HK 第45部分; HK +80%... What next?!?

Hong Kong stocks are up about 80%(!!) from the bottom, two years ago. Luckily, there are still loads of (absurd-)cheap HK 第部分. Let's go through some pockets of opportunities.

» Intro

We’ve been enjoying quite the bull-run in HK 第部分 in the past two years. Talk about timing of the Jam_invest HK 第部分 series, with its first post on 2024/01/12...

… The launching post for the HK 第部分 series pretty much bottom-ticked the Hang Seng index. 🎯

Share price chart: Hang Seng index, 5-years

Luckily, we came from an absurd-low starting point with valuations (if that is still a thing nowadays… it certainly does not look like it matters as much as just being hyped ‘on-trend’). So, despite the c80%(!!) run (excluding juicy dividends) in the Hang Seng index from the bottom (quite a bit less in Euro’s, unfortunately), I still see lots and lots of (absurd-)cheap HK 第部分. Let’s check in to see where they’re at!

And then afterwards, I’ll go through the updated Hong Kong (sub-)portfolio - now yielding 6% dividend - and a few entertaining HK stocks.

Please find the disclaimer for all Jam_invest content » here.

» Table of Contents

Remember; the website version contains an interactive Table of Contents accessible on the left side of the screen.

1. Pockets of Opportunities

   1. Jam’s strategy

   2. Running too hot

   3. Hunting grounds

2. Hong Kong (sub-)portfolio

3. Binjiang Service Group

4. Sitoy Group

5. TI Cloud

6. Footnotes

1. Pockets of Opportunities

1.a. Jam’s strategy

There’s a LOT of ways to be successful in investing. So everyone should of course just do whatever the hell they feel like...

… that fits with their objectives, risk tolerance, etc. Personally, I try to position to not completely lose my shirt when things don’t go as smoothly for a while. In this current bull-market of everything, …

… besides Southeast Asia, expensive former western darling stocks, oil & gas-related stocks, European small/microaps (or just mine?) and a few other categories... it may not seem that stuff can ever go down significantly, again. But it will. I have no worries about that.

That means I am making the mortal sin of ‘under-performing’ the bull-market, by not speculating investing aggressively in the latest hype on-trend categories like memestocks, AI, datacenters, crypto, robotics, and whatever. Instead, what I’ve been doing is diversifying the portfolio; keeping loads of cash (if only interest rates were still decent, then I’d probably have a sizable bonds allocation by now, as well), and not putting too much weight in countries that our blessed policy makers are…

If it wasn’t for the latter, by the way, I may have had close to half of my portfolio in HK/China stocks by now.

Specifically for China/HK stocks, my strategy has not changed much since the introduction of the HK (sub)portfolio on 2024/02/08 …

… I mostly still stick to this strategy…

I did, however, change my strategy a little bit. With a basis in place consisting of stocks of companies with …

• decent to strong business models,

• usually at least some growth (prospects),

• strong overcapitalized balance sheets, and

• a track record of strong cash distributions to shareholders…

I have been looking more (relatively speaking) at other categories of opportunities, such as (even) deep(er) value in need of a value-unlocking catalyst, profit/capital allocation inflections, et cetera. These latter type of opportunities can make for explosive, short(er)-term returns, as we experienced with One-Day Stocks such as

$0022.hk - Mexan Limited …

… which declared HKD 0.241 per share in special dividends this year, thanks to the disposal of a hotel property. Those dividends alone represented a more than 3x return on the starting share price this year, of around HKD 0.07.

1.b. Running too hot

Before, looking into my current hunting grounds, let’s first narrow down the list of opportunities by discarding the areas that are higher risk, mostly because they’ve already run too quite hot.

My apologies for wasting some perfectly good alcohol there!

Perhaps, I am mentioning the obvious here, but I am astonished by the brute force of the re-ratings that happened in a lot of HK stocks… and I would not chase many of them anymore, myself. In the table below I listed a selection of HK 第部分 with a return of 100% or more this year (already including my dividend assumption).

NB, the EPS (earning per share) and DPS (dividend per share) figures I used for this table are my assumptions… and are strictly meant to help me identify potential interesting risk/rewards. For some stocks, I update reported numbers and my forward assumptions regularly… for others rarely.

In 2024, I was buying what I believe to be quality(-ish) growth companies such as $2145.hk Shanghai Chicmax and $2190.hk Zylox-Tonbridge… and I could buy them with a P/E multiple in the teens looking not that far out, just in the current or next year. Regularly a substantial portion of the market cap would be covered by FAV (financial assets value, in these instances mostly the net cash position). You can see from the table that valuations have gone up considerably. In many cases, P/E multiples have doubled, and FAV/P (financial assets value as a % of the market cap), and dividend yields have decreased substantially as well.

What I try to avoid buying now, among the higher quality companies, are the stocks that no longer offer a considerable discount vs their western peers. That means that the whole quality bucket is just quite a challenge for me now, aside from select companies that seem on the verge of becoming profitable, are going through a turnaround, et cetera.

In the other valuation tiers, valuations for most companies have gone up substantially as well. It’s what happens in a bull-market.

1.c. Hunting grounds

On the bright-side, even though a lot of HK 第部分 have already moved up considerably. HKEX remains a wonderful hunting ground for bargain opportunities. My favorite hunting grounds are the HK 第部分 of…

• Quality-ish businesses at a considerable discount to western peers

  prior examples included: $142.hk $788.hk $2190.hk

• Decent businesses with high dividend yields

  prior examples included: $2176.hk $640.hk $3828.hk $1358.hk

• Basically anything that is absurd-cheap and has a likely value-unlocking catalyst coming up

  prior examples: $22.hk $9918.hk (» one that did not work out)

… and sometimes it’s possible to get it all; a quality business, with a high dividend yield, and an absurd-cheap valuation, and a value un-locking catalyst. Perhaps I should’ve put the likes of $142.hk and $1358.hk in that bucket.

As an indication of what you can still find among the very cheap names, I list some stocks where Financial Assets Value (FAV: net cash, investment securities, investment properties, etc.) is 150% or more of the market cap, in the table below…