratio = 0.35; that is to say the stock price equals 35% of asset value.) But I have to make it clear. Being cheap per se is not an attraction. But given industrials may be in for this year, it would be good to look at some industrial stocks that are overlooked in the past few years and possibly spotted by investment funds. This is one.
Secondly, I think the shares are 'marginalised', that is, a large share 42.9% is owned by the founding Ha family and the second largest shareholder being Templeton Fund (close to 8% shareholding). It is likely that the Ha family will seek to privatise the firm if the share price is consistently well below the asset value. Therefore, at this point (1.3-1.4/share), it is worth accumulating some so whether we bet on the market suddenly spotting this stock or the founding family deciding to privatise it would sound sensible. While privatisation gives you probably no more than 20-30% profit, being a favourite by investment funds would mean an explosive upturn for 420.
Source: ET Net Hong Kong
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