China Baoan Group Co., Ltd. – Value Analysis (SHENZHEN:9) : January 3, 2017

Capitalcube gives China Baoan Group Co., Ltd. a score of 44.

Our analysis is based on comparing China Baoan Group Co., Ltd. with the following peers – Shanghai Tianchen Co., Ltd. Class A, Ningbo United Group Co., Ltd. Class A, Leaguer Stock Co. Ltd. Class A, SICHUAN LANGUANG DEVELOPMENT CO LTD Class A and Shenzhen Wongtee International Enterprise Co., Ltd. Class B (600620-CN, 600051-CN, 000532-CN, 600466-CN and 200056-CN).

Investment Outlook

China Baoan Group Co., Ltd. has a fundamental score of 44 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • From a peer analysis perspective, relative outperformance last month is up from a median performance last year.
  • China Baoan Group Co., Ltd. Class A currently trades at a higher Price/Book ratio (3.06) than its peer median (2.49).
  • The market expects 000009-CN to grow faster than its peers and for the company to improve its current ROE.
  • 000009-CN has relatively low net profit margins while its asset efficiency is relatively high.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • 000009-CN‘s return on assets has improved from below median to about median among its peers over the last five years.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While 000009-CN‘s revenues growth has been around the peer median in recent years, the market seems to see faster growth ahead and gives its shares a higher than peer median P/E ratio.
  • The company’s capital investment program suggests it is under-investing in a business that is producing peer median returns.
  • 000009-CN‘s operating performance may not allow it to raise additional debt.

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Leverage & Liquidity

000009-CN would seem to have a hard time raising additional debt.

  • With debt at 28.68% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 34.40%), and relatively tight interest coverage level of 1.68x, 000009-CN would have a hard time raising much additional debt.
  • Of the 5 chosen peers for the company, only 4 of the stocks have an outstanding debt balance. Companies with no debt include 600620-CN.

000009-CN has maintained its relatively low liquidity profile from the recent year-end.

  • 000009-CN‘s interest coverage is upward trending and is now similar to its five-year average interest coverage of 1.32x.
  • The increase in its interest coverage to 1.68x from 1.07x (in 2015) was also accompanied by an increase in its peer median during this period to 3.01x from 1.85x.
  • Interest coverage fell 0.54 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • 000009-CN‘s debt-EV has increased 5.19 percentage points from last year’s low and is now close to its five-year average debt-EV.
  • Like the interest coverage trend, the increase in its debt-EV (to 28.68% from 23.49%) was also accompanied by an increase in its peer median during this period (to 34.40% from 19.64%).
  • Relative to peers, debt-EV fell 9.58 percentage points (and is now lower than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Shanghai Tianchen Co., Ltd. Class A 0 7.69 No interest exp 999
Ningbo United Group Co., Ltd. Class A 40.26 1.3 4.34 45.3
Leaguer Stock Co. Ltd. Class A 8.6 1.14 1.22 12.11
SICHUAN LANGUANG DEVELOPMENT CO LTD Class A 64.97 1.61 7.3 -4.92
Shenzhen Wongtee International Enterprise Co., Ltd. Class B 40.13 3.63 1.04 6.77
China Baoan Group Co., Ltd. Class A 28.68 1.47 1.68 10.97
Peer Median 34.4 1.54 3.01 11.54
Best In Class 8.6 7.69 No interest exp 999

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Company Profile

China Baoan Group Co., Ltd. engages in high-tech, real estate, and biopharmaceutical business. Its high-tech business include application of lithium ion secondary battery and nanomaterials; research and use of power battery control system, new energy vehicle drive system, military power supply industry, and unmanned aerial vehicles carbon fiber materials; gold mining and dressing; development, production, and management of andalusite; development of new energy and new material of mineral resources; manufacture of andalusite honeycomb ceramic and special steel metal new materials. The company was founded in July 1983 and is headquartered in Shenzhen, China.

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