1538.HK - Zhong Ao Home Group

[_JJ_]

Stable cash flow property management company in China backed by Vision Knight Capital (run by ex-Alibaba CEO David Wei). Briarwood Chase Management (run by Sum Zero co-founder Aalap Mahadevia) owns 8%.

 

Market cap 674M HKD. Net cash 317M HKD. Projected FY 2017 net profit: 100M HKD.

 

Decent write-up on VIC: https://www.valueinvestorsclub.com/idea/Zhong_Ao_Home_Group/139159#description

 

Thesis seems to play out, but stock price is lagging. O2O loss has been reduced significantly. Stable cash flows from property management.

 

Any thoughts?

[winjitsu]

Statistically looks amazing. 100% growth... trading at ~3x cashless PE? I'll start looking into it and happy to shares notes once I'm done. I'd be sold if someone would share their offline research regarding the product / platform. Don't see too much on that front in the VIC write up.

 

On O2O, I'm skeptical that this smaller start-up will create a superior distribution platform, given the amount of money that BABA and JD and pouring into the space, along with the traditional logistics players. I hope this doesn't damage the thesis.

 

Another big point of DD: is cash truly free? I've come across a couple companies now with large cash balances that have some off balance sheet liabilities [eg. collateral for insurance].

 

[_JJ_]

FY 2017 results were published today.

http://www.hkexnews.hk/listedco/listconews/sehk/2018/0327/LTN201803271343.pdf

 

EPS 0.14 HKD

0.05 HKD dividend declared

net cash 0.60 HKD

 

Share price 0.93 HKD

 

 

[Saj]

With so much cash, why have they been increasing debt? That's a bit of a red flag for me.

[_JJ_]

There's not much debt and it's down YoY?

[Saj]

There's not much debt and it's down YoY?

 

You're right. But it was up significantly in 2016 despite the huge cash balance. Furthermore, at Dec 31st 2016, $45M of the debt was considered due in less than a year. Yet by Dec 31st 2017, debt had decreased by substantially less than that, suggesting the company delayed/re-fied etc. So they are willing to pay more interest than they have to despite a huge cash balance. The interest itself is not that material. It's the warning sign that scares me.