China Yuchai International Limited

CYD Details

China Yuchai International Limited (NYSE: CYD) is engaged in the manufacture, assembly, and sale of a wide variety of engines for trucks, buses, passenger vehicles, construction equipment, marine and agriculture applications in China. It also produces diesel power generators, and offers maintenance and retrofitting services. CYS distributes its engines directly to auto Original Equipment Manufacturers (OEMs) and retailers. The company operates via its subsidiary, Guangxi Yuchai Machinery Company Limited (GYMCL). As of June 07, 2021, the company’s market capitalization stood at USD 646.79 million.

Strategic Partnership for EV Development: On June 02, 2021, the company formed a strategic partnership with Guangxi Shenlong Automobile Manufacturing (Sunlong), according to which the companies will develop new Electric Vehicles (EVs) based on CYD's four new energy powertrain systems. The companies also plan to leverage their supply chains and distribution networks to capture the Southeast Asian markets.

FY20 Results: The company reported an uptick of 14.24% in total revenue to RMB 20.58 billion in FY20 (ending December 31, 2020) compared to RMB 18.02 billion in FY19. CYD sold 430,320 units of engines in FY20, 14.40% higher than 376,148 units sold in FY19. Net income for FY20 was RMB 779.33 million, as compared to RMB 860.70 million reported in FY19.

CYD Unit Sales (Source: Investor Presentation, March 2021)

Key Risks: In FY20, the company generated 46.6% of its total revenue from its top 5 customers and 29.2% from the Dongfeng Group. Hence, the loss of even one of these customers could adversely affect CYD’s financial condition. Further, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CYD Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CYD has declined by 4.92% in the past 3 months and is currently close to the mid-point of the 52-week range of USD 13.01 to USD 20.49. The stock is currently trading close to its 200 DMA level. On the technical chart, the next support level is USD 13.85. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 18.62. Considering the correction in the stock price in the past 3 months, decent financials, significant growth potential, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 15.83, up by 0.51% as of June 07, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

• Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

Leju Holdings Limited

LEJU Details

Leju Holdings Limited (NYSE: LEJU) offers real estate e-commerce, online advertising, and online listing services in China. The company’s integrated online platform comprises various mobile applications along with local websites covering 391 cities, along with complementary offline services to facilitate residential property transactions and home renovation transactions. As of June 07, 2021, LEJU’s market capitalization stood at USD 281.01 million, with 136.41 million American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary share).

E-House Enterprises Acquires Controlling Stake in LEJU: On November 04, 2020, E-House (China) Enterprise Holdings Limited completed the acquisition of 76,401,247 ordinary shares of LEJU from Mr. Xin Zhou and SINA Corporation, representing a 56% stake in the company. As a result, LEJU is now a subsidiary of E-House Enterprises.

FY20 Results: The company reported an uptick of 3.89% in total revenue to USD 719.53 million in FY20 (ending December 31, 2020) compared to USD 692.61 million in FY19, primarily due to an 18.78% increase in revenue from online advertising, which was offset by a 48.35% decrease in listing revenue. Net income for FY20 was USD 21.00 million, as compared to USD 10.87 million reported in FY19.

Key Risks: A substantial portion of the company’s revenues are generated from a few major urban centers in China, including Beijing, Hainan, Guangzhou, and Ningbo. Hence, demand for LEJU’s services could decline significantly and its business may be adversely impacted if the real estate industry or online advertising in any of these centers is negatively impacted. Further, prolonged frictions between the US and China, and the recent passage of a bill in the US that could lead to the delisting of some Chinese companies from the country’s exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years) expose the stock to significant political and regulatory risks. Though a solution to the standoff could be negotiated in the medium term (before the earliest possible delistings begin in 2024), the companies that might not be able to fulfill the revised standards are at risk.

Outlook: The company stated that the total revenues for FY21 are estimated to range between USD 755.0 million and USD 790.0 million, representing an increase of 5% to 10%.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LEJU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: LEJU has decreased by 22.30% in the past 3 months and is currently at the lower end of the 52-week range of USD 1.72 to USD 6.96. The stock is currently trading below its 200 DMA level. On the technical chart, the next support level is USD 1.80. We have valued the stock using the Price/Sales-based relative valuation methodology and arrived at a target price of USD 2.43. Considering the correction in the stock price in the past 3 months, the increasing demand for online services, and the positive business outlook, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 2.09, up by 1.46% as of June 07, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.