Recent Share Price: HK$4.41 (H Shares)
Accounting: Hong Kong Accounting Standards
Fiscal Year: Dec. 31st
Market Cap: ¥2.16 billion ($316 million)
The principal activities are construction services, real estate development and manufacturing and distribution of building materials in the PRC.
The company was founded by Bao Gen Pang in 1974 and is headquartered in Shaoxing, China
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2018
As of June 4th, Baoye has bought back an additional 22,616,000 H Shares, lowering overall share count to 563,594,053.
2017
During the year ended 31 December 2017, Baoye repurchased 23,500,000 H Shares, representing approximately 8.98% and 3.84% of the total number of H Shares and a total number of issued shares of the Company, respectively. The total amounts paid were HKD133,713,000 (equivalent to RMB118,420,000). Baoye canceled 26,162,000 H Shares.
Share Repurchases
Beginning in 2014, the company has reduced overall share count by ~15%
H-Shares |
Hong Kong $ |
Chinese RMB |
Share Count* |
% Reduction |
|
2018 |
22,616,000 |
563,594,000 |
-4% |
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2017 |
23,500,000 |
133,713,000 $ |
¥118,420,000 |
586,210,000 |
-4% |
2016 |
2,662,000 |
15,159,000 $ |
¥13,535,000 |
612,372,000 |
0% |
2015 |
19,372,000 |
129,927,000 $ |
¥104,240,000 |
612,372,000 |
-3% |
2014 |
31,220,000 |
151,070,000 $ |
¥121,982,000 |
631,744,000 |
-5% |
2013 |
662,964,000 |
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*Based on retired shares; 2018 estimate |
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Risk of Fraud
For the last 10 years, the company has been profitable every year; in addition, the company has net borrowings of ¥216,781,000, dividends paid of ¥(755,795,000), and share buys backs of over ¥(400,000,000) — for a net outflow of ~¥(1 billion). The last issuance of shares was in 2007.
Total compensation for executives in 2017 was ¥4,380,000; EBITDA reported in 2017 was ¥852,429,000. The company does not report any executive loans.
Insiders control over 50% of shares outstanding.
| Pang Baogen (Chairman) | 193,753,054 | 34.38% |
| Wang Jianguo | 47,950,291 | 8.51% |
| Gao Jiming | 12,059,254 | 2.14% |
| Gao Lin | 9,544,775 | 1.69% |
| Xu Gang | 5,971,303 | 1.06% |
| Gao Jun | 5,794,259 | 1.03% |
| Lou Zhonghua | 4,533,172 | 0.80% |
| Wang Rongbiao | 2,647,911 | 0.47% |
| Jin Jixiang | 2,440,527 | 0.43% |
| 50.51% |
Yi Cai Zhu, via his wife, reports significant holdings in the H Shares. I do now know what his association is with the company — if any.
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| In Millions | 12/31/15 | 12/31/16 | 12/31/17 | 6/30/18 |
| Cash and Short-term Investments | ¥3,839.73 | ¥4,373.00 | ¥2,915.45 | ¥3,865.83 |
| (0.85 * Accounts Receivable) | ¥5,061.75 | ¥6,183.75 | ¥8,409.90 | ¥8,757.55 |
| (0.60 * Inventory) | ¥4,288.80 | ¥4,308.60 | ¥4,959.60 | ¥4,629.60 |
| (0.25 * Other Current) | ¥136.72 | ¥266.25 | ¥699.50 | ¥239.58 |
| Total Liabilities | ¥13,622.00 | ¥15,881.00 | ¥20,646.00 | ¥19,608.00 |
| Preferred Stock | ¥- | ¥- | ¥- | ¥- |
| NNWC | ¥(295.00) | ¥(749.40) | ¥(3,661.55) | ¥(2,115.44) |
| NCAV | ¥3,867.00 | ¥4,012.00 | ¥3,227.00 | ¥3,236.00 |
| NCAV + LT Investments | ¥4,552.58 | ¥4,717.95 | ¥4,228.00 | ¥4,543.00 |
| TBV | ¥6,358.47 | ¥6,810.47 | ¥7,301.47 | ¥7,887.47 |
| Enterprise Value | ¥(361.52) | ¥(857.83) | ¥1,515.62 | ¥546.45 |
| Retained Earnings | ¥4,907.18 | ¥5,372.10 | ¥5,960.20 | ¥6,659.83 |
| Dividends Paid | ¥(61.24) | ¥(61.24) | ¥- | ¥- |
| Sale or Purchase of Stock | ¥(104.24) | ¥(44.68) | ¥(92.16) | ¥- |
| Shares Outstanding | 612,372,000 | 612,372,000 | 586,210,000 | 563,594,000 |
| P / NNWC | -946% | -409% | -68% | -97% |
| P / NCAV | 72% | 76% | 77% | 63% |
| P / NCAV + LT Investments | 61% | 65% | 59% | 45% |
| P / TBV | 44% | 45% | 34% | 26% |
| NCAV Burn Rate | 17.0% | 3.7% | -19.6% | 0.3% |
| Debt / Equity | 8.4% | 4.1% | 24.0% | 27.4% |
| Sloan Accrual Ratio | -4.8% | 2.2% | 9.4% | |
| F-Score | 6 | 5 | 3 | |
| FS-Score | 7 | 5 | 3 | |
| Z-Score | 1.8 | 1.6 | 1.3 | |
| Beneish M-Score | (1.5) | |||
| EV / EBITDA | (0.38) | (1.16) | 1.78 | |
| EV / Operating Income (5yr) | (0.07) | (0.18) | 0.35 | |
| EV / Operating Income (10yr) | 0.17 | |||
| EV / FCF (3yr) | (0.16) | (0.33) | NA | |
| EV / FCF (5yr) | (0.21) | (0.27) | 5.39 | |
| EV / FCF (10yr) | 0.92 | |||
| EBITDA (FY) | 946.11 $ | 738.24 $ | 852.43 $ | |
| Operating Income (5yr) | 5,026.97 $ | 4,716.06 $ | 4,385.34 $ | |
| Operating Income (10yr) | 8,778.16 $ | |||
| FCF (3yr) | 2,296.44 $ | 2,630.62 $ | (299.46) $ | |
| FCF (5yr) | 1,738.42 $ | 3,223.10 $ | 280.98 $ | |
| FCF (10yr) | 1,643.80 $ |
Write Up
Value Investors Club (skierholic)
Disclosure: We own shares in Baoye Group Co Ltd (2355:HKG).
Leaven Partners 
hello!
Thanks a lot for the post. I have done some DD and my conclusion is that Baoye is a good company – it has competent and (possibly) honest management, a long history of fine performance, and has historically been financially prudent.
I think its undervaluation comes from macro fears. The company depends quite a bit in public spending, and it is feared that China (specially SoEs and local administrations) has already too much debt, also, any general economic downturn would also affect the sector.
If you look at the PB ratio for say the last 10Y, it has hardly been at such a low level. Indeed, the PB ratio is ever dropping – yet the SP remains within a certain range. That is, the companys value increases, the SP remains the same.
Now, in the last few weeks the SP increased a bit – if it drops again I will probably start a position and then let it be for as long as it takes for the SP to double.
One concern I have though is Pang Baogen, he is already in his 60s, and he is not only Chairman but also CEO. I wonder how much longer will he remain in the company, and how will the company change after he leaves.
Best,
Elliott
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Hi Elliott,
Thanks for your interest in my blog and for your consideration of this post.
If it’s a fraudulent company, it’s certainly not acting like one! Since my post, the company has bought back an additional 960,000 H-shares and appears to have recently approved another round of H-Share reduction, not to exceed 10% or ~22M shares. The recent sale of 1/3 equity interest in their Zhejiang Baoye development arm to Daiwa House (a public Japanese company) also brings some legitimacy to the company. I would, however, be more comfortable if they paid a dividend. And it’s also worth noting that David Webb has stated in an interview that he has never in his career owned any listed H-Share because he doesn’t trust them.
With the recent appreciation, it has grown into a ‘normal’ position size for me, which is around 3%.
However you slice it, the stock looks cheap to me.
I’m looking for safe and cheap stocks. Cheap is a good catalyst in its own right, but having another known catalyst is even better. If I knew if and when Pang Baogen will retire and what will happen after he is gone, it would make my job a lot easier. Warren Buffett used scuttlebutt a lot in the partnership days with his net-nets; I don’t have that luxury. So if you hear of anything, let me know!
Many thanks,
Brent
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