Shanghai Challenge Textile Co., Ltd. – Value Analysis (SHENZHEN:2486) : January 3, 2017

Capitalcube gives Shanghai Challenge Textile Co., Ltd. a score of 9.

Our analysis is based on comparing Shanghai Challenge Textile Co., Ltd. with the following peers – JOEONE Co., Ltd. Class A, Modern Avenue Group Co., Ltd. Class A, Jihua Group Corporation Limited Class A and Meinian Onehealth Healthcare Holdings Co Ltd Class A (601566-CN, 002656-CN, 601718-CN and 002044-CN).

Investment Outlook

Shanghai Challenge Textile Co., Ltd. has a fundamental score of 9 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • Shanghai Challenge Textile Company Limited Class A currently trades at a higher Price/Book ratio (9.65) than its peer median (4.22).
  • 002486-CN‘s earnings and EBITDA are both negative which suggest that P/E or Price/EBITDA are not meaningful to make this analysis between operating advantage (ROE) and growth expectations (as suggested by P/E or P/EBITDA).
  • 002486-CN has relatively low profit margins and median asset efficiency.
  • Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
  • 002486-CN‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • 002486-CN‘s earnings and EBITDA are both negative which suggest that P/E or Price/EBITDA are not meaningful for an analysis between historical growth (using annualized three-year revenue growth) and investor growth expectations (as suggested by P/E or Price/EBITDA) .
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • 002486-CN‘s operating performance may not allow it to raise additional debt.

Access our research and ratings on Shanghai Challenge Textile Co., Ltd.

Leverage & Liquidity

002486-CN would seem to have a hard time raising additional debt.

  • With debt at a relatively low 11.01% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 11.01%), and relatively tight interest coverage level of -2.53x, 002486-CN would have a hard time raising much additional debt. Thus, the company is classified as having Limited Flexibility when it comes to raising more debt.
  • All 4 peers for the company have an outstanding debt balance.

002486-CN has maintained its Constrained profile from the recent year-end.

  • 002486-CN‘s interest coverage is its lowest relative to the last five years and compares to a high of 18.25x in 2013.
  • Compared to 2015, interest coverage has remained relatively stable for both the company (-2.53x) and the peer median (0.47x).
  • 002486-CN‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 7.44%.
  • The increase in its debt-EV to 11.01% from 9.54% (in 2015) was also accompanied by an increase in its peer median during this period to 11.01% from 9.54%.

Access the detailed analysis for Shanghai Challenge Textile Co., Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
JOEONE Co., Ltd. Class A 4.15 3.71 31.6 192.23
Modern Avenue Group Co., Ltd. Class A 14.12 2.25 0.13 -2.47
Jihua Group Corporation Limited Class A 17.82 2.33 0.47 16.06
Meinian Onehealth Healthcare Holdings Co Ltd Class A 3.3 1.15 12.96 40.23
Shanghai Challenge Textile Company Limited Class A 11.01 1.44 -2.53 -14.71
Peer Median 11.01 2.25 0.47 16.06
Best In Class 3.3 3.71 31.6 192.23

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Company Profile

Shanghai Challenge Textile Co., Ltd. engages in the research and development, manufacture and sale of functional fabrics for outdoor apparels. It is categorized into fleece, knitted wool, and functional fabric. The company was founded on January 20, 2001 and is headquartered in Shanghai, China.

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