China Overseas Property also managed third party properties not owned by China Overseas. This info is in its presentation slides and financial reports.
Yuexiu Services is majority owned by Yuexiu Property or Yuexiu Group which are also SOEs.
I wasn’t aware that Yuexiu was an SOE the info isn’t really that publicly available. China Overseas’ third party exposure is very low. But thanks for the information I might include Yuexiu if I ever make a third part.
Yes I agree with the issues you’ve pointed out but China Overseas Property (2669) by virtue of being a SOE backed by the largest and highest credit rated SOE developer deserves a valuation premium over private players like Yuexiu. China Overseas Property only manages the properties developed by its parent China Overseas Land and due to that ownership structure has and will continue to have receivables because its easy for the parent to maintain that structure. I’m not worried too much about it though because the parent is very high quality and if and when the real estate market gets back to proper growth I think the receivables should be cleared off.
There are better plays in private players I agree like Yuexiu and First Service (which I’ve covered previously) since they trade below net cash levels but the SOE ones have a larger margin of safety due to the ownership.
be careful with Chinese frauds. Frauds are more common in China. E.g. according to GMT Research, fraud levels could be 6-7x as high in Hong Kong and China compared to other countries. see here: https://www.gmtresearch.com/en/research/faking-cash-flows-2/
Thanks for another interesting post. Since you are asking for ideas: Henderson Land, Yadea, additional deeper dive on Haier and Midea, Zeekr, Petrochina. The Yarlung Tsangpo project and companies that would benefit. Frankly, I will enjoy your writing on whatever you find interesting and undervalued.
Perfect thank you for your ideas Spencer. I’ll try and do individual posts on each of these. But I sort of have an idea for my next post so I might start on these a few days after I finish that post.
As usual, fantastic breakdown of a few gems. Curious as to your thoughts on the debt load for CGD sector companies you listed. At first glance they’re all roughly in the same band around 40% debt to equity which seems relatively healthy especially related to fcf.
I don’t really have an issue with their debt per se. China Resources Gas has an A grade rating from S&P Global while China Gas only has a BBB rating with a 70% gearing ratio. Which is why I don’t really like it and much prefer CR gas.
Agree with you there. Though I think it’s worth paying attention to china gas if it shows signs of recovery since the stock has been absolutely clobbered. What I mean here is in a turn around situation, the negative sentiment could quickly become very overblown, creating a great opportunity.
Take a look at $6968.HK..
- Low debt/equity
- P/B 0.05x
- HIgh current ratio
I’ll check it out thanks for your suggestion
Hey there, appreciate your write up! Wish I had come across it sooner.
I recently wrote on the sector but I find the real estate services to be much better value here for the long term :) https://apeconomics.substack.com/p/china-real-estate-services
Happy to exchange views/ideas in the DM!
Hi Taro. I’ll check out your post and dm you. Seems like an excellent read
China Overseas Property also managed third party properties not owned by China Overseas. This info is in its presentation slides and financial reports.
Yuexiu Services is majority owned by Yuexiu Property or Yuexiu Group which are also SOEs.
You should also look into First Service they are absurdly cheap I’ve covered them in the past
I wasn’t aware that Yuexiu was an SOE the info isn’t really that publicly available. China Overseas’ third party exposure is very low. But thanks for the information I might include Yuexiu if I ever make a third part.
Hi, on property management companies,
China Overseas Property (2669) has high receivables, which could be a potential issue. It's dividend yield is also not great.
I prefer Yuexiu Services (6626), which provides decent dividend, has share buyback and trades below its net cash.
Yes I agree with the issues you’ve pointed out but China Overseas Property (2669) by virtue of being a SOE backed by the largest and highest credit rated SOE developer deserves a valuation premium over private players like Yuexiu. China Overseas Property only manages the properties developed by its parent China Overseas Land and due to that ownership structure has and will continue to have receivables because its easy for the parent to maintain that structure. I’m not worried too much about it though because the parent is very high quality and if and when the real estate market gets back to proper growth I think the receivables should be cleared off.
There are better plays in private players I agree like Yuexiu and First Service (which I’ve covered previously) since they trade below net cash levels but the SOE ones have a larger margin of safety due to the ownership.
be careful with Chinese frauds. Frauds are more common in China. E.g. according to GMT Research, fraud levels could be 6-7x as high in Hong Kong and China compared to other countries. see here: https://www.gmtresearch.com/en/research/faking-cash-flows-2/
Yes you need to be vigilant but that’s with every market. I’m always cynical and promptly outline the risks and work with these red lines in mind.
Thanks for another interesting post. Since you are asking for ideas: Henderson Land, Yadea, additional deeper dive on Haier and Midea, Zeekr, Petrochina. The Yarlung Tsangpo project and companies that would benefit. Frankly, I will enjoy your writing on whatever you find interesting and undervalued.
Perfect thank you for your ideas Spencer. I’ll try and do individual posts on each of these. But I sort of have an idea for my next post so I might start on these a few days after I finish that post.
I look forward to anything you write, whether its one my suggestions or something else. Thanks for your work
Thank you for reading and contributing your ideas It means the world to me.
As usual, fantastic breakdown of a few gems. Curious as to your thoughts on the debt load for CGD sector companies you listed. At first glance they’re all roughly in the same band around 40% debt to equity which seems relatively healthy especially related to fcf.
I don’t really have an issue with their debt per se. China Resources Gas has an A grade rating from S&P Global while China Gas only has a BBB rating with a 70% gearing ratio. Which is why I don’t really like it and much prefer CR gas.
Agree with you there. Though I think it’s worth paying attention to china gas if it shows signs of recovery since the stock has been absolutely clobbered. What I mean here is in a turn around situation, the negative sentiment could quickly become very overblown, creating a great opportunity.
Very true but that’s more of a trade than an investment hahaha. I’m trying to find stocks that we can buy and hold forever