Time to Power Up with China Yuchai's Diesel Engine

| About: China Yuchai (CYD)

China Yuchai International Limited (NYSE:CYD) - High Cash Stock Review
A diesel engine manufacturing company. Per share values on 5-23-2011:

Market value $ 20.70
Stocks $ 1.09
Cash $ 17.30
- Debt $ 6.28
Equity value $ 8.59


Upon our current review we are adding to our China Yuchai International positions.The stock performance has been robust since we first wrote our High Cash Stock Review of China Yuchai International Limited (CYD).

Great Balance Sheet

China Yuchai International has $17.30 of cash per share minus debt of $6.28 per share giving it a net cash of $11.02 per share. It also has $1.09 in two investments, HL Global Enterprises Limited and Thakral Corporation Ltd. Taking the cash and stock out it equates to the remaining enterprise having only just a $8.59 per share value. It earned a very solid $0.94 a share in the Quarter ending March 31, 2011, and in the last four quarters the profit totaled $4.41 per share. The profit from equity operations for the last 4 quarters works out to be 51%, a very high return on the enterprise. China Yuchai International can still be considered greatly undervalued and we are currently adding to this position, as we still believe that the high levels of cash are camouflaging the true earning power of the company.

The Business Execution

China Yuchai International is facing a slowdown in Automotive diesel engine production, which is possibly more the result of an oversupply or inventory correction. With overall sales down year over year, China Yuchai still delivered a very strong quarter and is easily showing growing earnings power as underlying margins expand even with lower revenues.

Low Value

The Auto Truck peer groups trade about 1.51 times sales. China Yuchai International had about 2.4 billion in sales last year, which works out to be about $63 per share in revenues. If China Yuchai International received a similar metric as their peer group, of 1.5 times the 2.4 billion in sales would alone imply a market value of about $94.73 per share.

Ratios China Yuchai International Industry S&P 500
Price to Enterprise Sales 0.38 1.51 n/a

The $4.41 per share earned during the last 12 months gives the company an enterprise PE of 2. The current peer groups trade about 17.70 times enterprise P/E. Applying this metric would give China Yuchai International a value of about $ 78.05 per share plus $12.11 of cash and investment thus creating a market value of $90.16.

Ratios China Yuchai International Industry S&P 500
P/E to enterprise 2 17.70 17.70


We believe that China Yuchai International is currently trading at about a 80% discount to the Auto and Truck peers even though the underlying stock has appreciated significantly since we included them in our High Cash Stock Review.

The core business appears to be very well run with a solidly branded product that has limited direct competition, especially on the high end. It has proven with positive results that the company has well over $4.00 of earning power, with the peak possibly being closer to $6.00. It appears that based on either the operational profits or the sales of industry peers, the enterprise value of China Yuchai International is trading at about an 80% discount. Few of the peer group, if any, over the time since we first recommended China Yuchai, delivered greater profit growth. We believe China Yuchai International still presents an extremely strong value and should trade significantly higher.

More information such as financial ratios, Charts and News can be found here.

Disclosure: Durig Capital and its clients currently do have positions in China Yuchai International (CYD).