泡泡龍投資講股
2024.04.08 13:08

High-dividend stock series 1571 XINBANG HOLDINGS

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Last time I wrote about 1126 Derrimon International, this time I'll write about 1571 XINBANG HOLDING.

1571 XINBANG HOLDING

XINBANG HOLDING is a leading manufacturer of automotive electroplating parts, with downstream customers mainly being automotive companies, including Tesla in the US and BYD in China. Below are the key highlights of its 2023 performance.

  • 2023 revenue was 3.1 billion RMB (same below), a 7.6% increase from 2022.
  • Gross profit was 1.1 billion RMB, an increase of 220 million from 2022.
  • Gross margin was 35.5%, an improvement of about 4.9% from 30.6% in 2022. The main reason was the continuous improvement in operational efficiency and stable raw material prices.
  • The company has only about 70 million in debt, so financial costs are very low, around 9 million.
  • Total shareholder profit was 607 million RMB, or EPS of 0.61 RMB.
  • The group's electroplating capacity utilization rate in 2023 was about 86.6%, similar to 86.8% in fiscal year 2022.
  • The overall yield rate in 2023 increased to 93.5%, up 5.0% from about 88.5% in 2022. This growth was due to past investments in more efficient equipment and the continuous implementation of automation where possible. Automated processes reduce human errors and improve the group's yield rate.
  • The group's order volume remains strong, and the company expects performance to continue in 2024 order execution. From January 1, 2024, to the end of 2028, the total order value for the next five years is about 10.6 billion RMB.
  • The company declared a final dividend of 0.25 RMB and an interim dividend of 0.1 HKD, totaling 0.35 HKD for the year.

Investment Highlights

  • 2023 revenue, gross profit, and profit all hit record highs for the group, and the company expects future performance to continue growing.
  • The company improves efficiency, automates operations, and continuously increases yield rates, making it increasingly competitive.
  • Only 70 million in debt, but the company has about 600 million in cash, with excellent financial conditions and very low risk.
  • It has maintained dividends in the past, with a total dividend of HKD 0.35 in 2023. Based on a share price of 3.2, the dividend yield is about 11%!
  • In terms of PE, EPS is RMB 0.61, and the PE is only about 4.8x, indicating very low valuation. Even assuming no future growth, this valuation is low enough to provide a margin of safety.
  • The payout ratio is about 50%, and given the company's situation, there is room to increase the payout ratio, depending on management's intentions.
  • If China's economy recovers and the US cuts interest rates in the future, it will be very beneficial for the global economy, and the automotive industry will benefit.

Risks

  • The company's downstream customers are mainly automotive manufacturers. Currently, the entire Chinese automotive industry is not doing well, with price wars that could affect the company's gross margin. According to the annual report, this hasn't happened yet, but the risk exists.
  • This year, Tesla's sales may not be strong, which could also affect 1571's sales. However, the company's order volume is relatively full, and revenue for the next 1-2 years should be maintained.
  • Liquidity risk. Like 1126, it is a small-cap stock in Hong Kong, with daily trading volume of only a few million. If you buy, be prepared to hold long-term.

Summary

1571 XINBANG is very similar to 1126 Derrimon International, both being industrial OEM stocks. In Hong Kong stocks, both are small-cap stocks, with almost no debt, lots of cash, payout ratios between 40-50%, and dividend yields exceeding 10%. Moreover, future performance is conservatively expected to be no worse than 2023, so future dividend yields can be maintained or even exceeded. The biggest risk, in my opinion, is the liquidity of Hong Kong stocks. Investors should be prepared to hold for more than a year. But I believe both can achieve both capital gains and dividends, with an annual return of about 15-20%, which should be achievable.

$XIN POINT HOLD(01571.HK) $DREAM INT'L(01126.HK) $CNOOC(00883.HK) $MEITUAN(03690.HK)

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