Kin Yat Holdings (0638.HK) - Cheap and Positioned for a Rise

Bottom line up front: Kin Yat Holdings (0638.HK) is a stock selling at multi-year lows with a large discount to tangible book value, growing tangible book value per share, and high insider ownership.

I like to keep it simple when it comes to buying stocks. I want stocks that can be easily identified as being well-positioned for a large rise. That includes the following characteristics:

• Cheap on a net tangible asset basis (earnings is too noisy)
• An established business and stock price history (at least 10 years)
• Has a "good" chart (basically, past pricing history shows that it can have a large rise if given the chance)
• Low share turnover
• No major share dilution
• Small market cap (less than 50M USD)
• Low public float
• High insider ownership

0638.HK checks all of the marks for what I'm looking for.

Market cap: 285.3M HKD (36.5M USD)

Share price: 0.65 HKD (0.083 USD)

Shares outstanding: 438.96M

Shares in public float: 137.77M

1-month share turnover %: 0.70%

Tangible Book Value per share: 3.57 HKD

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Company Description

Kin Yat Holdings Limited, an investment holding company, engages in the design, manufacture, sale, and trading of electrical and electronic products, motor drives, encoder films, and other products. The company operates through Electrical and Electronic Products, Motors, and Real Estate Development segments. It designs, develops, manufactures, sells artificial intelligence robotics products, IoT and smart home products, electronic entertainment products, and small home appliances; trades in toys; sources materials; and holds properties. The company also develops residential and commercial property projects located at Dushan Economic Development Zone. It serves in the United States, Europe, Asia, and internationally. Kin Yat Holdings Limited was founded in 1981 and is headquartered in San Po Kong, Hong Kong.

Generally, I don't particularly care what a company's business is, as long as it's viable. The Company's been around since 1981, so that's good enough.

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Price History

This is generally what I like to see, a series of large rises and falls over a couple of decades.

The stock had a rise of over 200% in early 2021 on high volume and has been on a downtrend ever since. Volume has dried up. Although I'd usually prefer a stock trade sideways for a while, I don't mind buying when it's in the low range of the chart like this.

Total Share Outstanding

There has been a very modest increase in the number of shares outstanding over the past decade, so no major share dilution.

Net Debt

The trend for net debt over the past 3 years is downward, which is a good sign that the Company won't be facing solvency issues soon.

Tangible Book Value / Share

The trend for tangible book value per share is upward, which is a good indicator that the Company's business is not rapidly deteriorating.

Balance Sheet

After subtracting out intangibles, deferred taxes, and all liabilities, we get a tangible book value of 1.57B HKD, which works out to a P/TBV of  0.18. On an NCAV basis, it's selling for around 1x NCAV.

Insider Ownership

The Founder/Chaiman/CEO and his spouse have an interest in 64.52% of the shares outstanding. Although, it's more like they have ownership of around 46%, since they don't have full ownership of the corporate interests. Insiders own about 68.5% of the shares outstanding, so percentage of shares in the public float works out to around 31%.

Risks

• The Company does have operations in China, which a lot of people apparently think is a risk
• The debt trend may reverse and the Company faces solvency issues

Summary

0638.HK is a classic deep value stock that may work as a candidate for a basket portfolio. The price chart shows that it's currently in a low range, where several markups have occurred in the past.

Disclosure: Long 0638.HK