The year 2011 was not a productive time period for investors in small-cap Chinese companies that trade on the domestic U.S. exchanges. Over this timeframe, the United States appeared to be under attack by an onslaught of fraudulence found in the recently-listed Chinese companies that had gained access to the US markets via a backdoor process known as a reverse merger. Revealed practices of falsified filings, poor auditing standards, and deceitful management became ever prevalent occurrences.
To date, most small-cap Chinese companies that continue to trade on the on US exchanges appear to have a generalized discount to their share prices in regards to this incident. Barring the large state-backed enterprises and those deemed too large to be susceptible, most Chinese companies continue to dwell at levels far below what can be considered a fair valuation. American Lorain (ALN) trades with a price-to-book (p/b) ratio of 0.35 despite a trailing price-to-earnings (p/e) ratio of 2.32. China Yida Holding (YIDA) has a p/b of 0.26 despite its trailing p/e of 2.44. China Grentech (GRRF) has a p/b of 0.29 despite its trailing p/e of 4.53. It's clear that distrust runs rapid in this market sector that has become defined solely on the common bond of an association with China.
For those willing to gamble a long position in what has become a very speculative market, corporate actions are very important in supporting a reason to invest. Share buybacks are encouraging, but bullish management teams with a practical mentality can easily hurt some investors as much as they help others. Yet the real confidence-boosting action appears to be dividends. Nothing projects legitimacy to the shareholders as much as an effort that shows the management is looking out for their well-being.
Rarely do small-cap Chinese companies distribute funds back to their investors, and quite often they appear more than willing to dilute in order to have more cash on hand. For companies that have established regular dividends in light of their success, there exists a reinforced notion of validity in the company. The following 5 companies have either established themselves as dividend-paying companies or recently initiated a distribution policy. All values were taken as of 3/26/12.
|Company Name||Market Cap.||Price-to-Book Ratio||Trailing P/E||Fwd. Dividend%|
|Jinpan International (JST)||$139 M||0.76||4.62||1.6%|
|Deer Consumer Products (DEER)||$117 M||0.62||2.67||6.3%|
|Xinyuan Real Estate (XIN)||$207 M||0.31||1.97||3.4%|
|Giant Interactive (GA)||$1.17 B||2.95||6.06||5.8%|
|SouFun Holdings (SFUN)||$1.48 B||16.06||9.37||10.4%|
Jinpan International has a corporate history dating back to 1993, and is far from being a new player on the block. As one of the world's largest producers of cast resin transformers and related electrical equipment, the company operates a growing company in a growing industry. However, the company continues to trade on very low volume.
Deer Consumer has grown into well-branded household appliance manufacturer. With a public offering conducted back in late 2009, the company was able to rapidly expand its sales and operations through the raised capital. With a growing domestic Chinese market, Deer has the ability to become a household name in the minds of a growing consumer.
Xinyuan Real Estate is a real estate developer operating primarily in Tier 2 and Tier 3 cities. With a bulk of the fears regarding a housing collapse in China lying in Tier 1 cities, Xinyuan appears relatively buffered against the fallout. Trading on the NYSE, Xinyuan's current price is a bit mind-boggling when one considers that the company's cash on hand is more valuable than its entire market capitalization.
Giant Interactive is an online gaming developer poised to proper in China's growing internet market. Specializing in massively multiplayer online role-playing games (MMORPG's), the company has followed well alongside its peers in regards to profitability. Investors should be aware that the trailing dividend yield should not be reflective of the company as it did include a very large special dividend.
SouFun Holdings derives its revenues primarily from its real estate internet portal. Through the use of advertisements and various value-added services, the company profitably maintains a comfortable share of the market. With real estate booming in China, SouFun has continued to play a major role in organizing the listings for its client end users.