Profile Chinese petroleum distributor operating as wholesaler...

Profile

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.