Dan Bin (但斌, blog) is the founder, CEO of Shenzhen based Eastern Bay Asset Management Co. He admires Buffett and is value minded, although I don’t agree with everything he says “such as buy China Ping’an blindly” (remembers me of Cramer). He was on Shanghai First CaiJing TV interview recently. The interview is in Chinese lasts about an hour, and the videos are in 2 parts.
Interview part 1:
财富人生：东方港湾资产管理 但斌_上(Use this link if embed player does not work)
I did a little reading on China pork industry lately. I found 3 pork producers listed in Shenzhen, Hongkong and the US. There are Henan Shuanghui (000895 Chinese, English), Nanjing Yurun (1068.HK), and Henan Zhongpin (Nasdaq: HOGS).
I believe they are three major pork producers, and the sales of pork are also in this order (descending): Shuanghui, Yurun, Zhongpin. I remember I ate many Shuanghui sausages while in college. I also determined that was junk food (not much real good meat) recently.
Interestingly, as of Friday May 23, the PE (price earning, ttm) ratio of those three are also in this order: 44 for Shuanghui (000895.SZ), 22 for Yurun (1068.HK), and 13.4 for Zhongpin (HOGS, Yahoo Finance). Assume the companies has similar profit margin and financial leverage, the different PEs shows how different market values the similar business (pork/food) in mainland, Hongkong and the US.
Last week, an American friends asked me about the booming Chinese eocnomy and how to benifit from it. There are many Chinese ADRs in listed in the US market these days, but I don’t think they are suitable for most individual investors (they are for the bolder speculators only 🙂
Why ICBC
ICBC, Industrial and Commercial Bank of China, 中国工商银行 or 工行 (Chinese like abbreviation too). I am using Buffett’s rules of thumb to analyze ICBC. The rules are: business is understandble, business has a moat, sound management and attractive price.
(Update Apr 24) The trading tax bullet worked, at least for a day. The Shanghai composite index went up 305 points, or 9.29%. Similar performance from Shenzhen. All but two stocks in the two markets went up, many went up 10% (the limit). See the below picture for more details.
(The thumbnail above is clickable, for faster download, click here for a full size picture)
(Original) The Chinese goverment (regulatories) has listened, and now they are pulling the trigger. Here are the two new policies:
On April 20 Sunday evening, they unveil the new lockup share transaction rules. Basically they are saying any large block of shares (larger than 1% of overall shares) has to go through a special trading platform, to avoid the large supply of unlocked shares. Reasonable move. But I heard people already abused the system. Guess what? They sell 0.99% instead of 1% (Chinese news from Sina). This is one thing I don’t like some of my countrymen: they cut corners and bend the rules. One reason Chinese have not made good quality cars like the Japanese do?
Shanghai composite index closed new 52 week low today, at 3094.67 (down 12% compared to a year ago).
(full size pic here, powered by Google Finance)
But I don’t think too much of it, other than the valuation of China A share market is more attractive now. The composite index itself is screwed up because PetroChina A share (601857) has more than 20% of weight, much bigger than its floating shares weight. In case you did not pay attention to PetroChina (NYSE:PTR, 0857.HK), 601857 was CNY 43.96 on Nov. 06, 2007, and closed CNY 16.02 as of today Apr. 18, 2008. That’s a whopping 63.56% drop!
My simply valuation tool for A shares
A more reliable indicator for A share valuation, a tool I found useful, is this AH spread sheet. As one can see from this spead sheet, some Chinese banks’ A share (include ICBC, 601398) is very attractive now. That is, assume the H share is fairly priced. One caveat of this approach, is we can only use it for companies have both A and H shares. But again, I don’t see many gems in the A share only companies in China 🙂
China index fund/ETF (FXI, PGJ, CAF)
With the growth of web and blogging, there are more and more financial resouces we can turn to: we are not limited to the good old newspaper for stock prices, volume anymore. Don’t laugh at me, ten years ago I did precisely that in Shanghai. But the conveniece of data access does not come at no cost. One thing I noticed from my own behavior change is “overflow of mis-information”. Let me explain.
I remember a well known overseas Chinese web site started out with attention getting (not tasteful) news title and porn, things one would not like his/her kids to see. The motivations: attention, advertisment dollar and profit. In this “post newspaper and Yahoo”, “google and youtube are the kings” era, people are living a fast pace society, attention of pentential customers are more and more scare. The news editors/reporters are fighting for this, financial news is no exception.
Moral Responsibilty of news producer
As you may know, Chinese domestic stock market crashed lately. Shanghai composite index went from last Oct. highs of 6,000 to today’s 3,300. I think the media, the so called “experts” (from Jim Rogers to Yang Bai Wan) are also responsible for the bubble and bust in Chinese market, along with the regulatory, the mutual funds, and the naive Shan Hu (individual investors), etc.
ICBC, Industrial and Commercial Bank of China, the largest bank in China (and arguably in the world), announced its year 2007 results recently. Here is the webcast (good stuff). And quote the Reuters news: ICBC earned 81.52 billion yuan ($11.56 billion) in net profit in 2007, compared with 49.3 billion yuan in 2006, a 64.9% increase.
Notes from webcast Q&A
1) Money management (fees) will not decrease as A share market goes down. There is potential in corporate customers; new products.
2) Subprime exposure was not significant. ICBC invested much more foreign currencies in US treasuries.
3) Credit risk, non-performing loan. Property dev loan 7%, personal mortgage 15%.
There are lots of talk about Chinese A shares market these days, both because of the big drop lately, and because of the in-action of the goverment. You can read the two Chinese articles (one supports inaction, another cries for goverment action), if you know Chinese. I don’t want to get into the debate of “moral hazard”, which is also a heated topic in the US right now. I am trying to explain why the Chinese A shares are still expensive, from value investing point of view.
Let me use two blue chip stocks as example, the 600030 (Citic Securities) and 600036 (China Merchants Bank). Both released 2007 results and declared the dividend. I rounded some of the numbers for simplicity (without distorting the results).
600030: dividend payout ratio (dividend/earning per share) 0.50/4.00 = 12.5%, the company pays 12.5% of the earnings to the shareholders, leave the rest for re-investing.
(source: http://www.iamgold.com)
The Shanghai composites index hit a new YTD low last night (US time), with the help from PetroChina (PTR, 601857.SS) nearly 9% loss. Note PTR has 20% weight on the Shanghai index. Fundamentally, the Chinese public companies will have tough comparison this year. Last year with the effect of new accounting method (does this sounds familar, hint, Enron) last year, and a bull market, the companies were able to book record profit (unrealized investment gains). This year, with the recent stock market drop, if companies have not ring the register on the stocks, the unrealized investment gain will be unrealzied loss.
Back to Zhu Ping’s 拐点还是新起点. Why the drop?
Continue reading Turning point or new beginning: why the drop?
Zhu Ping (朱平) is the chief investment officer (投资总监) of Guang Fa fund(广发基金), I have a lot of respect for him not because he went to the same graduate school I went (Shanghai Univ. of Finance and Economics); but rather he is an independent thinker, has a good track record managing the funds, has a good sense of value investing. For me the most important of all, I can learn things from him 🙂
The China stock market expericed a major correction lately, after huge run in last two years. There are many dis-heartening stuffs, such as the selling from major institutions, and the proposed huge secondary offerings from Ping’an insurance, and Pu Fa (Pudong dev bank). Recently Zhu Ping wrote about his view on the China market, economy and investing, the title is “拐点还是新起点“(turning point or new beginning). I read it and decided to translate portions into English (in series). He talked about the things in general in bullet one. I will start from bullet 2, “valuation”.
A thousand words 
