FUJIAN ZHENYUN held its AGM & EGM on 10 May 2013 and were attended by few shareholders. It appears rather clear by now that this is a small, conservative though well-managed company with the management being more interested in running and growing its specialized business than other things.
The Chairman, Huang Chan Chin, started his career as a Mechanical Engineer in Taiwan before moving to mainland China to further his career. He became the Chairman of Fujian ZY in 1994. There are only 3 key executives within the company, all of whom received a remuneration of under S$250,000 (including bonus of 8% for the top 2 men).
The EGM saw the passing of the resolution to amend the article of association to provide for the expansion of the company’s scope of business to include engaging in engineering works, design and installation of products. This change would enable the company to tender for a wider range of projects and improve its profitability.
With an EPS of 32 cts(RMB) or around 6 cts(S), a stable business outlook and an NAV of RMB 5.76 or around S$1.15 a share, the share price of about 16 cts is certainly grossly mispriced or underpriced. However, any unlocking of share value or re-rating of the stock price looks likely to be years away from now. As Fujian is a PRC incorporated company and subject to its "unique" PRC regulatory control, any corporate changes, bonus issue or hope of the company being taken private could be rather difficult or remote (It is understood that PRC authority would not allow any takeover of shares from minority shareholders at below NTA value). With 80 of the 115 million shares not listed in SGX and with the major shareholders seemingly more interested in building up the company business rather than its share value, investors in this stock must really have the patience, idle money and great holding power like that of Warren Buffet. While the potential rewards of investing in this stock may look huge and tempting, would-be investors would have to seriously consider the risk of getting “locked up” for years in this illiquid stock.
Reck – Just put this stock next to all your favourite stocks and compare their prices and fundamentals. Then decide for yourself whether this stock can be considered as seriously undervalued.
The indication from Fujian ZY’s management is that shareholders can continue to look forward to dividend payouts although the company could require a larger cash flow when it embarks on larger projects. However, the possibility of a higher dividend payout on any substantial rise in company’s profits cannot be ruled out.
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