ZTE invests in CHINA ALL ACCESS

It was announced today that ZTE (HK Stock code 00763) made a "substantial acquisition" in China All Access (HK Stock code 00633).

ZTE agreed to subscribe to 112 million new shares of CH ALL ACCESS (00633.HK), which represents 8.43% of the enlarged share capital, and to $201.5 million two-year 10% convertible bonds of the latter.

The net proceeds of $397 million will be used as general working capital for China All Access.

The ZTE acquisition of China All Access purchase re-affirms our earlier STRONG BUY rating of CHINA ALL ACCESS as below (made here: http://besthongkongstocks.blogspot.com/2012/11/china-all-access-hk-stock-code-00633.html):

Target price (12 months) $2.4

Target price (24 months) $3.5

China’s export growth accelerates

Some more news confirming China is slowly moving towards recovery today, which supports our overall view that now is the time to byy China stocks listed on the Hang Seng.

China’s export growth accelerated in October in fresh evidence of a broader rebound for the world’s second-largest economy just as the Communist Party grapples with how to boost recovery from a rare slowdown.

Exports rose 11.6 per cent in October from a year earlier to US$175.6 billion, the national customs bureau said on Saturday, strengthening for a second straight month and beating economists’ expectations.

Imports, meanwhile, increased 2.4 per cent to US$143.6 billion, matching September’s gain but falling short of analyst forecasts.

The country’s trade surplus, a source of friction with countries including the United States, widened to US$32 billion for the month, up from US$27.7 billion in September.

The size of the surplus was a surprise, surpassing the median forecast of US$27 billion in a survey of economists by Dow Jones Newswires.

Those economists had also forecast a 10 per cent increase in exports and a four per cent gain in imports.

China’s economic growth has slowed for seven straight quarters and hit a more than three-year low of 7.4 per cent in the three months through September, but recent data has fuelled optimism the worst may be over.

Industrial production for October rose 9.6 per cent on year from 9.2 per cent in September, the government said on Friday. Retail sales, the main measure of consumer spending, also accelerated to a 14.5 per cent gain during the month.

Fixed-asset investment, a key gauge of infrastructure spending, also showed improvement in October, while inflation remained well under control, dipping to a nearly three-year low of 1.7 per cent in October.

Economists have seized on the recent improvement in Chinese data as a sign that economic growth will likely accelerate in the current fourth quarter through the end of December.

“Today’s trade data, together with improving domestic demand indicators released yesterday, continue to support our view that China’s growth momentum has picked up,” ANZ bank economists Liu Li-Gang and Zhou Hao wrote in a commentary.

CHINA ALL ACCESS (HK Stock code 00633) rated STRONG BUY by Hong Kong Stock.

Current price $1.58
Target price (12 months) $2.4
Target price (24 months) $3.5

CHINA ALL ACCESS is engaged in the provision of satellite communication application solutions and services, wireless data communication application solutions and services, and call centre application solutions and services.

The Group’s wireless data communication application solutions and services segment is showing stable growth. For example its intelligent information terminal (“Jinwutong”) and intelligent surveillance system. The “Jinwutong” business has also expanded from the traffic police application to various fields including fire control, logistics, public security and others, thereby further expanding the scope of the company's market. The business of intelligent surveillance systems is now focused mainly on traffic management, city management, thermal power, fuel gas and other industries.

CHINA ALL ACCESS's satellite communication application solutions and services segment is also showing steady growth. The company has developed more equipment compatible with satellite communication system, such as panoramic camera and satellite integration terminal to upgrade and improve the existing systems. They company is developing users in several new industries, including prison administration, reserve duty and water supply.

The company's call centre application solutions and services segment is small, representing approximately 1% of the total business. Customers were from various industries including telecommunications, banking, broadcasting and television industry and traffic control and others. We believe there are ongoing new opportunities in different provinces and different industries for this business.

We have strong confidence in the company management structure, a factor that is important to us when we select companies to invest in.

China All Access is audited by one of the "big 4" accounting firms, namely KMPG, a fact that we think adds value in terms of the reliability of the company's earnings (always important to us as we look at to find companies with China business that we believe are undervalued based on reported financials).

We love the growth, technology, and area of business focus of CHINA ALL ACCESS and think it has great opportunities ahead over the next decade. The company is poised to do well In view of the government’s policy of promoting information technology industry and the fast growing market demand for such products and services.

The company's operating profit margin and net profit margin has grown strongly since 2009. The company has also increased it dividend payout % over this time (which we generally like) although with this type of company we are also quite happy to see it retain earnings for reinvestment for future growth.

Turnover, operating profit, and net profit has increased consistently ever year since 2007. A trend we love to see as value investors.

PE is 6.3 which we feel is cheap for a company with this kind of growth potential.

The company trades around is current NAV of $1.38.

We believe that as this company continues to perform and grow it will attract investor interest as funds flow back into China stocks. We will therefore accumuluate this stock over the coming year with a $2.4 target in mind for 12 months, and a $3.5 target in mind for 24 months.

China’s non-manufacturing industries rebound

China’s non-manufacturing industries rebounded from the slowest expansion in at least 19 months according to data released yesterday, adding to manufacturing gains that confirm that China is recovering from a slowdown that lasted seven-quarters.

 

The purchasing managers index rose to 55.5 in October (from 53.7 the previous month). This growth follows two reports last week that showed a pickup in manufacturing industries.

 

We further expect that China will still roll out mild stimulus measures in some sectors as it completes a once-a-decade power transfer this week. The nation’s central bank said the economy is expected to maintain “steady and relatively rapid growth”.

 

This data confirms our macro view that now is the time to be buying Hong Kong listed stocks with China exposure.

Nandasoft (HK stock code 8045). Target price from Hong Kong Stocks is $.9 per share.

We are very satisfied to see that Nandasoft today announced that achieved a turnover of approximately RMB404,115,000 for the nine months ended 3^h September 2012. This represents an approximately 33.4% increase as compared with that of the corresponding period in 2011. Net profit was around RMB 14,749,000.

For the three months and nine months ended 30th September 2012, the unaudited turnover was RMB164,668,000 and RMB404,115,000, respectively representing an increase of RMB24,108,000 and RMB101,190,000, or 17.2% and 33.4% in turnover as compared with that of the same period in 2011.

The company made its announcement after the close of trading in Hong Kong today, and the stock price closed slightly up at .34 cents per share prior to the earnings results.

The results are in line or slightly above our expectations and confirm our TP for this company of $.9 per share. This is a small company, but one we think has huge growth potential. We will continue to allocate funds to purchasing this stock until it reaches the target price or until our total portfolio allocation of this stock reaches 5% of our China portfolio. From the trading patterns prior to the announcement we don’t see any evidence of insider trading or information leakage, which is a factor we also like when we consider a company’s governance.

The report noted that the company continued to focus on research and development of mobile communication applications, and that it was focused on developing an electronic government procurement system based on an android tablet PC, but also that it was researching and development on Mobile Virtual Desktops with the aim of achieving seemless operation of the desktops of desktop computers, tablet computers and mobile phones.

Nandasoft also commented on the research and development of Smart Home based on its concept of the “Internet of Things”, which aims to connect household appliances through platform software via devices such as PCs, mobile phones and tabets.

The Company continued to research and develop on the secured electronic document management system based on domestically produced hardware and software.

Nandasoft’s areas of focus are all areas that we believe are very strategically placed to benefit from Government support over the next few years, along with the trend and opportunities that come with cloud computing.

Nandasoft’s website is here: http://www.njusoft.com  Details of Nandasoft’s earnings announcement here: http://www.hkexnews.hk/listedco/listconews/gem/2012/1102/GLN20121102175.pdf

We reiterate our valuation of Nandasoft as $.9 per share.

China 3Q economic grows moderately and steadily

China 3Q economic grows moderately and steadily; to continue to adopt prudent monetary policy - PBOC.

A survey conducted by the People's Bank of China suggested that China's third-quarter economy grew moderately and steadily with major indicators quickening.

Consumption demand, fixed asset investment, exports and production in agricultural and industry picked up with GDP rising 7.4% year-on-year and 2.2% quarter-on-quarter.

The PBOC said it will continue to adopt a prudent monetary policy to strike a balance among economic growth, price stabilization and risks, and stabilize monetary environment and overall economy.

EPRO (Stock code 08086) rated STRONG BUY

EPRO (HK Stock code 08086) rated STRONG BUY by HKT.

Current price $.65
Target price (12 months) $1.4
Target price (24 months) $.2.6

EPRO provides information technology contract and maintenance services, and IT software development and integration services, e-marketing services and mobile computing solutions. There will be huge demand for these products and services in the coming decade in China.

EPRO also operates e-commerce and provision of online sales platform www.dx.com which we believe have huge potential for growth and revenues as China’s on-line shopping portals are set to boom over the next decade.

DX.com is a simple, efficient shopping platform and we are very encouraged by its growth in usage to date. DX.com targets at overseas customers and sells high-quality and unique products from China to global consumers. The website has over 100,000 products for sale, across 15 categories and over 200 sub-categories. This business is growing fast and has potential to rival Amazon.com, especially as it operates internationally and has access to lower priced products. The website now has regular buyers from over 200 countries and is seeing especially strong demand from countries such as Brazil, Russia and Israel. If you have not yet seen this website take a look!

EPRO also operates www.MadeInChina.com which operated on a similar concept.

EPRO’s areas of business have the potential to be highly profitable, and we have identified EPRO as a company that is poised to benefit under China’s 12^th 5 year plan over the coming 3 years, and as China, and the world increasely moves and does business on-line.

The company’s Return on Equity, and Return on Total Asset, two key ratios we look for, has grown every year since 2007. We believe this trend will accelerate over the next few years.

EPRO’s turnover and operating profits have grown strongly each year, and again we believe this trend is poised to accelerate. We are hopeful of positive news confirming this when the company reports earnings in December 2012.

Also noteworthy is that DIGITAL CHINA (HK stock code 0861) has been increasing its stake in EPRO over the last few months, as has EPRO’s chairman. Both of course are encouraging signs for the company’s stock price.

Other investors might wonder why, given EPRO’s prospects, we have not valued it’s expected stock price growth at a higher percentage compared to its current stock value. The reason for this is that based on our own assessment of the stock’s value, we believe the stock’s current price is already fairly high (which reflects that the fact that it is not just us, but other investors who already expect a lot from this company). We determine stock value based on fundamentals, and it is on this basis that we value EPRO at 1.3 per share based on currently available information (approximately double the company’s current stock value). Of course, companies like this also have the potential to see their stock price jump crazily high as and when positive news goes “mainstream” and local and foreign investors pile in wanting a piece of the action. If this happens we will carefully monitor the price vs our assessment of value, and we might then sell accordingly if we believe the stock price is overvalued.

We will accumulate EPRO over the coming year until it hits a price of $1.3 which we consider to be fair value for this company, but may consider revaluing the company (upwards or downwards) depending on its upcoming earning’s report.

My recomended China Stock Portfolio

About me:

I run a fund and have in the past been very successful (of course not perfect, but overall we have made the right "big calls" that have done us well, both on the upside as well as avoiding losses).

I am going to be posting up some stocks we are looking at, listed in Hong Kong with a China business focus, with the view that China has bottomed and represents great upside opportunity.

In particular we focus on identifying smaller stocks, that for a range of reasons we believe are undervalued with significant upside based on all known and reported financial data and fundamentals.

Why should we be buying stock in China now?

First the macro reasons. We are bullish on HK listed China stocks, including those of manufacturing and exporting companies.

We have recovery/growth in the US, we have stabilisation in Europe, with a HUGE amount of negativity "priced in", and continued growth in many emerging markets, including across Asia. People, and companies have been "saving cash", hoarding, tightening, not investing, and all these things lead to a "surplus" of inventory, and a slowdown in China. It can very quickly reverse the other way, which is what we believe is about to happen, perhaps in a few quarters from now, likely with fuel added to the rebound by stimulus from China in 2013.

There are a few other factors that make us think we are close to the perfect time to buy stocks HK stocks listed in China, based on historical data with a realistic chance of certain stocks doubling and tripling in 2013. Some of these reasons are below:

1 – End of this year is a major political change in China. Lead up to that produces uncertainty – after that will come renewed stability, growth and investment. So we plan on buying with a view to hold for at least a year, likely 2 years (2013-2014), and with a view to stock prices doubling.

2 – Buying in times of a perceived crisis creates a “crisis margin”, and selling in times of confidence creates a confidence margin. We are surely now we are more towards “crisis” (although moving towards "recovery") rather than “confidence” on the scale, so we believe now is a good time to buy, well before full confidence re-emerges.

3 – Capital inflow and outflow of Hong Kong means you will get more volatility, both on upside and downside – great for investors who buy when others are selling.

4 – US treasury yields are at record lows, and yield curve likely to lengthen – likely to be less that 1% for 10 years. This means super cheap borrowing and demand for higher yields (ie stocks). (Also it likely means the Govt in HK will impose high deposit ratios for property (ie less leverage), boosting stocks in terms of relative attractiveness to property (on the basis that leverage is harder to get for stocks than property). We believe that the relative attractiveness of stock vs property will result in a surge in funds flowing into Hong Kong listed stocks in 2013.

5 – If/when China has announces stimulus plans, expect China capital to be invested in HK, and in HK stocks potentially significantly boosting HK stocks. And remember also, there is also plenty of stimulus the US and Europe can provide if they wish.

6 – How long was last stock market decline from Lehman’s to bottom – that period may be a guide to next bottom after the “EU crisis”. (around 6 months, so buy Nov 2012). Lehman's shows how very quickly today's markets can move from highs to lows and also, likely from bears to bulls. We believe this recovery could be very quick once it starts

7 – Hang Seng, and China markets, now have some of the lowest PEs in the world – super cheap by historical standards and close to record historical lows (ie a record low “tide”). Again, to be a strong reason to believe the market is at rock bottom.

8 – Increased focus on Government taxing in EU and US will lead to money flowing to “low tax”, and “tax-haven” countries, which include HK and therefore HK listed stocks.

9 – People seeking to preserve asset and currency value will also move money from Europe to HK.

10 - Euro close to historical lows which would indicate to us a global bottom and therefore buy signal for China.

11. - Look for a bottom in China’s quarterly GDP and export declines. (Right now GPD at a historical low, and from a historical perspective seems likely to bottom out at 7%).

12 – Look for a pickup in China Foreign Direct Investment which we believe is about to occur.