ERATAT has been consolidating between 19 to 21 cts range for the past 3 months (since early September 2010). Its forward PE is about 3x at a price of 20 cts and is still among the better ones of the out-of-favour penny stocks.
From observation of past New Year Rallies, a stock like Eratat that has been consolidating within a narrow range for a few months before January, has excellent potential for capital gain in January, if the traditional New Year Rally takes place. Would history be repeating itself come this January? We will know the answer in 4 weeks time.
The Risks-to-Rewards profile of Eratat would seem to be as follows – Downside Risks: one cent from 20 cts. With the approaching New Year and a high probability of a New Year Rally (usually broad based), the odd of this occurring appears very low. Upside Potential: reasonable to expect a 10-cent-gain to 30 cts (its IPO price) in the near term, once the price breaks out above 21 cts on high volume. CIMB has a TP of 43.5 cts while SIAS Research has a TP of 45 cts – see
www.nextinsight.net/index.php/story-arch...hat-analysts-now-say
With the recovery of the Singapore market to its current level, good, undervalued, & especially out-of-favour stocks (usually S-chips) are increasingly difficult to find. However, one stock, which could still be considered as falling under this category, is QINGMEI, a manufacturer of mid-end and high-end shoe soles.
Qingmei’s EPS for FY ending June 2010 was 39 cts(RMB) [or 7.8 cts(S) or PE of 3.5x at 27 cts]. Its 1Q11 (Jul-Sep 11) EPS was 11.2 cts(RMB) [or 44.8 cts(RMB) (Annualised) -equivalent to 8.8 cts(S)]. As Qingmei production capacity has already been at a maximum for the past several months, its profits are expected to remain flat until its new production facilities come on stream in January 2011. Its annual production capacity would then increase from 45.6 million pairs of shoe soles to 65 million [up 42.5%]; this will be followed, six months later, by its second expansion raising its capacity to 84 million [up 29%]. Qingmei 2H 2011 results would benefit from this capacity expansion and its FY 11EPS is expected to exceed 45 cts(RMB) or 9 cts(S). Qingmei’s PE would then fall to 2.9xor less at a price of 26 cts.
Qingmei has Cash & Cash Equivalents of RMB 507M and borrowings of 88.5M. Its NAV is RMB 1.40. Its management is keeping its promise to distribute 30% of its nett profits as dividends to shareholders for FY 2010 & FY2011. The dividend payout for FY 2010 was11.7 cts(RMB) or 2.3 cts(S). If the EPS for FY 2011 is 9 cts, the next dividend payout would amount to 2.7 cts(S) which would translate into an attractive yield of 10.8%.
At the current price of 26 cts, Qingmei is selling at a discount of 5 cts to its IPO price of 31 cts. Its highest and lowest price over the past 52 weeks was 30 cts and 15.5 cts respectively. The stock has been trading between 24 and 26.5 cts since its ex-dividend on 1 Nov 2010; and trading mostly at 26 cts from 26 November 2010. Unless there is an economic recession or downturn of business in the sport shoes or its related sector, the downside risks at 26 cts appears rather low and its upside potential could be well over 100% if the stock is re-rated to a PE of 6x or more. UOBKH has a target price of 50 cts for this stock.
The number of issued shares in Qingmei is 640 million of which 415.6 million (approx 65%) are held by the Chairman, Su Qingyuan.
Thank you - looks promising .,.. but we are ahead of the business performance.
The downside risk is low but we mayhave to wait a few more months for the biz performance to be reported.
Saturday’s Straits Times [18/12/2010] featured an article on “S-Chips Make Quiet Comeback” – [article can also be viewed in -
forum.channelnewsasia.com/viewtopic.php?...3a3135952722a1d688ff
. According to the article, “Investors who had the courage to load up on S-chips when few would even give them a second glance a few months back are laughing all the way to the bank.”
This is the nature of the Stock Market. The majority always has difficulty making big money in the market because of the instinctive behaviour of only buying when things look good or safe or are more certain, and to stay clear in time of uncertainty (or fear). It is a FACT that stocks are at their lowest price when the vast majority avoids them. It can be rather amusing to hear, each time someone said that he would definitely not miss out buying “the next time the market bottomed like that of March 2009” or “the next time a stock like China Gaoxian dropped below 20 cents or far below its IPO price”. The reality is that if such incidents were to happen again, he would, again (along with the majority), be just too fearful to buy unless his mindset has been changed. Not all S-chips are rotten but most of them have been selling at “rotten prices” because of the fear of bad corporate governance, bankruptcy, etc. and the difficulty of differentiating the good from the bad ones. Such a scenario offers a golden opportunity to the “astute investors” to find some “valuable unpolished gems”.
A good example of “unpolished gems” is CHINA GAOXIAN, which was only 19 to 20 cents when highlighted recently by Nextinsight [on 14 October 2010] -
www.nextinsight.net/index.php/story-arch.../3068-china-gaoxian-China Gaoxian, Biosensors: What Analysts Say Now
Those who had the courage to load up on the stock at 19 cents would now be sitting pretty on a gain of 15 cents or 75%. As the S-chips sector seems to be on a recovery path and there are other “gems” around, those searching for such “gems” at undervalued prices would have to do their own “prospecting” before the crowd goes after them.
USEFUL ADVICE: “Do Not Conform Any Longer To The Pattern Of The World But Be Transformed By The Renewing Of Your Mind. This Will Enable You To Know The Truth And To Not Missing Out On The Next Golden Opportunity”
I agree with observer2 - you are a very good investor who understand the fundamental valuation of stocks and are less likely to be affected by market sentiment. I do also agree that there are a number of S-chips that have yet to be re-rated and they present opportunities for the savvy and rational investor. I believe the following s-chips have potential for excellent % gains in the next few months if their 4Q results continue in the same profitable path the company is on:
a) Cacola : At 6 cents, trading way below its 10-cents cash per share. The company has zero bank borrowing, and has turned profitable in 2Q and 3Q. The catalyst hopefully would be 4Q profits and a 1-cent dividend (translating into 16.6% dividend yield).
The company can afford to pay a 1-cent dividend as it has net cash of 10 cents a share. If it pays 1 ct, the market wll certainly re-rate the stock as the div of 16.6% is too juicy.
Risks: Furniture manufacturing is a non-sexy business.
b) Ziwo : At 35 cents, trading at around 5X PE. This business has strong operating cashflow which is what matters next to being a profitable business. Ziwo is still quite unknown to the market ....but will become more popular when its TDR gets approved.
