Investment analyst/Portfolio Manager
Perpetual Global Fund, Sydney
1) Kia Motors (KS:000270)
South Korea’s number two automaker, and the fastest growing brand in the US, Kia Motors Corporation manufactures, sells, and exports passenger cars, mini-buses, trucks and commercial vehicles to 156 countries worldwide. Having recently invested in the stock, the Perpetual Global Fund regards Kia as an attractive investment opportunity due to its growing brand awareness globally and continued improvement in product quality over the last decade. “We see the valuation – trading on a PE of 6x and an EV/EBITDA of 3.5x – as extremely attractive,” says Laurence. “Given that the company is in a net cash position and generates very strong free cash flow, we are surprised at how low the valuation is.”
Laurence expects earnings momentum to pickup in the second half of the year and into FY15 as the company refreshes its models. New model launches will include a refresh of Sorrento, Optima and Sportage.
Due largely to the rise in the average unit price of cars sold abroad, the automaker’s net earnings for the first quarter jumped 11.8% on-year to US$843.9 million. While the company is facing unfavorable exchange rates and stiffer competition, the start of full operations at its third China plant in the second quarter are expected to help push its sales within what is now the world’s largest new car market.
2) Melco Crown Entertainment (NASDAQ:MPEL) (HK: 6883)
Owner and developer of casino gaming and entertainment resort facilities focused on the rapidly expanding gaming market in Asia, Melco Crown Entertainment operates Melco Crown (Macau) Limited, one of the only six companies granted concessions or sub-concessions to operate casinos in Macau.
The company listed on the New York-based NASDAQ in December 2006 when it successfully raised over US$1.14 billion – making it the fourth largest IPO in the US for the year – five years later it sought a dual-listing on the main board of The Stock Exchange of Hong Kong.
One of the hottest stocks in gaming over the past three years, Melco reported a 31% increase in earnings for the March quarter, beating analysts’ expectations as it continued to attract more premium mass-market gamblers to its properties in Macau.
While VIP rolling chip revenue at Melco’s Crown’s high roller-focused property in Macau, Altira has been disappointing, group-wide profitability continues to be driven by the mass-market segment at its flagship City of Dreams property where table-game revenue rose 25% while slot-machine handles gained 45%.
The company recently added to its portfolio of assets in Macau by acquiring a majority interest in Studio City, a cinematically-themed entertainment, retail, and gaming resort in Cotai and Laurence expects it to contribute significantly to future earnings growth once it opens in 2015.
Beyond Macau, Melco Crown (Philippines) Resorts Corporation is currently developing City of Dreams Manila, a casino, hotel, retail and entertainment integrated resort set to open mid-2014.
Currently trading at around a 40% discount to a $47 target price, the company is growing its earnings at 20%-plus annually. “While only trading on a PE of 15x FY15, it also has a very strong balance sheet reflected in the board’s decision to start paying a dividend this year,” says Laurence.
Infinitas Asset management, Sydney
1) Great Wall Motor Co (HK: 2333)
Established by its billionaire chairman Wei Jianjun as a truck maker in 1976, Great Wall became the first Chinese auto manufacturer to go public. For eight of the last ten years Great Wall has carried no debt on its balance sheet. It has become China’s top seller of sport utility vehicles, and was named in WPPs BrandZ 2013 Most Valuable Chinese Brands list for third consecutive year. Independent of foreign partners and government ownership, the company is regarded by some as the next ‘Hyundai Motors’ and is currently exporting to over 120 countries. Since 2003 Great Wall’s profit has also increased by 34.7% annually from $490 million to $7.1 billion as at 31 December 2012. The stock has an enviable balance sheet with a long-term funding surplus, exceptional EPS growth over the last five years, excellent ROE (33.69%) which is expected to go on improving and a cash balance that exceeds debt. The stock trades on an attractive discount to its intrinsic value – which is projected to grow by around 10% over the next two years.
2) Vmoto Ltd (ASX/AIM:VMT)
Vmoto Limited is an Australia-based company engaged in the development, manufacture, international marketing and distribution of electric powered scooters, petrol scooters and all terrain vehicles. Listed on the ASX and the AIM market of the London Stock Exchange, the Perth-based company operates in three business segments: scooters; all terrain vehicles (ATV), and engines. While the scooter, ATV and engine segments are distributed to more than 30 countries, the company operates in three principal geographical areas – Australia, Spain and China – where it operates manufacturing facilities (Nanjing), and a sales office (Shanghai).
Shares in Vmoto jumped 10% late April following an announced exclusive distribution agreement in Vietnam – the world’s fourth largest motorbike market – for an initial 1,200 units.
The scooter manufacturer notched up its maiden annual profit of $404,000 in the 2013 calendar year and is gaining traction in the key market of China as a premium product for electric scooter riders. Specialising in high-quality ”green” two-wheel electric-powered vehicles, Vmoto is currently developing a new model of its electric two wheeled vehicle (Vmoto1) which can be folded in 30 seconds.
While the Vmoto brand is aimed at the value market in Asia – notably China where it owns 10 retail outlets – the company’s E-Max label targets Western markets including Europe, North America, Asia Pacific and South Africa. While there are no analysts covering this microcap stock, increased demand for the company’s products and services and favourable market conditions are encouraging as are improvements in both Net debt-to-equity and ROE.
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