Chinese petroleum distributor operating as wholesaler between refineries and retail petrol stations in China. Also plans to move into direct ownership of retail petrol stations.
Valuation Metrics
- Cash of $166 million with little or no debt, compared to $55 million market cap.
- PE ratio of 1.5 on underlying earnings (1 on reported earnings).
- These metrics are despite a history of consistent profits and positive cashflows.
- Growth prospects are positive.
The deep value can be explained by failure to introduce a dividend to date, general mistrust of Chinese listed companies, association with energy sector, obscurity and illiquidity.
As a petroleum distributor, the company is less affected by oil prices than upstream players. Illiquidity is due to directors holding a majority stake. Significant director ownership is a positive and illiquidity does not concern me as private investors with a long term investment philosophy.
Key Risks
- The Chinese ownership structure is somewhat opaque.
- Primary clients are State owned refineries and retail petrol stations.
- Success of expansion into privately owned retail petrol stations is uncertain, as is the case with any business expansion.
PEZ Price at posting:
6.0¢ Sentiment: Buy Disclosure: Held