312 Deep Value China Stocks
The Financial Times reported that,
There are now 252 Chinese groups trading in the US or Hong Kong that meet the definition of a “net-net” — companies with current assets minus total liabilities greater than their market value, according to S&P Capital IQ. This group includes deeply depressed stocks such as Tencent-backed DouYu, a profitable video game streaming platform with $880mn of net cash and a market cap of just $323mn.
I was interested in finding a list of stocks that met the net net criterion. Net net is an approach by Benjamin Graham where the liquidation value of a company is higher than its current market value, even after a 33% discount as a margin of safety. Essentially, these companies are worth more in liquidation than as a going concern, and sometimes such stocks are undervalued due to market biases. However, some of these net net stocks may be rightly priced due to underlying issues they face.
To identify higher quality net net stocks, I used an additional indicator called the Piotroski F-Score. A score of 7 or above indicates improved financials and some level of quality in the company.
I conducted a screen for Chinese stocks listed in the US and Hong Kong and found a total of 312 stocks that passed the net net criterion, exceeding the 252 Chinese stocks identified by Financial Times. I have compiled the complete list for download at the end of this article.
Applying the minimum Piotroski F-Score of 7 to the list, I narrowed it down to 15 stocks. Below is a brief description of these 15 stocks.
#1 Douyu (NASDAQ:DOYU)
Douyu is an online live streaming platform that enables users to both broadcast and view live video content. The platform has a primary focus on gaming and eSports, providing gamers with the ability to stream their gameplay and engage with their audience in real-time. Users can watch these live streams, participate in chat discussions with fellow viewers, and show support to their favorite streamers through virtual gifts or donations. In essence, Douyu serves as a virtual entertainment hub, offering the opportunity to watch others play video games and connect with the broader gaming community.
Current Assets = $1,017m
Total Liabilities = $228m
Net Net (after 33% discount) = $527m
Market Cap = $361m
#2 Emperor Watch & Jewellery (SEHK:887)
Emperor Watch & Jewellery retails luxury watches and jewelry. They offer a wide range of high-end timepieces and exquisite jewelry pieces crafted from precious metals and gemstones.
Current Assets = $449m
Total Liabilities = $69m
Net Net (after 33% discount) = $254m
Market Cap = $147m
#3 Ganglong China Property (SEHK:6968)
Ganglong China Property is a real estate developer in the Yangtze River Delta Region focusing on residential use mixed with accompanying ancillary facilities, such as retail units, car parks and ancillary areas.
Current Assets = $6,446m
Total Liabilities = $5,131m
Net Net (after 33% discount) = $877m
Market Cap = $73m