For the purposes of this article, I'm going to consider "Small Cap Chinese" companies to be any company that is based on the mainland or in Hong Kong that is currently trading below a market capitalization of $1 billion as of June 22, 2012. While I believe this list to be exhaustive, I encourage users to share any additional names that I may have missed that fit this criteria in the comment section below.
The widespread Chinese scandal of early 2011, which was highly focused on the reverse mergers found on the NASDAQ and the AMEX, has continued to cast a negative sentiment across the board. Small Cap Chinese companies continue to trade at severe discounts to their book values. To date, there is no end in sight as to when they will once again be recognized on a similar level to their American counterparts.
However, it's difficult to believe that through the rampant distrust and fear that circulates throughout this sector that each of these companies are being valued appropriately. There is a real strong possibility that several (if not most) of these companies are like the babies being thrown out with the bathwater. For value and growth investors alike, these companies offer a nice picking ground for those who are able to correctly identify opportunity where others have failed to do so.
While there were a few companies that were found fraudulent or perceived to be fraudulent that were also listed on the NYSE, the majority were found on the exchanges with less stringent requirements such as the NASDAQ and AMEX. The following list compiles companies that continue to trade on the NYSE to date. By no means is this a list of recommendations as much as it is a foundational base for ongoing due diligence. All values were taken as of June 22, 2012.
|Name||Mkt. Cap.||Last Price||Fwd P/E||Price/Book Ratio|
|China Cord Blood (CO)||$196 M||$2.68||6.70||1.04|
|China Digital TV Holding Co (STV)||$170 M||$2.88||n/a||0.79|
|China Hydroelectric (CHC)||$44 M||$0.82||n/a||0.11|
|China Distance education Holdings (DL)||$100 M||$2.96||7.59||1.56|
|China Kanghui Holdings (KH)||$469 M||$20.01||18.19||2.64|
|China Nepstar Chain Drugstore (NPD)||$223 M||$2.22||37.00||1.05|
|China New Borun (BORN)||$56 M||$2.16||1.35||0.25|
|China Yuchai International (CYD)||$496 M||$13.30||4.29||0.57|
|China Zenix Auto International (ZX)||$135 M||$2.62||1.47||0.42|
|E-Commerce China Dangdang (DANG)||$514 M||$6.43||n/a||3.05|
|E-House (CHINA) Holdings (EJ)||$422 M||$5.33||9.03||0.69|
|Gushan Environmental Energy (GU)||$25 M||$1.49||n/a||0.71|
|JinkoSolar Holding Co. (JKS)||$96 M||$4.30||n/a||0.21|
|LDK Solar Co (LDK)||$306 M||$2.29||n/a||0.50|
|Nam Tai Electronics (NTE)||$248 M||$5.54||n/a||0.78|
|ReneSola (SOL)||$122 M||$1.41||n/a||0.22|
|Suntech Power Holdings Co. (STP)||$344 M||$1.90||n/a||0.43|
|Trina Solar (TSL)||$492 M||$6.97||41.00||0.44|
|WSP Holdings (WH)||$28 M||$1.36||n/a||0.12|
|WuXi PharmaTech (WX)||$984 M||$13.70||9.38||1.86|
|Xinyuan Real Estate Co (XIN)||$203 M||$2.78||1.94||0.31|
|Xueda Education Group (XUE)||$268 M||$4.05||18.41||1.68|
|Yingli Green Energy Holding Co. (YGE)||$446 M||$2.86||n/a||0.56|
|Zuoan Fashion (ZA)||$98 M||$3.51||1.71||0.57|
Some points of interest are as follows:
- A large portion of the previous found names are related to the Chinese solar industry. JKS, LDK, SOL, STP, and TSL are all correlated to this particular market space. This industry has suffered a significant blow over the last two years which has discounted these names to the point where they qualify onto this particular list.
- To illustrate the ongoing risk of the small cap China sector, some recent names de-listed off of the NYSE were Duoyuan Global Water (DGW), China Education Alliance (CEAI.PK), and China Mass Media Corp (CMM).
- One particular company that has continued to stand out to me as a viable investment in this niche space is Xinyuan Real Estate. The company recently finished its $10 million buyback which accounted for about 6% of the outstanding shares. It's also recently announced a $20 million buyback in light of its ongoing discounted valuation. Last year the company issued an annual dividend, which it has only since increased as of this year after converting it to a quarterly payout schedule. The current dividend yield of the company is 5.76% as of June 22, 2012.
Disclaimer: Please refer to my standard disclaimer found here.
Disclosure: I am long XIN. I may open a position in ZA over the next 72 hours.