Zhengye International Holdings Co Ltd (3363.HK) is one of the largest paper-based packaging production companies in China. The company produces corrugated cardboard cartons, honeycomb paper-based products, and high-strength corrugated medium paper. The products are sold as packaging products to manufacturers of air conditioners, small household appliances, food condiments, and others.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
Zhengye International was founded in 1999 and is headquartered in Zhongshan, China. The company is listed on Hong Kong’s Stock Exchange since 2011. The three executive directors are the controlling shareholders of the company with an ownership of collectively 75% of the shares. The balance is owned by the public.
With a workforce of 3,414 employees, Zhengye International reported revenues of 2.1bn RMB (302m USD) and a profit before tax of 125 RMB (18m USD) for 2016. This is an increase of 15% and 120% respectively compared the year ago. In 2015, revenues were up 6% while profits were down 5% compared to the year before. The operating margin of around 8% is below industry average and leaves space for improvements. Zhengye International’s cash reserves at the end of 2016 have been 160m RMB (23m USD). The company has an equity ratio of 28% and a high gearing, defined here as total liabilities to total equity, of 257%.
Zhengye International’s shares are in an uptrend since June 2016 and gained around 167% in value since, 87% alone this year. The company is still priced at only eight times earnings, compared to 37 times among its sector peers. The shares trade at book value and at only four times cash flow. The last dividend payment yielded 3.8%.
The announced key strategy of optimizing the internal structure and improving quality by optimizing and consolidating existing resources might boost profitability and strengthen the financial structure of the company. With the prevailing tailwind from a healthy global economy, we expect to see strong results in the company’s next reporting. The stock is good for a price increase of another 20% this year.
AIS Rating: ★★★☆☆
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|---|---|
| EPS (RMB) | 0.1 | 0.1 | 0.07 | 0.08 | 0.08 | 0.18 |
| Change | -55% | 0% | -30% | 14% | 0% | 125% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 8 | 37 | 1 | 4 | 28% | 14% | 257% | 3.8% |
* Equity / Total Assets, ** Total Liabilities / Equity
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