Independent Insight Provider

Hao Wang, CFA

Event-Driven

Huabao International Holdings / Event-Driven

Huabao International, the largest flavor and fragrance supplier for tobacco industry in China, has been enjoying growing revenue and high profit margin (pretax margin) for the past 5 years. Recent China stock market correction and company&rsquo;s announcement of cancelling the year-end dividend (though it has already paid 31.7 cents including special dividend for mid-term 2015, more than total dividend of 29.1 cents paid in full year 2014) hammered down the share price from 9.3HKD to 2.9HKD, while nothing has changed fundamentally. I think this 8% yield stock is selling at bargain price at less than 6X P/E, and 1.3X P/B with over 20% ROE and net cash position, not to mention its next growth drivers of reconstituted tobacco leave and e-cigarette, and plans to list part of business in China mainland to better capitalize its market value. (For timing of entry, price could become more favorable with China's market consolidation in the next 2-3 months after recent reaction high)&nbsp;&nbsp;

Huabao International, the largest flavor and fragrance supplier for tobacco industry in China, has been enjoying growing revenue and high profit margin (pretax margin) for the past 5 years. Recent China stock market correction and company&rsquo;s announcement of cancelling the year-end dividend (though it has already paid 31.7 cents including special dividend for mid-term 2015, more than total dividend of 29.1 cents paid in full year 2014) hammered down the share price from 9.3HKD to 2.9HKD, while nothing has changed fundamentally. I think this 8% yield stock is selling at bargain price at less than 6X P/E, and 1.3X P/B with over 20% ROE and net cash position, not to mention its next growth drivers of reconstituted tobacco leave and e-cigarette, and plans to list part of business in China mainland to better capitalize its market value. (For timing of entry, price could become more favorable with China's market consolidation in the next 2-3 months after recent reaction high)&nbsp;&nbsp;

What is safe to buy in China now? Huabao International