In light of Chinese New Year, investors may wonder if opportunities exist in stock markets in China, Hong Kong and Taiwan. As of Tuesday, the top five undervalued predictable companies in Chinese-speaking countries are Shanghai Jin Jiang Int’l Hotels Group Co. Ltd. (HKSE:02006, Financial), Weichai Power Co. Ltd. (HKSE:02338, Financial)(SZSE:000338, Financial), Yuexiu Transport Infrastructure Ltd. (HKSE:01052), Oriental Energy Co. Ltd. (SZSE:002221) and Maoye Commercial Co. Ltd. (SHSE:600828).
A recap of “undervalued predictable”
Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) champions the idea of buying good companies at fair prices. As the name implies, the “Undervalued Predictable” screener lists the companies that trade below intrinsic value and have predictable revenue and earnings growth. The GuruFocus business predictability hinges on two factors: consistency of revenue and earnings. The more consistent a company’s revenue and earnings are, the higher the company’s predictability ranks. Figure 1 shows the predictability chart for The Estee Lauder Companies Inc. (EL, Financial), a company that climbed over 13% on strong December quarter net sales growth across all geographic regions, including Asia-Pacific.
Figure 1: Predictability Chart of Estee Lauder. Rank: 4 stars out of 5
Table 1 shows the number of undervalued predictable companies for each region for the first three trading days of February.
| Region | Feb. 1 | Feb. 4 | Feb. 5 |
| USA | 65 | 64 | 60 |
| Canada | 3 | 3 | 3 |
| UK / Ireland | 34 | 34 | 33 |
| Europe | 78 | 94 | 76 |
| Asia | 66 | 66 | 66 |
| Oceania | 5 | 5 | 5 |
| Latin America | 33 | 34 | 31 |
| Africa | 7 | 7 | 7 |
| India | 7 | 7 | 7 |
Table 1: Number of Undervalued Predictable Companies per Region
As we can see from Table 1, over 60 Asian companies have predictable earnings and are trading below intrinsic value.
A recap of GuruFocus’ DCF Calculator
By default, GuruFocus’ DCF Calculator first takes a company’s current earnings per share and grows the earnings for 10 years at the 10-year earnings growth rate. The calculator then grows the earnings at the terminal growth rate of 4% for 10 more years. Each of the future cash flows are discounted at 12%, the approximate long-term return of the stock market according to the research article.
As Figure 2 illustrates, the DCF Calculator contains the following sections:
- The left side contains the parameters used to compute the values on the right side: earnings, growth stage growth rate, terminal stage growth rate, years of terminal growth and discount rate.
- The right side contains the following computed values: fair value, growth value, terminal value and margin of safety. We also add the options to add the tangible book per share and to set your own share price.
Figure 2: Sample DCF Calculator for Estee Lauder
Shanghai Jin Jiang Hotels
Shanghai Jin Jiang has a margin of safety of 85% based on the discount free cash flow model and a margin of safety of 32% based on the discount earnings model.
The Shanghai-based travel and leisure company engages in investment and operation of hotels, passenger transportation vehicles, logistics and travel agency businesses. GuruFocus ranks the company’s profitability 8 out of 10 on several positive signs, including consistent revenue growth and a dividend yield near a 10-year high.
Weichai Power
Weichai Power has a margin of safety of 81% based on the discount free cash flow model and a margin of safety of 14% based on the discount earnings model.
The Weifang, China-based company engages in the manufacturing and sale of diesel engines, automobiles and forklift trucks. GuruFocus ranks the company’s profitability 8 out of 10: even though profit margins have declined and are outperforming just 60% of global competitors, Weichai Power’s return on equity, Joel Greenblatt (Trades, Portfolio) return on capital and three-year revenue growth rate outperform over 80% of global competitors.
Hong Kong-based Value Partners (Trades, Portfolio) owns 12.874 million shares of Weichai Power as of second-quarter 2018.
Yuexiu Transport Infrastructure
Yuexiu Transport Infrastructure has a margin of safety of 81% based on the discount free cash flow model and a margin of safety of 32% based on the discount earnings model.
While the company is headquartered in Hong Kong, Yuexiu Transport Infrastructure principally generates revenue from toll-road operations in Guangzhou, China. GuruFocus ranks the company’s profitability 10 out of 10 on several positive investing signs, which include expanding profit margins and a strong Piotroski F-score of 8. Yuexiu Transport Infrastructure’s operating margin is near a 10-year high of 61.50% and outperforms 99% of global infrastructure operations companies.
Yuexiu Transport Infrastructure’s business predictability ranks five stars out of five as the company had strong and consistent revenue and earnings growth over the past 10 years.
Oriental Energy
Oriental Energy has a margin of safety of 58% based on the discount free cash flow model and a margin of safety of 60% based on the discount earnings model.
Oriental Energy engages in the import, production, processing and distribution of liquefied petroleum gas, which is then used in industrial fuel gas, automobile fuel and chemical raw materials. GuruFocus ranks the company’s profitability 9 out of 10 on several positive signs, which include a strong Piotroski F-score of 7, a five-star predictability rank and a dividend yield near a 10-year high.
Maoye Commercial
Maoye Commercial has a margin of safety of 53% based on the discount free cash flow model and a margin of safety of 57% based on the discount earnings model.
Maoye Commercial engages in retail and real estate development. GuruFocus ranks the company’s profitability 9 out of 10 on several positive signs, which include a Piotroski F-score of a perfect 9 and operating margins that are near a 10-year high of 15.52% and outperform 90% of global competitors.
See also
Table 2 updates the counts for other popular value screens like the Ben Graham Net-Net screen, the Buffett-Munger screen and the Peter Lynch screens as of Feb. 5.
| Screener | USA | Canada | UK | Europe | Asia | Oceania | Latin America | Africa | India |
| Graham Net-Net | 277 | 66 | 57 | 277 | 620 | 12 | 7 | 12 | 162 |
| Buffett-Munger | 28 | 3 | 16 | 48 | 75 | 0 | 16 | 4 | 29 |
| Peter Lynch PE | 41 | 2 | 16 | 45 | 69 | 0 | 5 | 2 | 3 |
| Peter Lynch PS | 134 | 8 | 55 | 117 | 111 | 13 | 35 | 21 | 21 |
| Peter Lynch PB | 193 | 23 | 81 | 161 | 122 | 10 | 39 | 21 | 38 |
| Lynch p2ebitda | 198 | 9 | 59 | 198 | 137 | 10 | 10 | 15 | 21 |
| Hist Low PS | 48 | 3 | 16 | 39 | 130 | 2 | 14 | 4 | 15 |
| Hist Low PB | 55 | 2 | 21 | 46 | 134 | 2 | 20 | 7 | 14 |
| High Div Yield | 66 | 4 | 12 | 94 | 25 | 11 | 14 | 11 | 4 |
Table 2: Value screener records as of Feb. 5
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Disclosure: No positions.
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