Tuesday, 14 February 2012

Spotlight on China stocks

Consumer sector
Maintain overweight: The Edge Financial Daily reported on Monday that the recent listing of Chinese companies in Hong Kong at higher price-earnings ratios (PER) may spark a re-rating of China-based stocks listed on Bursa Malaysia. Valuations of these stocks are still cheap.

Right from their IPOs, China-based companies listed on Bursa are trading at huge discounts to their book values (BV) and are at very low PER.

Their weak share price performance is mainly due to investor scepticism of Chinese stocks listed in overseas bourses in view of numerous accounting issues dogging such companies listed in the US and Singapore.

The Chinese companies listed on Bursa are currently trading at extremely cheap PER of about two times.

China Stationery Ltd (CSL), slated to list on Bursa at a PER of around six times, is a China-based integrated plastic stationery company.

Compared with other Chinese companies listed here, CSL’s valuation will be at the higher end of the spectrum.

As such, a re-rating could be in store for the other listed China-based companies if CSL’s IPO is well received, which will bring public attention back to these stocks. Chinese shoe sole manufacturer Multi Sports (“buy”, fair value (FV): RM0.78), which is under our coverage, has been performing steadily and delivering within our estimates.

We are still “overweight” on the consumer sector given its resilient earnings, low beta and decent dividend yields. QL Resources Bhd (“buy”, FV: RM3.62) and Padini Holdings Bhd (“buy”, FV: RM1.42) are our top picks in the consumer space for their solid track records and decent dividend yields. — OSK Research, Feb 13

This article appeared in The Edge Financial Daily, February 14, 2012.

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