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China Yuchai- Value time again: High Cash Stock Review.

China Yuchai International Limited (CYD) – High Cash Stock Review
A diesel engine manufacturing company.

Per share values on 5-23-2011:

Market value

$ 20.70

Stocks

$   1.09

Cash

$ 17.30

- Debt

$   6.28

Equity value

$ 8.59

 

Introduction:

Upon our current review we are adding to our China Yuchai International positions.  We first wrote our High Cash Stock Review of China Yuchai International Limited (CYD) and the stock performance has been robust since then.  The original review can be found here.

Great Balance Sheet:

China Yuchai International has $17.30 of cash per share minus their debt of $6.28 per share giving them a net cash of $11.02 per share.  They also have $1.09 in two investments, HL Global Enterprises Limited and Thakral Corporation Ltd.  Taking the cash and stock out it equates to the remaining enterprise having only  just a $8.59 per share value.  They earned a very solid $0.94 a share in the Quarter ending March 31 2011, and in the last four quarters their profit totaled $4.41 per share.  The profit from equity operations for the last 4 quarters works out to be 51%, a very high return on the enterprise.  China Yuchai International can still be considered greatly undervalued and we are currently adding to this position, as we still believe that the high levels of cash are camouflaging the true earning power of the company.

The Business Execution:

China Yuchai International is facing a slowdown in Automotive diesel engine production, which is possibly more the result of an oversupply or inventory correction.   With overall sales down year over year, China Yuchai still delivered a very strong quarter and is easily showing growing earnings power as underlying margins expanded even with lower revenues.

Low Value:

The Auto Truck  peer groups trade about 1.51 times sales.  China Yuchai International had about  2.4 billion in sales last year, which works out to be about  $63 per share in revenues.  If China Yuchai International received a similar metric as their peer group, of 1.5 times the 2.4 billion in sales would alone imply a market value of about $94.73 per share.

Ratios China Yuchai International Industry S&P 500

 

Price to Enterprise Sales 0.38 1.51 n/a

The $4.41 per share earned during the last 12 months gives them an enterprise PE of 2.
The current peer groups trade about 17.70 times enterprise P/E.  Applying this metric, would give China Yuchai International a value of about $ 78.05 per share plus $12.11 of  cash and investment thus creating a market value of $90.16.

Ratios China Yuchai International Industry S&P 500

 

P/E to enterprise 2 17.70 17.70

Conclusion:

We believe that China Yuchai International is currently trading at about a 80% discount to the Auto and Truck peers even though the underlying stock has appreciated significantly since we included them in our High Cash Stock Review.

The core business appears to be very well run with a solidly branded product that has limited direct competition, especially on the high end.  They have proven with positive results that they have well over $ 4.00 of earning power, with the peak possibly being closer to $6.00.  It appears that based on either the operational profits or the sales of their industry peers, the enterprise value of the China Yuchai International is trading at about an 80% discount.  Few of their peer group, if any, over the time since we first recommended them have delivered greater profit growth.  We believe China Yuchai International still presents an extremely strong value and should trade significantly higher.

Disclosure:  Durig Capital and its clients currently do have positions in China Yuchai International (CYD).

Disclosure

Durig Capital owns China Yuchai International for itself, clients and related client accounts.

To know more about this Investment call our specialist at 971-327-8847

 Durig Capital LLC BBB® Accredited Business SealBBB® Accredited A+ Rating

On a scale of A+ to F

Reason for Durig A+ Rating

 

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