Stock research on global mid-cap companies

Evaluate Research

Evaluate Research provides institutional quality stock research on small-cap and  mid-cap companies on a global basis, thus helping connect investors with the company.

At Evaluate Research, we provide free of cost to all investors a 20-25 page Initiation Report which evaluates in great detail all aspects of the company:  growth opportunities, catalysts, business description, competitive positioning, SWOT analysis, risks, etc.  In addition, we determine specific price targets for the company based on detailed 5-year complete forecasts of financial statements including IS, BS, CF, ratios, etc.  Finally, whereas many sell-side brokers offer sketchy and irregular ongoing maintenance research of companies, if not outright dropped or termination of coverage, at Evaluate Research we systematically monitor and regularly publish Update Notes covering quarterly earnings, major corporate events, etc.

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Stock research on global mid-cap companies, Evaluate Research

Equity Bottom-Up

Sun Hung Kai &amp; Co reported solid results for the first half ended June&nbsp;2017. EPS for the period came in at HK36 cents vs. HK12.5 cents in&nbsp;the first half of FY2016, increasing by 188% YoY. In July, the company&nbsp;had issued a positive profit alert anticipating a 150%+ increase in net&nbsp;profits. The strong surge in EPS was driven mainly by two factors.&nbsp;First, a 65% decrease in bad and doubtful debts from HK$566.1 mn&nbsp;in 1H2016 to HK$197.4 mn in 1H2017 resulting from the continued&nbsp;improvement in credit quality of the UAF China [United Asia Finance]&nbsp;business. The company’s charge-off ratio continued its decline from&nbsp;12.7% of gross loans in 1H2016 to 7.9% in 2H2016 and 7.6% in&nbsp;1H2017. We expect charge-offs to decline further to about 6% over&nbsp;the next two years. The decrease in charge-offs also resulted in a onetime&nbsp;write back of impairment allowance to the tune of HK$127.6 mn&nbsp;which further boosted EPS growth. Second, gains from financial&nbsp;assets increased by 365% to HK$635.5 mn vs. HK$136.5 mn in&nbsp;1H2016, resulting from the strong performance of the Principal&nbsp;Investments segment. Trading at just 7x TTM P/E, 6.2x FY2018E&nbsp;P/E and 0.74x Price to Tangible Book, the stock continues to be&nbsp;attractively priced, in our view.
We use a sum of the parts [SOTP] methodology to value SHK. We&nbsp;value the UAF [United Asia Finance] business at 1.5x tangible loan&nbsp;book value taking into account the high net interest margin resulting&nbsp;in higher ROE and future growth prospects of the business. This&nbsp;provides us with a value of HK$6.7 bn for SHK’s 58% stake in the&nbsp;business. On a P/E basis, this comes to about 14.6x on our FY2017&nbsp;estimate of HK$460 mn for the after-tax earnings of UAF attributable&nbsp;to SHK. We value the non-UAF business at about 1.0x book value.&nbsp;Additionally, the company also has substantial amount of cash on the&nbsp;balance sheet. Together, the value of cash and the non-UAF business comes to about HK$10.8 bn. As a result, we arrive at a value of HK$17.5 bn for SHK which equals HK$7.90 per share, an upside of about 50% over the current stock price of HK$5.20. Based on 1H2017 reported numbers, our price target implies a Price to Tangible Book of 1.1x and a P/E of 9.5x on our FY2018 earnings estimate of HK83 cents.
Analyst: Ajeya Patil

Sun Hung Kai &amp; Co reported solid results for the first half ended June&nbsp;2017. EPS for the period came in at HK36 cents vs. HK12.5 cents in&nbsp;the first half of FY2016, increasing by 188% YoY. In July, the company&nbsp;had issued a positive profit alert anticipating a 150%+ increase in net&nbsp;profits. The strong surge in EPS was driven mainly by two factors.&nbsp;First, a 65% decrease in bad and doubtful debts from HK$566.1 mn&nbsp;in 1H2016 to HK$197.4 mn in 1H2017 resulting from the continued&nbsp;improvement in credit quality of the UAF China [United Asia Finance]&nbsp;business. The company’s charge-off ratio continued its decline from&nbsp;12.7% of gross loans in 1H2016 to 7.9% in 2H2016 and 7.6% in&nbsp;1H2017. We expect charge-offs to decline further to about 6% over&nbsp;the next two years. The decrease in charge-offs also resulted in a onetime&nbsp;write back of impairment allowance to the tune of HK$127.6 mn&nbsp;which further boosted EPS growth. Second, gains from financial&nbsp;assets increased by 365% to HK$635.5 mn vs. HK$136.5 mn in&nbsp;1H2016, resulting from the strong performance of the Principal&nbsp;Investments segment. Trading at just 7x TTM P/E, 6.2x FY2018E&nbsp;P/E and 0.74x Price to Tangible Book, the stock continues to be&nbsp;attractively priced, in our view.
We use a sum of the parts [SOTP] methodology to value SHK. We&nbsp;value the UAF [United Asia Finance] business at 1.5x tangible loan&nbsp;book value taking into account the high net interest margin resulting&nbsp;in higher ROE and future growth prospects of the business. This&nbsp;provides us with a value of HK$6.7 bn for SHK’s 58% stake in the&nbsp;business. On a P/E basis, this comes to about 14.6x on our FY2017&nbsp;estimate of HK$460 mn for the after-tax earnings of UAF attributable&nbsp;to SHK. We value the non-UAF business at about 1.0x book value.&nbsp;Additionally, the company also has substantial amount of cash on the&nbsp;balance sheet. Together, the value of cash and the non-UAF business comes to about HK$10.8 bn. As a result, we arrive at a value of HK$17.5 bn for SHK which equals HK$7.90 per share, an upside of about 50% over the current stock price of HK$5.20. Based on 1H2017 reported numbers, our price target implies a Price to Tangible Book of 1.1x and a P/E of 9.5x on our FY2018 earnings estimate of HK83 cents.
Analyst: Ajeya Patil

Sun Hung Kai

Sun Hung Kai: Earnings Update [H1FY2017]