This article was first published by Citywire Wealth Manager on 16 February 2017
• Lite-0n Technology Corp: Giving you the dual-camera you never knew you wanted
Lite-On manufactures power supplies, components for consumer electronics, and optoelectronics. The first of these provides a stable cash cow for the company, but we particularly like the higher-growth camera modules area of the business – and specifically its increased provision of dual cameras in mobile phones. Lite-On is well placed, through scale and efficiency, to gain a large market share here for the Android phone market, which should be a big growth area over the next couple of years. They will also benefit from exposure to the auto-industry’s increased use of light-emitting diodes, and greater need for electronics components.
Lite-On’s larger sales should improve margins, as will better product mix, and the company looks attractive at 12.4x forward price/earnings, with 12.5% return on equity and 4.5% dividend yield.
• Minth: Driving growth
Established in 1992, Minth is a Chinese company which designs, manufactures and sells auto parts. The majority of its production, 85%, and demand, 60%, is in China, although it has an international presence including production in the US and Germany. Its products are relatively simple, with some structural body parts, but also decorative parts and roof racks. Minth’s diverse customer base dominates 80% of the global auto market share.
Expectations for strong growth derive from the increasing value content per car and from new products such as auto camera modules, lightweight aluminium products, and parts for electric vehicles. With net cash of Rmb1.8bn; valuations are attractive at 12.5x 2017 price/earnings, and a 2.2% dividend yield growing annually at 15%.
• China Machinery: A ‘One Belt One Road’ beneficiary
China Machinery Engineering Corporation (CMEC) focuses on international engineering, procurement and construction contracts with a particular expertise in the power sector. Infrastructure investment in developing countries is a key driver of CMEC’s earnings. CMEC derives about 90% of its revenues from overseas and will benefit from the Chinese government’s ‘One Belt One Road’ program and any weakening in the renminbi. CMEC has a strong balance sheet, high free cash flow and an order backlog of 2.5 years. It trades at 9x forward price/earnings with high single digit earnings growth and has a net dividend yield of 4.1%.
• Challenger: Ageing Aussies
Challenger is the market leader in the Australian annuities market with more than 90% share. The Australian retirement market is expected to grow strongly as the population ages. Annuities are underpenetrated representing only 4% of retirement assets, and recently the government has recommended a higher allocation. Challenger trades at 15.5x forward price/earnings with a 3% dividend yield and is expected to grow earnings by more than 10% for the next few years.
• RHT Trust: Improving India
RHT is a Singapore based business trust which owns 18 healthcare assets in India operated by Fortis Healthcare. RHT earns a base fee which grows at 3% pa and a variable fee of 7.5% of hospital revenues. There is a strong structural demand for healthcare services in India due to population growth, rising disposable income, urbanisation, increasing lifestyle diseases and shortage of healthcare facilities. RHT has ample scope to increase current capacity without incurring significant capex through brownfield expansion. RHT trades at a 15x forward price/earnings with more than 10% earnings growth and a dividend yield of 6%.
Past performance is not a guide to future performance. All market and security data sourced from Bloomberg.
Any opinions expressed should not be construed as advice for investment in any [product or] security mentioned or which may form the underlying content of any topics discussed. Any individual who chooses to invest in any securities should do so with caution