Monday, June 12, 2017

Investing in Hong Kong Listed Firms

Many of you will have heard about my reluctance of investing in S-chips. Thus, my investment into Hong Kong Listed Firms will most probably have shocked you, since many of the Hong Kong Listed Firms are located or have affiliations in China.

Do read this post to understand the initial reasons I invest in US and Hong Kong counters.

In addition to the reasons in the post, another factor is my work. My current work requires me to understand the culture of China companies and the China companies financial. Through the process of learning, I understand why there are so many scandals with regards to Listed China Firms (such as those in Hongkong and Singapore).

One of the reasons is the China invoicing/receipt system. Every invoice is tracked by the government centralized system, so that it can track back and tally with the company's tax submission.

To get around this system, companies may have another "system" for cash and carry items. These items may not have been recorded in invoices when sold, but will still be included in their revenue.

Therefore, you will always be able to find scandals about Listed China Firms explaining that the auditors being unable to account for a certain receivables or revenue.

To keep the story short - For me to be willingly to take the risk and invest in a Hong Kong counter, it should pass the following criteria:

1. Pass the Super Scorecard with at least 8 points (I stated previously that I wanted the counter to be able to score 10 points, but it is VERY HARD to find counters scoring so high. Therefore, I give in and reduce that to 8 points.)

2. The main headquarters should not be located/registered in China.

3. The main bulk of the companies' customers should not be within China. The "Cash and carry system" will most probably worked for products that can be shipped within China. For those products that are require to be export, the risk for this issue will be reduced.

After about 3 months, I finally decided on the 2 Hong Kong counters that I will be investing in.

To summarized, I had actually reviewed a lot of Hong Kong Listed counters using the Super Scorecard and here are the list of counters that I reviewed and ignored:

Do note that this review is done over the cause of 3 months and the current score of the counters may have changed due to either updated financials or changes in prices.

1. Eagle Nice (International) Holdings Limited - 7 points
2. PAX Global Technology Limited - 4 points
3. Emperor Entertainment Hotel Limited - 8 points
4. Win Hanverky Holdings Limited -7 points
5. Tao Heung Holdings Ltd - 8 points
6. Ajisen (China) Holdings Limited - 7 points
7. SUGA International Holdings Limited - 4 points
8. Kingmaker Footwear Holdings Limited - 4 points
9. Playmates Toys, Inc. - 7 points
10. Le Saunda Holdings Limited - 8 points

These are the 2 counters that I invested in:

1. Sitoy Group Holdings Ltd - 11 points

You may not know this company. But you will know its main customer - Coach, Inc. With more than 50% of their revenue coming from US companies, we can at least be somehow assured that the financials are real.

Furthermore, if you google this company and you will find many articles about it between 2014 to 2016. However, there isn't much write up now, which is most probably due to its "did not meet expectation" results.

Nonetheless, it fulfills all my criteria. Thus, I bought it.

2. Alco Holdings Ltd - 9 points

I had actually reviewed this company a long time ago. But I waited for a long while before I bought it. This was because it was basically operating in the electronics-retail industry and I believe this industry is too saturated and competitive.

However, after doing so many Super Scorecard reviews, I realized that for a Hong Kong company, to be able to score 9 points is simply amazing.

In addition, after doing more research, I realized that over 90% of the company's revenue is from USA and their products are actually sold under a very famous trademark in USA.

Thus, with these information, I decided to purchase this counter.

For now, I decided to keep my investment in Hong Kong Listed Firms to just 2 counters. Then at the end of the year, I will review my results, including those investment in the US listed firms, and evaluate if I am on the right track with my theories.

Pssst... there will be a major change in the future. Please like our Facebook page (T.U.B Investing) and follow me on InvestingNote for the latest updates!

8 comments:

  1. Why not the casinos? I am a big fan of Lenovo as well

    ReplyDelete
    Replies
    1. Hi Jason,

      Thanks for stopping by.

      Casino is a sinful. I always stop short of investing in sinful business despite having a good business.

      As for Lenovo, it did not appear in my initial listing.

      Regards,
      TUB

      Delete
  2. "In addition, after doing more research, I realized that over 90% of the company's revenue is from USA and their products are actually sold under a very famous trademark in USA."

    What's the trademark?

    ReplyDelete
    Replies
    1. Hi Anonymous,

      That's something I prefer not to share. Hope you understand.

      By I found it via Googling.

      Regards
      TUB

      Delete
  3. Please la why so secretive. Alco sell their product under the brand Venturer.

    ReplyDelete
  4. which broker used to invest in hong kong shares?

    ReplyDelete