Tianjin Development Holdings (0882.HK)
When your cash reserve is 3x your market capitalization, your projected P/E is below 2, and you operate within growing sectors in an expanding market
Tianjin Development Holdings Ltd. (“Tianjin Development", the "Company" or the "Stock")
Disclaimer:
Please conduct your own thorough research. As the author of this post, I have a stake in Tianjin Development Holdings Ltd. (0882.HK) and own shares in the company. If you are considering investing in this company, please be aware that the stock has low liquidity, which means that the stock price can be highly volatile. The following content is intended solely for entertainment purposes and should not be construed as financial advice.
Why Tianjin Development?
I believe the stock is currently mostly undiscovered because of the following reasons:
Small-Cap with around $193m in market cap
No Seeking Alpha articles, No Twitter threads
Operates within the Chinese market, an arena that remains relatively underexamined by international analysts (The stock is listed on the Hong Kong Stock Exchange) and within a market that experienced significant decline in stock prices over the past years.
And now let me tell you why I believe that this stock will at least double in the near future:
Diversified revenue streams with promising growth prospects.
Anticipated full-year net profit after taxes exceeds 64% of the current total market capitalization.
Cash and cash equivalents amount to three times the current market capitalization.
Loan obligations are well-supported by ample cash reserves, with three times more cash on hand than outstanding loans.
The Chinese market continues to exhibit robust growth at a macro level.
What does the company do?
The company operates in various sectors, including:
Utilities (Tianjin TEDA Tsinlien Water Supply Co., Ltd, Tianjin TEDA Tsinlien Heat & Power Co., Ltd., Tanjin TEDA Electric Power Co., Ltd.)
Pharmaceuticals (Tianjin Yiyao Printing Co., Ltd., Tianjin Lisheng Pharmaceutical Co., Ltd., Tianjin Institute of Pharmaceutical Research Co., Ltd.)
Hospitality (Tsinlien Realty Limited which operates the Courtyard by Marriott Hong Kong)
Electrical and Mechanical (Tianjin Tianfa Heavy Machinery & Hydro Power Equipment Manufacture Co., Ltd.)
It engages in strategic investments in entities like Tianjin Port Development Holdings Limited and Otis Elevator (China) Investment Company Limited.
Bullish reasons
In the subsequent section, I will articulate the reasons for my conviction that the company is currently significantly undervalued:
Good numbers
It's important to evaluate all figures in the context of the current market capitalization of US$193 million.
During the initial half of the present fiscal year, the company recorded total revenues of $234 million, indicating a decline of 6% compared to the $260 million reported for the corresponding period in 2022. This can be attributed predominantly to the overarching economic conditions prevailing in China.
However, Profit after tax for the first six months concluding on June 30, 2023, stood at $62 million, marking an increase of 31% compared to the $47 million reported for the corresponding period in 2022. This can be primarily attributed to a reduction in the cost of sales and an increased proportion of net profit derived from associates and joint ventures.
Solid balance sheet
Additionally, the balance sheet showcases impressive figures relative to the current market capitalization. At the conclusion of the first half (H1), the aggregate assets stood at US$2.7 billion, representing nearly 14 times the market capitalization. Within this total, approximately $640 million is held in cash and time deposits with a maturity exceeding three months. The overall liabilities amounted to $632 million, encompassing around $232 million in both short-term and long-term loans.
Diversified revenue streams
The company benefits from diverse revenue streams across multiple sectors, mitigating the risk of significant setbacks in any single sector. Each sector in which the company has investments holds promising potential:
Utilities Sector Growth
Considering the anticipated substantial growth in the global utilities market propelled by advancements such as AI and electric cars, the company's dedication to high-quality development within this sector strategically situates it to leverage the opportunities presented by this expanding market.
Pharmaceutical Sector Expansion
The pharmaceutical divisions of the company appear to be experiencing heightened demand. For example, the company has recently disclosed that Lisheng Pharmaceutical, in which Tianjin holds a 34% interest, has revised its projected full-year earnings upwards, anticipating a surge of 260 to 303%.
With the global pharmaceuticals market forecasted to reach $1.57 trillion by 2023, the company's solid R&D capabilities, product quality and its subsidiaries position it for growth.
Hospitality Sector Recovery
Courtyard by Marriott Hong Kong's improved earnings and increased room prices with a 64.1% occupancy rate suggest a positive trend in the hospitality sector. The global hotel industry is projected to recover with a CAGR of 8.1% from 2021 to 2028, presenting growth opportunities for the company.
Consideration of Electrical and Mechanical Business Restructuring
Despite a 23% decrease in annual revenue to $36 million, the company's consideration of restructuring indicates adaptability. As the global electromechanical industry is expected to grow at a CAGR of 6.6% from 2021 to 2028, a strategic restructuring could position the company for future growth.
Stable Throughput in Strategic Investments
Strategic investments in companies like Tianjin Port Development Holdings Limited and Otis Elevator (China) Investment Company Limited have maintained stability. Notably, the net profit of associates and joint ventures witnessed a noteworthy 18% year-over-year increase.
Valuation
The current stock price is: $0.18 (February 7, 2024).
Here are my evaluations of the equitable stock price under three different growth scenarios:
Margin of Safety
My Margin of Safety Stock Price is: $0.17
Normal case
I expect the following stock price in a normal growth scenario: $0.33
Best case
My best case scenario calculation gives the following stock price: >$0.54
Excellent comment, Daniel. Lisheng Pharma seems to be the main issue here; full consolidation (of about RMB 3.4bn in net financial assets) while $882 only holds an effective 33% interest.
What is your broader opinion on $882?
Thanks for the write-up, Phil. Definitely, $882 deserves more love!
There have been a select few trying to spread the message. I mention them in the post below, with some references to other write-ups.
https://jaminvest.substack.com/p/hk-3-dollars-trading-for-pennies