China companies are facing difficulties getting credit lines. This will have ripple effect on companies like World Precision, although in the larger picture this is a well-run and fundamentally strong company. That's why the stock has not fallen hard and is staying rooted at the mid-50s range.

from STRAITS TIMES >>


SIX Chinese private equity (PE) funds that are in town this week to uncover undervalued stocks have their eyes on S-chips and Singapore companies with an ethnic Chinese management.

Among them is Shanghai-based China Best Group, which has drawn up preliminary plans to set up a fund to invest in Singapore stocks in a bigger way.

It may set up an open-end fund here or undertake a reverse takeover of an existing listed company to turn it into a listed fund.

"We have not decided on the timing of setting this fund," said China Best chairman Lu Wei in Mandarin. "We have been profitable in Singapore stocks, so this can be a demonstration to the market."

Another private equity fund United Innovation Capital is interested in consumer plays with a strong branding, starting with S-chips and then Singapore companies with ethnic Chinese managers. This would make for ease of communication.

"Any investment should not make up more than 10 per cent of our portfolio and no more than 5 per cent of the shareholding in the listed company," said its chief investment officer Warran Zhang.

The two PE funds, while active in mainland China and Hong Kong, are no novices in the Singapore market.

United Innovation Capital has invested in Tianjin Pharmaceutical while China Best owns stakes in Yangzijiang Shipbuilding, Techcomp Holdings, Fuxing and Sound Global, and is a top 10 shareholder at China Sunsine and Sunpower.

They are on a "Discover Singapore" roadshow organised by Financial PR, together with other private equity funds: CDB Capital, Genesis Capital, Yong Rong Asset Management and Harvest Fund.

This trip is taking place amid a backdrop of sizzling competition among private equity funds in China that is driving up valuations of mainland companies.

In contrast, many S-chips are undervalued, Mr Lu said, adding that this is due to a proximity issue. "The further they list from the mainland, the more undervalued they tend to be," he said.

China Best is on the prowl for companies with strong profitability and cash flows in the last five years, positive industry outlook, and good management.

"We prefer companies whose key management owns more than 5 per cent stakeholding in the company," Mr Lu said. This, he believes, aligns the interest of management with that of shareholders.

So far, China Best has yielded an annualised return of 20 per cent for its entire portfolio, Mr Lu said.

Even in the case of the troubled Sino-Environment where alleged fraud occurred, China Best has not lost money and still holds the shares of Avic International Investments after the latter undertook a reverse takeover of Sino-Environment.

The Chinese private equity funds yesterday met representatives from China-based World Precision Machinery and Dukang Distillers as well as Singapore's Kian Ann Engineering and Q&M Dental.

They are scheduled to meet China Aviation Oil, Sapphire Corp, Petra Food and StarHub today.

"We believe that the inflow of PRC investment funds into the Singapore market will provide additional liquidity in the Singapore market and increase the interests in good S-chip companies in Singapore market as they can better understand the Chinese companies," said Samuel Ng, chief financial officer of World Precision.

Chief executive officer of Q&M Dental, Ng Chin Siau, said that the group is looking at onshore renminbi funds to invest in their projects in China and there have been ongoing discussions with China-based fund managers.

The stock is glued to a trading range of 54-57 in recent months.
If nothing else, it is a stock with a decent dividend yield.

THE EDGE said the Company is talking to Seatown Holdings, a subsidiary of Temasek Holdings. Don't play polay okay...

This is going to be the next blue-chip.

CIMB covered the investor presentation yesterday, including the Q&A, in a good report this morning.

Corporate Focus Series…

How is WPM going to fund its projected RMB 600m capex for the Shenyang plant?

WPM will fund this through its internally generated cash and debt. Currently WPM has approximately RMB 250m in cash and a yet to be drawn down bank facility of RMB 300m. The cost of debt for WPM is about 6%. WPM does not discount the fact that they may dip into the equity
market if required.

• Why is the share price of WPM constantly depressed despite its strong growth prospects and historical performance?

According to CFO, Samuel Ng, the fundamentals of WPM are strong. The major reason for its depressed valuation comes from the stigma on S-Chip companies. People generalize that all S-Chip companies are indecent due to a few bad eggs that tarnished the image of S-Chip companies. There is also a misalignment in media reports with the media preferring to constantly
highlight bad S-Chip companies and neglect the existence of genuine Chinese gems.

Jameskuwe:

They have a big project in Shenyang.

Land cost : RMB123 million.

Total capex (incl land cost) : 500 – 700 m RMB.

1^st phase will be completed in 2H2012.
2^nd phase in 1H2014.


Q: Why are you expanding your facilities at Shenyang?

We want to be nearer to customers in the Bohai area in Northeastern China, which is a hub for large heavy industries. Leading automotive manufacturers such as BMW and FAW have set up their bases there. Germany’s BMW has a base at Shenyang and there are several hundred high-end automotive component factories serving BMW there. These high-end automotive component factories are very large organizations and rely on us to manufacture and supply their capital equipment. It took us only three years to generate annual revenue contribution of almost Rmb 180 million from this region.

We are producing high-tonnage equipment valued at Rmb 3 million to Rmb 5 million each for our Bohai customers. It is expensive to transport such heavy products from our existing facilities at Danyang to Bohai. Steel, which accounts for about 80% of our cost of goods sold, is also produced in Northeastern China. We can save about 10% in cost of production by eliminating long distance transportation when procuring for steel and delivering our products.

Secondly, the Shenyang government has offered the World Group many investment incentives because it is one of the top 500 PRC enterprises. For example, World Precision was able to acquire land use rights at a 30% discount to market rates because its products directly support high tech heavy industries. To develop the Bohai region into a hub for heavy industries, the government is giving tax rebates to relevant manufacturers like World Precision.

EPS picked up in recent years


Copied from

WORLD PRECISION: Grows FY2011 net profit 44% to Rmb 180m, blue-chip dividend policy

James, it looks like they took on bank loans for the expansion of their new factory. This looks normal capex. What do you reckon is an acceptable gearing ratio?

U can consider this one to be Yangzijiang's brother: The pair are solid S-chips which deliver rising profits every year and are undervalued by the market.



World Precision Machinery’s FY2011 net profit grows 43.8% to a record high of RMB180.0 million
•
Revenue grew 14.2% yoy to RMB1,186.1 million on volume growth of high-end stamping machines and higher selling prices across all product segments
•
Gross profit margin improved 380bps to 29.4%
•
Proposed final cash dividend of RMB13.5 cents per ordinary share; dividend payout ratio of 30.0%
•
Cautiously optimistic that FY2012 will outperform FY2011, riding on China’s booming replacement market for automotive parts and home appliances.

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_848CD9D8E97112DE482579B100448AE6/$file/WPM-FY2011-MediaRelease.pdf?openelement

I remember macgyver bought this stock... then i go in and buy.

I followed him in artivision and made some good money. My best performing stock this year.

Moving up liao to 52.5 cents. Think it's a fundamentally sound stock. However, liquidity can be a problem becos the management owns a lot of it. 

No gas to move?

Where's the operator?

Resilient stock -- so far. 

This one behaves like a wave - up up and then down down. Today's up up at (+2.5 cents = 45 cents) on big volume.

Yesterday and before that (a multi-week period)  was quiet, illiquid and ignored and the price was drifting down.