3 Value Plays in China

After spending the last two weeks on a precious metals binge, preparing for the good ol' dollar's demise, I've returned to hunting for more of what my portfolio is built around: Undervalued Chinese companies driven by domestic consumption, not exports. Normally these searches lead me to thinly traded OTC stocks with less than transparent finances. Surprisingly, three companies that still meet my stingy criteria are traded on major exchanges.

1. China Cablecom Holdings (CABL): I don't say there aren't drawbacks to my findings and this company has major ones. CABL announced last month that it received a default notice for the last $2.2M owed to one of its subsidiaries from a prior joint venture. Additionally, CABL operated to the tune of a $14M loss in 2008. Surely this one sounds a little overboard on the contrarian side so far, but the stock IPOd at over $6/share a year ago and traded at over $7/share before Asian markets crashed. Establishing infrastructure for television service is expensive and costs can be expected to decline, although doubtfully enough to result in a profitable 2009. Still, with $30M in cash and assets totaling $183M, this $5M company is heavily undervalued. Insiders still own 38% of outstanding shares and nobody dares to short this stock at the current valuation.

2. China Grentech (GRRF): This one is an easier pill to swallow. GRRF designs and manufactures wireless communication coverage products and base station extensions for China's telecom giants. 2008 was a dismal year as infrastructure expansion was halted due to the economic downturn. Like many Chinese companies, however, China Grentech minimized the bleeding and maintains a strong financial position. Year over year first quarter revenue jumped 300% in 2009 and the Company recently announced a $7M share buyback to take place at its discretion. Valuation is still below half of book value and volume seems to be picking up significantly.

3. Tianyin Pharmaceutical Co (TPI): This stock has been on a steady tear since markets began recovering in March. I don't own shares yet, but this is one company I am willing to buy into up nearly 400% from its low. TPI has already announced strong results through three quarters of FY2009 and recently initiated a quarterly dividend totalling over 4% annually. With a trailing P/E of 7 and a valuation just shy of book value, this diversified medicine maker will likely be my next buy.

Disclosure: Long CABL & GRRF

Comments

[dr42:]

If the financials can be trusted and the Chinese government continues its trend of supporting healthcare and traditonal chinese medicine, TPI will only continue to prosper. They have recently completed a manufacturing expansion as well. Thinly traded, TPI can be cought at a discount from time to time.

Jun 10 10:55 AM