Published January 20, 2009

Some S-chips have fat 'piggy banks': CIMB

Strong net cash positions let them ride out downturn

By EMILYN YAP

	Email this article
	Print article
	Feedback

SINGAPORE-listed Chinese stocks (S-chips) may seem riskier than local counters, but some have fat 'piggy banks' that should help them weather the financial crisis, says CIMB.

The research house picked out companies under its coverage with net cash exceeding 50 per cent of market capitalisation. 'We believe these candidates could potentially make good value stocks due to their ability to ride out this downturn without too many glitches and strike when the iron is hot should a bargain deal arise,' it said yesterday.

And the three companies topping CIMB's list are S-chips. China Sports International has a net cash to market capitalisation ratio of 1.36, China Sky Chemical Fibre's is 1.10 and Longcheer Holdings' is 1.08.

'With the collapse of Ferrochina and China Printing & Dyeing still fresh on investors' minds, S-chips are perceived to be riskier compared with local stocks,' said CIMB. 'Nonetheless, these are also the stocks that have potentially high returns to compensate for the risk taken.'

Other companies covered with net cash exceeding half of market capitalisation are China Hongxing Sports (0.95), China Zaino International (0.86), Sino-Environment Technology (0.74), Synear Food Holdings (0.7) and Valuetronics Holdings (0.56).

In a separate report last month, Kim Eng Research issued a 'buy' call on the Chinese sportswear sector, favouring China Zaino and China Hongxing.

'Both are among the top 20 S-chips by market capitalisation, below book values and are in strong net cash positions,' said analyst Pauline Lee. In addition, China Zaino's financials are sound and it is backed by positive free cash flows, she added.

But while valuations for China Hongxing and China Zaino are low, Ms Lee pointed out that 'key risks are a sharp economic slowdown in China and failure of the stimulus package'.