Shanghai Prime Machinery Co., Ltd. Class H : Perhaps not at a price to hold?

Shanghai Prime Machinery Co., Ltd. Class H relative valuation is now OVERVALUED. It was previously rated UNDERVALUED, and has a fundamental analysis score of 31.

Our analysis is based on comparing Shanghai Prime Machinery Co., Ltd. Class H with the following peers – Single Point Parts (Thailand) Public Co., Ltd., I.S.T. Ltd., Kuroda Precision Industries Ltd., Dongfang Electric Corporation Limited Class H, Shanghai Electric Group Co., Ltd. Class H and Xinjiang Goldwind Science & Technology Co., Ltd. Class H (SPPT-TH, 508807-IN, 7726-JP, 1072-HK, 2727-HK and 2208-HK).

Relative Valuation

Shanghai Prime Machinery Co., Ltd. Class H’s price of HKD 1.58 is greater than CapitalCube’s implied price of HKD 0.94. At this level, CapitalCube believes that Shanghai Prime Machinery Co., Ltd. Class H is overvalued. Over the last 52 week period, the stock has fluctuated between HKD 1.04 and HKD 1.74.

Relative Valuation

Company Overview

  • Relative underperformance over the last year is in contrast with the more recent outperformance.
  • Shanghai Prime Machinery Co., Ltd. Class H trades at a lower Price/Book multiple (0.29) than its peer median (0.41).
  • The market expects faster earnings growth from 2345-HK than from its peers and also a turnaround in its current ROE.
  • 2345-HK 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.
  • Over the last five years, 2345-HK‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • Compared with the peers chosen, 2345-HK has had faster revenue growth in prior years and a current PE ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company seems to be over-investing in a business with median returns.
  • 2345-HK seems too levered to raise additional debt.

Investment Outlook

Shanghai Prime Machinery Co., Ltd. Class H has a fundamental score of 31 and has a relative valuation of OVERVALUED.

Shanghai Prime Machinery Co., Ltd. Class H is on the bottom right quadrant of CapitalCube’s Value – Price Matrix. We therefore classify Shanghai Prime Machinery Co., Ltd. Class H as ‘Speculative’. In other words, not only is Shanghai Prime Machinery Co., Ltd. Class H’s Fundamental Analysis Score low at 31, but it is also potentially overvalued, in that it trades at a price higher than its CapitalCube Implied Price of 0.94.

Fundamentals Vs Relative Valuation

Drivers of Valuation

2345-HK has a Turnaround profile relative to its peers.

The market expects 2345-HK to grow faster than the median of its chosen peers (PE of 16.69 compared to peer median of 4.43) and to improve its current ROE of 1.74% which is below its peer median of 5.77%. Thus, the market seems to expect a turnaround in 2345-HK‘s current performance.

The company trades at a lower Price/Book multiple of 0.29 compared to its peer median of 0.41.

Valuation Drivers

2345-HK has moved to a Turnaround from a median ROE and PE profile at the prior year-end.

ROE % (On Common Equity)
Price To Earnings

Peer Analysis

A complete list of valuation metrics is available on the company page.

Company Profile

Shanghai Prime Machinery Co., Ltd. is engaged in the design, manufacture, and sale of machinery parts and its components. It operates through the following businesses: Turbine Blade, Bearing, Cutting Tool, Fastener, and Other. The Turbine Blade business involves in the production and sale of turbine blades for generators, thermal and nuclear power plants, and parts and components for aviation and aerospace. The Bearing business deals with the production and sale of bearings products which are used in the areas of railway transportation, vehicles, cargo equipment, electric motors, electrical appliances, aerospace, aviation, and navigation equipment. The Cutting Tool business offers production and sale of metal cutting tools which are used in auto, appliances, mould, aviation, and aerospace. The Fastener business includes production and sale of standard and specialized fasteners. The Other business specializes in the production and sale of carbolic products, and trading activities carried out by the company. The company was founded on September 30, 2005 and is headquartered in Shanghai, China.

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