by winston » Tue Jun 02, 2015 8:01 am
not vested
Five reasons to buy AviChina
Firstly, Asian defence in Asia is a hot topic. China’s defence budget is set to increase by 10% in 2015 so there could be a lot of opportunities for AviChina. Similarly, the US is currently preparing to shift 60% of its navy fleet to the Pacific by 2020.
Secondly, the market is speculating that AviChina’s parent company, AVIC, will inject assets into AviChina’s subsidiaries over the next couple of years.
Thirdly, AviChina is eyeing overseas acquisitions in the aviation parts & components markets. Since AviChina is trading at a steep multiple (PE of 39.6x FY16 according to Bloomberg) any acquisition is set to be earnings accretive.
Fourthly, the net asset value (NAV) of AviChina’s A-share listed subsidiaries is estimated to be HK$15.50, according to BoA Merrill-Lynch. It implies that the Hong Kong-listed stock is trading at about a 50% discount to its NAV.
Fifth, there is a dearth of Chinese defence-related stocks available to foreign investors, which could trigger a narrowing of the hefty discount to NAV.
As for the general Chinese market, I think the stupendous gains in Chinese stocks look a bit overdone in the short-term, warranting a pull back. I can’t estimate how extreme this will be or how long it will last for it but it could have a large impact on AviChina.
There’s also nothing to say that China’s defence spending plans won’t change in the future.
Regardless, for now at least, AviChina is definitely worth a look.
Source: The New World
It's all about "how much you made when you were right" & "how little you lost when you were wrong"