Undervalued and net net investments in the Chinese stock market: Part 3
More high quality companies trading at Graham esque net net valuations unlike any other market in the world
Welcome to the third part of my undervalued and net net investments stock analysis. Well, let me start off by saying that 2025 has been a banger so far. I mean we’re just three months into this year and we’ve already by far and away eclipsed everything that happened in 2024. Firstly, we have President Trump flip flopping daily about his “trade war”—mostly pertaining to his proposed tariffs on Canada and Mexico. I mean how many times has gone back on his own words. The U.S. markets have completely hated all this instability and have officially entered into correction territory which passive investors will term as a “generational buying opportunity”, I mean just open X and let your eyes be bombarded with “Oh my God, I can't believe that SPY is close to its 200 DMA just keep DCAing and you’ll be a multi millionaire soon”. It doesn’t take a genius to realize that unfortunately making money in the stock market is not so easy.
Secondly, to further spook the markets, we have Japan going through its own impossible trinity where every action that they might take to redeem themselves of their past monetary and fiscal sins will lead to massive repercussions for the global asset markets particularly the carry trade which is responsible for a lot of the inflation that we’ve seen in asset prices over the last decade or so. Every single time that the BOJ (Bank of Japan) talks about anything related to increasing or keeping rates constant— the Nasdaq tanks by about 2-3%— so it remains to be seen what impact this will have on global equity prices ( I will cover this in detail in an upcoming mega macroeconomic focused post which our good friend President Trump would call “BIGLY”.
On the other hand, the last few months have been absolutely torturous and tedious to watch for China bears, doomsday narrative sellers, and Western media propaganda machinery of course. We’ve had Huawei releasing triple folding phones, the release of DeepSeek and Gwen (which rival and sometimes even outcompete Western LLM equivalents), improving Chinese macro plus a real estate sector that looks to be slowly but surely bottoming off. The “but at what cost” people working at these news outlets might soon have to find a part time job putting fries in the bag. What this has all meant is that there has a large rally in Chinese technology names on AI excitement, a lot of which is yet to materialize and dare I say even slightly blown out of proportion. I mean— yes AI is revolutionary— but the larger play here is a recovery in Chinese macro which hasn’t been priced in at all by consumer and retail stocks. Also, there is still a pretty large selection of net net investments that have been unfazed by this broader rally. This is excellent news for value investors like us since our job is to find hidden value where no one else is willing to look.
As I’ve always warned however, the corporate governance standards in Hong Kong and the rest of Asia are not the same as those evident in the West hence I’ve paid special attention to researching the management to ensure that they’ve historically aligned their goals with minority shareholders and I’ve also tried my absolute best to ensure that I properly disclose any red flags that I witness in my analysis and I suggest you to please do the same as well.
With all that out of the way now, let’s explore some absurdly—frankly outrageously and egregiously cheap net net and undervalued investments that are still so cheap that they would make Ben Graham beg the Lord for resurrection.
Sino Land (0083.HK)
The Hong Kong property and real estate sector is perhaps one of the most hated sectors in the entire global equity markets, not just limited to Hong Kong, and for very good reason. Hong Kong property prices have always been very high due to a variety of reasons—with it ranking near and/or sometimes the top when it comes to the most unaffordable and expensive housing markets in the world— these reasons are mainly but not limited to: a severe shortage of developable land, a incentive to keep prices high for the government since they earn most and/or almost all of their revenue from land sales (Hong Kong doesn’t have income, capital gains, property or even value added tax since it’s a global financial hub and tax haven), an already high plus growing population of new talents from both the Mainland as well as from abroad, and heavy lobbying from property developers who’ve gained significant financial as well as political clout over the years due to their burgeoning wealth. The Hong Kong property market was seen as a market which would never face a correction despite how high prices got due to the above mentioned factors but if there’s one law of nature that always gets enforced— although heavily delayed sometimes—it’s that whenever valuations get egregiously high, the free market will find some way to correct itself and bring prices down to reality from mindless euphoria.
The trigger for the current downturn in Hong Kong property prices was an agglomeration of factors including but obviously not limited to the Hong Kong riots (which were rightly crushed but caused a lot of short instability), the net zero COVID lockdowns, an almost four year stock bear market, and the villanization of China in the global media which drove a lot of capital inflows out of Hong Kong in the short to medium run. A lot of people in the West even started calling Hong Kong a dead or dying city and well just look at the amount of new Hong Kong IPOs right now and call it a dead or dying city with a straight face. Yes, Hong Kong property prices will never go back anywhere close to their previous levels and there are things like the Northbound travel trend to Shenzhen which will fundamentally weaken things like retail but Hong Kong will always continue to have a place in China and the world due to its duty free nature and freely floating currency— two things that allow it to be a beautiful bridge between China and the West, particularly for trade and financial purposes. This entails that due to its unique geography and high growing population, there will be always be outsized demand for housing in Hong Kong.
All Hong Kong property developers are being priced at valuations that would imply impending bankruptcy but that is simply not the case with the bigger blue chip developers who have solid balance sheets and land banks. The most solid developer out of this entire group, when it comes to pure balance sheet numbers is Sino Land.
Sino Land was founded in 1971 by Singaporean real estate magnet— Ng Teng Fong— who was called the “King of Orchard Road” for his success achieved in the Singaporean property market. Sino Land is a blue chip property developer and investor in China, Hong Kong, and Singapore; they have a net cash balance of around $46 billion and trade at about a 60% discount to book value. They don’t have the most high quality portfolio of investment properties in Hong Kong but it’s good enough, I’d say it’s middle class but well diversified across various property types— they might get hit a little by travel to Shenzhen and in fact that they have taken some blows— I think that it will be fine and shouldn’t be much of a concern given their absurdly cheap valuation. Their property investments earn them about $3 billion recurring income annually while their development side fluctuates quite a bit but averages around $3 billion as well. Overall, you get a blue chip developer whose market cap is 65% comprised of their net cash balance and hence is at no threat of bankruptcy whatsoever at 0.40x price to book with a juicy 7.25% dividend yield to sweeten the deal.
It remains to be seen what they do with their large cash pile— they haven’t shown much interest in redistributing it to shareholders— a lot of future returns will be dictated by this factor. They are not that exposed to land in the New Territories and very concentrated in prime Hong Kong land which is massive net positive, the New Territories is perhaps the worst quality land to own right now in Hong Kong with border controls easing up and all existing land developments in the area completely failing, there’s the chance that it might give outsized alpha by becoming some sort of large middle and working class focused development area, but it’s hard to predict. There’s a risk that management will blow all the excess cash buying land in that area but I believe that if they wanted to do that they would probably do it.
The way I would look at Sino Land currently is as a high yield bond proxy if things remain the same and/or the management blows all the cash. If the management redistributes the cash and/or puts it towards prudent land acquisitions in prime Hong Kong, emerging tier 1 cities like Chengdu and Changsha in the Mainland and/or SE Asia where the management has significant expertise then I think the stock can trade closer to 1x book in the future driving outsized returns.
Hutchinson Telecommunications (0215.HK)
Hutchinson Telecommunications is the largest telco operator within Hong Kong. Now usually I don’t like investing in telcos whatsoever, they are usually very highly competitive businesses that involve a huge amount of capex. Globally, there are very few telcos which are consistently profitable and even if they are like U.S. telcos— there’s usually no consistency in their performance and they have very high debt levels. I’ve previously covered China Mobile and I think that the Chinese telco market is way more attractive due to the additional capex build out into data centers and AI which other telcos globally simply don’t have.
Nevertheless, Hutchinson trades so cheap that it’s attractive. Let me lay out some of these numbers for you (you might want to sit down for this one as always); the stock trades at a market cap of $4.7 billion, has $3.7 billion in net cash, and reports EBITDA of around $1.4 billion, making it’s EV to EBITDA a puny 0.7 times. It also has a sweet 7.8% dividend yield to sweeten the deal. The company reports optical losses due to high depreciation charges but EBITDA is the most relevant metric to judge telcos anyways.
Now look this is not going to be a fast grower that’s going to give you a lot of capital gains, at least I personally don’t expect it to. The only near to medium term catalyst that it has going for it is the prospect of high special dividends which it has a long history of as the parent company CK Hutchinson (they’ve been in the news recently regarding their port sale) loves taking money from them to expand into random things. As minority shareholders, we also benefit from this and can earn decent amounts of passive income and thus I treat this as a pure passive income play with the market ever fairly pricing this as a free out of the money put option. I don’t think it’s a bad play if you’re looking for that sort of thing.
CK Assets (1113.HK)
Another Li Ka Shing company (I despise him as a person and think he’s an absolute scoundrel but there’s an opportunity to be had here). CK Assets like Li’s other company CKH (they recently completed a division sale equal to their entire market cap) is a large conglomerate that is completely beyond most of the market’s comprehension and thus criminally underpriced.
CKA's infrastructure portfolio, which makes $7.5–8 billion annual profit, is the anchor of its defensive investment strategy. Targeting regulated UK, European, and Australian utilities, these assets enjoy stable cash flows within long-term regulatory constructs. In contrast to cyclical industries, utility assets are protected from the business cycle because of their necessary nature—energy supply, water provision, and transport networks. The public comparables within these markets trade at a 10x EV/EBITDA average, implying CKA's infrastructure business byitself could support a substantial portion of its market cap if priced in line with peers. These assets, however, tend to be underappreciated by investors on account of their "stranding" within a Hong Kong-listed conglomerate, leaving them at a valuation mispricing. The resilience of the segment is also bolstered by inflationary protections, given thatmost regulatory regimes permit revenue adjustments tied to inflation, which acts as a natural hedge.
The investment properties segment, primarily in Hong Kong (80%), contributes $3-3.5 billion in profit. The company is expanding into UK social housing. They made an ego driven blunder in the past by constructing their flagship office tower CK II which now remains 90% empty, hopefully the management has learnt their lesson and their history of capital allocation isn’t nearly as bad so I’m willing to give them a pass. They’re trying to expand into UK social housing which is fine, it suits their expertise but I have no opinion on it.
The property development division, though cyclical, remains a high-ROIC engine despite collapsing industry-wide margins. Revenue plummeted from 65 billion in 2019 to 13 billion in 2023, reflecting China’s property crisis and Hong Kong’s delayed post-pandemic recovery and property price crash. Yet CKA’s 33% margins—unchanged since 2019—highlight its disciplined, low-leverage model. Unlike overextended competitors, the firm avoids aggressive pre sales or high debt, instead focusing on phased developments in prime locations. In Hong Kong, projects like luxury residential complexes in Repulse Bay leverage scarcity value, while Mainland China ventures target tier-1 cities with cautious presales. This approach sacrifices growth for stability, preserving profitability even as industry peers face liquidity crunches. The segment’s resilience is boosted by Hong Kong’s unique accounting practices, where profits are recognized upon project completion rather than presale, smoothing earnings volatility.
I don’t like their pubs acquisition and dislike their REITS as well. The pubs acquisition is the most baffling thing to me, why would they even branch out into something they have no expertise in (maybe for the real estate associated with them, I don’t know) but they’re a small part of the business contributing 1% of gross profit and even though the company spent almost its entire market cap making these acquisitions I’m willing to overlook this as the acquisitions weren’t that expensive in relative terms and the other verticals are fine.
The company’s balance sheet is very conservative with only a 6% gearing ratio and 25% of the market cap in cash. Assigning a 10x EV/EBITDA multiple to the infrastructure arm would value it at $75–80 billion—nearly 70% of the current market cap, implying other segments are not priced in at all. At 6–7x earnings ($17 billion profit), CKA trades at a fraction of other Hong Kong developer multiples (particularly when compared to Sun Hun Kai and Swire, two developers with the same balance sheet strength and asset quality as CK). A return to $40 billion profit would bring the PE to 3x times ( I don’t think the Hong Kong property market will return to those prices anytime soon but it’s a good reference point).
A conglomerate this diversified allows you the liberty to analyze it in multifarious ways (all of which point to it being cheap) and with Li Ka Shing willing to sell off assets like his port holdings (CKH ports), asset sales might unlock shareholder value here as well.
Hong Kong Ferry (0050.HK)
Alright this is a very confusing play; on one hand, the valuation is quite cheap optically speaking it trades about 20% below net cash value, with available for sale properties equal to 1.2 times the market cap, and completed retail properties and other assets equal to another 2 times the market cap. The corporate governance is quite questionable to say the least. The management has a few passion projects like beauty salons which lose money every year, Henderson owns a 33% stake but they aren’t really actively involved in running the business. The main business is property development despite starting out as a ferry operator and there’s no real catalyst which could unlock value in the near term. I mean yes, you’re covered 4-5 times the market cap long term when analyzed from a net net valuation perspective and you get a 6% dividend yield as you wait but this is just way too hard to figure out and I would only suggest owning it if you buy it as a part of a 20-30 stock basket and are willing to forget about it for like a decade or something.
Thank you so much for tuning in and reading. I have a post focused on global macros that’s in the works and I’ll try to release it as soon as possible. As always, I would love to hear your feedback as well as your suggestions for future posts.
Sino's top line is consistently falling, with revenue declining 24% and 26% the past two years. Do you not consider this to be an important factor when looking at Sino as a net-net play? Curious how you're consider cash flow in these situations.
What do you think to XNET? It is extremely cheap, trading at a negative enterprise value