9 China ADRs newly listed on SGX: Do they make good dividend stocks? Skip to Content

9 China ADRs newly listed on SGX: Do they make good dividend stocks? $BIDU, $CYOU, $CTRP,$HMIN, $MR, $NTES, $SNDA, $STP, $TSL

SGX brought 18 US listed China ADRs over to their platform so that local investors can get exposure to or that they can use this to speculate on china stocks.

These are different from those S-Chips locally listed as they are the big boys of China. They are large in market capitalization and some like PetroChina and Sinopec is as large as your Microsofts and Walmarts.

I took this afternoon to give them a quick run down. I would like to share what my initial thoughts of them here.

This part 1 of the coverage is on those stocks listed in China and not in Hong Kong. The common theme is that they tend to me more tech companies rather than mature mega large caps.

So for the local dividend investors do they make good dividend stocks?

Baidu ($BIDU)

Baidu, Inc. provides Chinese and Japanese language Internet search services. Its search services enable users to find relevant information online, including Web pages, news, images, multimedia files, and blogs through the links provided on its Websites. The company also offers online community-based products and entertainment platforms; an instant messaging service; and a consumer-oriented e-commerce platform. In addition, it designs and delivers online marketing services and auction-based P4P services that enable its customers to reach users who search for information related to their products or services.

Economic Moat: Strong

For me its like the Google of China and with such a large chinese internet population this makes Baidu very valuable future wise. Folks who study Google’s balance sheet would know that tech business like Baidu requires substantially less capex yet produce enormous cashflow.

Not just that they have a very strong moat in the sense that foreign folks like Google and Microsoft finds it difficult to enter as Baidu censors content as what the Chinese government requires, which does not go down well with Google.

Also localised content search and results return is a strong switching cost that if they were to use Bing or something, they will switch back to Baidu as the users will feel awkward with the different flavor of results returned.

Fundamentals: Strong

Very high ROE and ROIC at 47% and 1396% respectively.

A tech company like Baidu requires not much debt financing and really they are debt free.

Dividend and Free Cashflow Yield: Weak

Tech Companies like Google get ready their cash holdings for acquisitions and thus do not really pay out to stock holders so we don’t expect that Baidu will do it anytime soon.

But we do invest in companies that build up great cash holdings and Baidu generates a free cashflow of 1.8 billion yuan.

Its just that on current valuation, I believe its free cashflow yield is around 1% which says that current valuation is pricey

Valuation: Expensive

A P/B and P/S of  nearly 40 times suggest that people buying now is expecting big things from Baidu.

Verdict: Not likely candidate at current price but I am willing to get invested in this for growth.

A good trade would be to wait for a pull back to moving average and accumulate and sell when it breaks off the average ( not an inducement to trade. please carry out your own assessment)

Changyou.com ($CYOU)

Changyou.com Limited develops and operates online games in the People’s Republic of China. It engages in the development, operation, and licensing of massively multi-player online role-playing games (MMORPGs), which are interactive online games that might be played simultaneously by various game players. The company operates three MMORPGs, including Tian Long Ba Bu (TLBB), Blade Online (BO), and Blade Hero 2. As of December 31, 2009, these games had approximately 80.9 million aggregate registered accounts, 2.4 million aggregate active paying accounts, and 990,000 aggregate peak concurrent users. The company was founded in 2003 and is based in Beijing, the People’s Republic of China. Changyou.com Limited is a subsidiary of Sohu.com (Game) Limited.

Economic Moat: Very Narrow

I been gaming on MMorpg a lot 2 years ago so what I understand about online gaming is that there requires a lot of network effect. You need all your friends to be on that game and for a MMORPG manager like Changyou they are basically in the game of monetizing digital products played in game.

I would say don’t underestimate this as just a play on youth. The digital currency in the future could spin off into something far greater if Changyou have its way, something like Paypal do.

MMORPG is a very social thing and for a country that is as large and predominately chinese speaking, chinese based MMORPG is here to stay. They can bring over English based MMorpg and convert them to chinese ones and make money off it.

But that’s as much I know about gaming business. We seldom see a lot of value investment in gaming arena and for me its like the movie industry, high cost and risky returns.

Fundamentals: Strong

  • Zero Debts
  • Cash is 90% of total assets
  • Basically its like a bank where they can take money and manufacture virtual stuff.

Dividend and Free Cashflow Yield: Good

  • If I am not wrong, free cashflow yield is roughly 8.6%
  • of this they payout 5.73% in 2009
  • Essentially their business model is that as long as gamers stay happy with their offering and they continue to come up with the innovative ways to sell digital content to the gamers, they will continue to generate free cashflow.

Valuation: Moderate to cheap

  • EV/EBITDA is around 7.75 times. That is cheap if you consider the prospects.
    • PE of 13 times
    • PTB of 5.4 times
    • PTS of 7.3 times
  • Overall I think if you use your normal matrix Changyou is expensive, but for a tech company I find that those are very achievable valuations.

Verdict: It’s a stock I would consider, I would have to look at its barriers of entry and what is Chang you’s competitive edge.

Definitely makes an interesting follow up article.

Ctrip.com ($CTRP)

Ctrip.com International, Ltd., together with its subsidiaries, provides travel services for hotel accommodations, airline tickets, and packaged tours in the People’s Republic of China. It also sells independent leisure travelers bundled package-tour products, which include transportation and accommodations, as well as guided tours covering various domestic and international destinations. In addition, the company offers Internet-related advertising, aviation casualty insurance, and other related services. Further, it sells travel guidebooks, which provide information for independent travelers, and VIP membership cards that allow cardholders to receive discounts from various restaurants, clubs, and bars.

Economic Moat: Not Analysed Yet

Fundamentals: Strong

  • Zero Debts.
  • Cash is 38% of Assets or nearly 11% of Market Cap

Dividend and Free Cashflow Yield: Poor

  • Does not pay out dividends in the last year
  • Free Cashflow yield of 6%. This is not the kind of cashflow yield expected of a tech company, but CTrip functions more like a one stop travel shop so make what of that if you will.
  • The eventual conclusion of having no debts and no dividend payments is that equity and cash holding gets boosted.

Valuation: Moderate

  • Valuation have ran up abit in the recent rally
  • PTB of 4.74 times
  • PTS of 6.97 times
  • EV/EBITDA of 12 times.

Verdict: Valuation will depend on earnings potential and will not know without much research.

Home Inns & Hotels Management ($HMIN)

Home Inns & Hotels Management Inc. engages in the development, lease, operation, franchise, and management of a chain of economy hotels in the People’s Republic of China. The company operates its hotels under the Home Inn brand name. As of June 30, 2010, it operated 674 hotels in 126 cities in China, of which 390 were leased-and-operated hotels, and 284 were franchised-and-managed hotels. The company was incorporated in 2001 and is headquartered in Shanghai, the People’s Republic of China.

Economic Moat: Not Analysed Yet

Fundamentals: Strong

  • Debt to Asset stands at 11%
  • Balance sheet is strong

Dividend and Free Cashflow Yield: Moderate

  • Stock does not distribute dividends for last year
  • Strong operating cashflow generation although its capex is high as well.
  • Yet Free Cashflow have remained positive

Valuation: Moderately Expensive

  • PE of 43 times
  • PTB of 5.5 times
  • PTS of 5.3 times
  • Forward PEG 0.9 times

Verdict: NA

Mindray Medical International ($MR)

It operates in three segments: Patient Monitoring and Life Support Products, In-Vitro Diagnostic Products, and Medical Imaging Systems. The Patient Monitoring and Life Support Products segment offers patient monitoring devices that track the physiological parameters of patients, such as heart rate, blood pressure, respiration, and temperature. These patient monitoring devices are suitable for adult, pediatric, and neonatal patients and are used principally in hospital intensive care units, operating rooms, and emergency rooms.

This segment offers single and multiple-parameter monitors, mobile and portable multifunction monitors, central stations that can collect and display multiple patient data on a single screen and an electro-cardiogram monitoring device; veterinary monitoring devices; and anesthesia machines, as well as defibrillators, surgical beds, and surgical lights. The In-Vitro Diagnostic Products segment provides data and analysis on blood, urine, and other bodily fluid samples for clinical diagnosis and treatment.

It also offers semi-automated and fully-automated in-vitro diagnostic products for laboratories, clinics, and hospitals. In addition, this segment provides hematology analyzers and biochemistry analyzers, and reagents. The Medical Imaging Systems segment offers ultrasound systems, which are employed in medical fields, such as urology, gynecology, obstetrics, and cardiology; and digital radiography systems. The company serves distributors, original design manufacturers, original equipment manufacturers, and hospitals and government agencies. Mindray Medical International Limited was founded in 1991 and is headquartered in Shenzhen, the People’s Republic of China.

Economic Moat: Not Analysed Yet

Fundamentals: Fairly Strong

  • Debt to Asset Ratio of 6.83%
  • Cash is 20% of assets
  • ROE is 22%
  • ROIC is 20%

Dividend and Free Cashflow Yield: Poor

  • Positive Free Cashlow
  • Dividend payout have been reduced
  • Free cashflow have been reducing
  • FCF is able to cover dividend payments
  • Diviend yield 0.6% currently

Valuation: Moderate to expensive

  • PE of 21 times
  • PTB oat 3.7 times
  • PT of 5.0 times

Verdict: Probably not attracted t this.

NetEase.com ($NTES)

NetEase.com, Inc., an Internet technology company, engages in the development of applications, services, and other technologies for the Internet in China. It provides online game services to Internet users through the in-house development or licensing of massively multi-player online role-playing games, including Fantasy Westward Journey, Westward Journey Online II, Westward Journey Online III, Tianxia II, Heroes of Tang Dynasty, and Datang, as well as the licensed game, Blizzard Entertainment’s World of Warcraft. The company also offers online advertising on its Web sites. In addition, NetEase has paid listings on its search engine and Web directory, and classified advertising services, as well as an online mall, which provides opportunities for e-commerce and traditional businesses to establish their own storefront on the Internet. Further, it provides wireless value-added services, such as news and information content, matchmaking services, music, and photos from the Web over SMS, MMS, WAP, IVR, and Color Ring-back Tone technologies. Additionally, the company offers community services, including instant messaging, online personal advertisements, matchmaking, alumni clubs, and community forums; and aggregates news content on world events, sports, science and technology, and financial markets, as well as entertainment content, such as cartoons, games, astrology, and jokes from over 100 international and domestic content providers. NetEase.com, Inc. was founded in 1997 and is based in Beijing, the People’s Republic of China.

Economic Moat: Not Analysed Yet

Fundamentals: Strong

  • Cash is over 90% of assets
  • Debt level is zero
  • ROA is 22%
  • ROE is 25%
  • ROIC is 25%

Dividend and Free Cashflow Yield: Moderate

  • Does not payout dividend
  • Free Cashflow is positive
  • Capex as a % of revenue is 6.21%

Valuation: Moderate

  • PE of 18 times
  • PTB of 4.1 times
  • PTS of 7.5 times
    Personally I feel that depending on how we view technological companies, I find NetEase to be cheap with respect to its future earnings

Verdict: Not a dividend distributor so probably will give this a miss.

Shanda Interactive Entertainment ($SNDA)

It offers a portfolio of entertainment content, including massively multi-player online role playing games (MMORPGs), which comprise Latale, Dungeons and Dragons Online, Fengyun Online, and World Hegemony. These MMORPGs are action-adventure based, and draw upon various themes, such as martial arts, combat, fantasy adventure, and historical.

The company’s portfolio of entertainment content also includes Kung Fu Kids, Tales Runner, Push Push Online, and Popland casual games; Chinese language original literature portals consisting of Qidian, Jinjiang Literature City, and Hongxiu.com; and online chess and board games. In addition, its portfolio of entertainment content includes a network personal computer (PC) game platform, which allows users of PC games to find and connect through the Internet with other players of the same PC games; and mobile games, including the mobile versions of Woool and Magical Land.

The company offers Shanda Online (SDO), a community and an online entertainment content e-commerce service platform, which consists of an online payment and billing system, a distribution network, and a marketing platform, as well as a customer relationship management system, including a customer information management system and customer service center; EZ Center interactive entertainment platform; and EZ Pod hardware product. It markets its games through traditional and online marketing programs and promotional activities comprising in-game events, in-game marketing, peer user recommendation program, open beta testing, and offline efforts, as well as through word-of-mouth. The company has strategic cooperation agreement with Kingsoft Co., Ltd. and collaboration agreement with Zhejiang Satellite Television.

Economic Moat: Not Analysed Yet

Fundamentals: Strong

  • Cash is over 80% of assets
  • Debt to Asset is 6%
  • ROA is 10%
  • ROE is 17%
  • ROIC is 15%

Dividend and Free Cashflow Yield: Poor

  • Does not payout dividend
  • Free Cashflow is positive
  • Capex as a % of revenue is 4.39%

Valuation: Moderate

  • PE of 14 times
  • PTB of 2 times
  • PTS of 3.2 times
    In terms of valuation this looks rather cheap. Compared to NetEase previously and Changyou that does similar things, its valuation is rather low.

Verdict: Will need to evaluate NetEase,Shanda and Changyou as a whole to gain a better picture.

Suntech Power Holdings ($STP)

Suntech Power Holdings Co., Ltd., a solar energy company, engages in the design, development, manufacture, and marketing of photovoltaic (PV) products. The company also provides engineering, procurement, and construction services to building solar power systems for certain related party and third party customers. Its products include monocrystalline and multicrystalline silicon PV cells; PV modules; building-integrated photovoltaics products. In addition, the company provides PV system integration services, including designing, installing, and testing PV systems used in lighting for outdoor urban public facilities, as well as in farms, villages, and commercial buildings; and project development services. Its products are used to provide electric power for residential, commercial, industrial, and public utility applications. The company sells its products through value-added resellers, such as distributors and system integrators; and to end users, such as project developers primarily in Germany, Italy, the United States, China, South Korea, Spain, the Middle East, Australia, and Japan. Suntech Power Holdings Co., Ltd. is headquartered in Wuxi, the People’s Republic of China.

Economic Moat: Not Analysed Yet

Fundamentals: Moderate

  • Debt to Asset is 42%
  • ROA is 2.38%
  • ROE is 6.41%
  • ROIC is 2.86%
    We finally hit a stock on this list that is not cash rich and high debt and not surprisingly its not an internet company. Still the growth rate is low but it is still operating within a safe structure.

Dividend and Free Cashflow Yield: Poor

  • Does not payout dividend
  • Free Cashflow is positive for the last year. This is the only instance where cashflow have been positive. Likely this is a growth stock in its infancy.
  • Capex as a % of revenue is 6.23%

Valuation: Good

  • PE of 19 times
  • PTB of 1.1 times
  • PTS of 0.7 times
    Compare to many of the counters, Suntech is not expensive and its been in the red and then profitable. A price to sales ratio of 0.7 times indicate value there. And a PTB of 1.1 times certainly does not look expensive

Verdict: Will need to study this and Trina Solar in detail.

Trina Solar Ltd (TSL)

Trina Solar Limited, through its subsidiaries, designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. The company offers monocrystalline PV modules ranging from 165 watts to 240 watts in power output; and multicrystalline PV modules ranging from 215 watts to 240 watts in power output for use in residential, commercial, industrial, and other solar power generation systems. It also involves in the design and production of various PV modules, such as colored modules for architectural applications and larger sized modules for utility grid applications based on customers’ and end-users’ specifications.

Trina Solar Limited sells and markets its products primarily to distributors, wholesalers, power plant developers and operators, and PV system integrators. The company was founded in 1997 and is based in Changzhou, the People’s Republic of China.

Economic Moat: Not Analysed Yet

Fundamentals: Moderate

  • Debt to Asset is 37%
  • ROA is 11%
  • ROE is 24%
  • ROIC is 14%

Dividend and Free Cashflow Yield: Very Poor

    • Does not payout dividend
    • Free Cashflow is negative for the last year.
    • Capex as a % of revenue is 10%
        A classic case of a growth company that does not have a stable income stream yet.
      • PE of 9.1 times
      • PTB of 2.0 times
      • PTS of 1.5 times
        Compare to Suntech, It looks moderately cheap with a PE of 9 times. A price to sales ratio of 1.5 times indicate fair value there.
        Verdict: Will need to study this and Suntech in detail.
    • Valuation: Moderate

    Conclusion:

    As a  dividend stock none of these would qualify as one but if you want to spot those that will eventually give out good yields this might be the place.

    The internet stocks like Baidu, Changyou, Shanda and NetEase will likely not give out in the near future.

    Trina and Suntech on the other hand are still in its infancy.

    However, they do present a good avenue to invest into a growing domestic consumption theme.

    The key takeaway from this is to investigate the economic fundamentals for MMORPG and whether it is a model that is uniquely cash generating and lasting.

    Disclosure: Not Vested in any stocks listed.

    I run a free Singapore Dividend Stock Tracker available for everyone’s perusal. It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

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    Veteran Trader

    Sunday 24th of October 2010

    Your assessment of Baidu being expensive is non-sense. The current stock price is a steal. Not to mention you are leaving out the facts such as Baidu has 272,000 advertisers which is a 26% increase year over year, Baidu Market share has increased to 73% in China and rising, Baidu is expected a QTR 4 surge in profits of 94%, Baidu is gaining Market Share in America, Baidu Profits has increase 112% year over year, and finally investors can purchase 6 shares of Baidu vs 1 share of Google. I will say this, Google is Overhyped and Overpriced knowing they are losing Market Share in China at an alarming rate. Remember, China Economic growth is 9.6%(rapid growth) compared to America's 1-4% growth, therefore Baidu is positioned very well to cut deeply into Google's profits, revenue and market share.

    Drizzt

    Monday 25th of October 2010

    hi veteran trader, thanks for sharing your views. i would say that perhaps Baidu will eventually reach Google's size, hence my interest in it. I say its expensive in PE terms but without careful assessment factoring how similar these 2 giants are.

    However, i think Google is not a direct competitor for now. they are essentially in their own network. one in a world other than china and one predominantly china.

    I do not think there is strong correlation between economic growth and search engine profits and in fact the correlation to be low ( do correct me if i am wrong here).

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