Saturday, August 22, 2020

Company prospecting: Lonking 3999 (HK)

Has been a while since I done this, but Lonking is a company manucturing for the construction machinery industry. Again, I used price screener to screen stocks in HKex. I recommend FSM price screener.

Lonking is a company with almost an 10% yield. Following pictures are sourced from FSM.


Stable and generally growing top line and bottom line



 Balance sheet strength reasonable. FCF is good. PE is low, at 6. Enough for me to want to dig up on the Annual reports, to read the "story", and also read up more about the industry

Here is what i find:

1) It is a cyclical company, beyond the 5 years info from FSM, you can see earnings going up and down and there is a year in 2013 where they skip dividends. 

2) This is a company that has enough market share that allowed it to positively correlated to the construction machinery demand. When i read about the industry having a rebound from excess supply of machinery, in 2017, the revenue and profits also improved tremendously 

3) When I compare it with Caterpillar, I am quite surprised that they only focused on 4 products, as compared to the wide spectrum of construction machinery offered by Cat. When I search backwards, they use to focus on only 3 products for their growth, so this is a company that is very conservative. The market is still mainly in China. 

4) They have successfully read the downturn in 2013, and survive well to gain in the upturn in 2017. Quite impressive track records. 

5) After the 1st Quarter(due to Covid19), China demand for construction machinery has rebounded strongly, if the correlation is to hold, Lonking should be at minimal able to maintain earnings as last year. 

6) 2020-21 will be unlikely be peak of construction machinery demand, this is my own speculation. I believe China will fast track some infrastructure projects, and rebuild some cities to take into account 5G technology.

7) Shares price has also rebounded strongly from its low, and is in fact at 52 weeks high. 

Conclusion: An interesting company to add to radar and monitor. However, given the cyclicality of its business, this is a company that need to be agile, also since they only give final dividends in June-July, there is plenty of waiting. 

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