Man Sang Holding: A Little Chinese Pearl

Some people buy stocks because the stocks are fundamental sound value plays; some invest in stocks because those stocks have great potential as growth plays; others purchase stocks in emerging countries because the companies have faster growth paces. Man Sang Holdings (MHJ), a small Hong Kong based Chinese company, has them all: trading just above its book value; paying great dividend; growing earning 39% over last year; having great potential in growing Chinese jewelry market; and new earning sources from its development of China's largest jewelry trading center in coming quarters. Also, being a significant trading discount to its counterpart in Hong Kong Stock Exchanges validates its upside for the future price appreciation.

Man Sang Holdings (MHJ) is a holding company. The majority of the holding is 49% of a Hong Kong listed company Man Sang International. Man Sang International is a Hong Kong based company, one of the leading pearl merchants in Greater China engaged in the purchasing, processing, assembling, merchandising and wholesale distribution of pearls and jewelry products. Man Sang is also developing the China largest Jewelry Trading Center, China Pearl and Jewelry City.

MHJ is a great value stock, traded just above its book value of $6.42 per share. The majority of the book value is the cash of $6.38 per share with no debt. MHJ is currently paying 25 cents dividend. MHJ earns $0.54 per share for the year ended March 2007 from its core pearl and jewelry business. At the current price of $8.34, P/E of 15 is considered low comparing with 39% earning growth over last year and potential growth.

Man Sang expects to continue the earning growth in its core jewelry business with the pace of economic growth in China and the 2008 Olympic Games in Beijing. However, its big earning growth will come from the development of the China Pearl and Jewelry City project. The three-phase project started 2006 and will be completed in 2011. Phase I will be completed by the end of calendar year 2007, and will start to significantly contribute towards earnings in coming quarters. The earning combined may put MHJ’s PE ratio well in a single digit.

MHJ owns 49% of the Hong Kong listed stock Man Sang International (0938.HK). Naturally, like any other stocks that also are listed in Hong Kong Exchange, it should trade at its parity price to its counterpart in Hong Kong. As of July 6, 0938.HK had a market capitalization of $HK1.6 billions ($US205 millions). The parity market capitalization for MHJ would be $US100.6 million (49% of ownership). That translates MHJ's parity price as $15.76.

MHJ is currently traded at $8.34, and represents 89% discount to 0938.HK. The huge discount on MHJ's price may be due to the low average daily trading volumes and lack of analyst coverage in US. The disparity may be also due to the information disparity between US and Hong Kong on the China Pearl and Jewelry City project. While US investors take no consideration on the project for the future earnings, Hong Kong investors make great deals on the project contributing to the future earnings. A Hong Kong analyst believed that the NAV of MHJ from completion of Phase I and II of the project will be increased by $US22 to $US28 per share.

MHJ presents a great investment opportunity. However, MHJ is only suitable for long-term investors due to very low float (insiders own more than 50%) and low average daily trading volumes. The big gap between bids and asks will be not suitable for high turnover investors.

Disclosure: Author has a long position in MHJ

MHJ 1-yr chart

Comments

[Phil Anthropy:]

Investors in this company mght wish to review the history of a similar stock, JADE, which has done well recently. There is nothing wrong with these kinds of companies, but I might offer a few cautionary comments. When insiders control the company, business decisions could be made to benefit the officers, not the shareholders. Thinly traded stocks may have large percentage moves up or down very rapidly as a result of good or bad news, or some analyst's opinion. My experience has been that if the company has a sound business plan, the stock price will eventually go up, either slowly or else in fits and starts. These kinds of companies sometimes remain locked in a trading range for a long time, and in that case could be traded short-term with covered calls or even with trading buys on dips and sales on crests.

2007 Jul 09 12:39 PM

[Thomas Wagner:]

The chinese have killed this business, go on ebay and search akoya pearls. The chinese have a real reputation for breaking distribution systems.

2008 Nov 02 09:17 AM