Unchartered territory – Tianjin Zhongxin Pharmaceutical Group Corp Ltd, Global Testing Corporation Limited & Zhongmin Baihui Retail Group Ltd

During the past few days, I have read up quite a bit. I stumbled upon 3 interesting companies:

  1. Tianjin Zhongxin Pharmaceutical Group Corp Ltd
  2. Global Testing Corporation Limited
  3. Zhongmin Baihui Retail Group Ltd

Maybe when I have more time in the future, I will read more about them and write some posts on them.

To cut a long story short. I find their financials decent (usually no debt, or high cash to debt level), but I have my reservations on each of them.


I consider Global Testing and Zhongmin Baihui growth and turnarounds companies.

All these 3 companies operate mainly outside Singapore. Tianjin Zhongxin & Zhongmin Baihui in China, while Global Testing Corporatio is Taiwan-based.

I like them for their growth, in fact their stock prices have risen considerably. However, like I say – there are imperfections in some ways about them. However, such is the nature of the fuzzy logic of growth, and if I have the chance, I would try to read up more about them, to reduce the risk here. Let me elaborate these risks which I deem more important than the growth aspect.

Below are the bugbears I feel for each company:

1) Tianjin Zhongxin Pharmaceutical Group Corp Ltd

  • The product. I am not familiar with their products (The business of Zhongxin covers a wide range of fields including Chinese patent medicines, Chinese medicinal materials, pharmaceutical raw materials and western medicines, bioengineering drugs and nutritious & health products, etc. with nearly 800 product varieties in 20-odd types of preparations being registered).
  • It is a Chinese state-owned enterprises (read here). There seem to be seismic shift in the strong government-sponsored safety net which these companies enjoyed in the past. As early as late-2013, China’s government had already made known its intentions that it would be allowing market forces more room to shape the fortunes of state-owned enterprises.
  • It is huge. Market Capitalization at USD1.08B. How much more can this company grow? 5 years EPS growth at only 6.77. Like Lynch, I prefer smaller fast growth firms.
  • Yes, I am wary of China companies (and their accounting practices. And also the employee welfare package for state own enterprises)  but I think that should not stop anyone from investing in good companies.
  • I do not know the business moat for this company as compared to other similar companies. Perhaps size / economic of scale?

2) Global Testing Corporation Limited

  • This company provides testing services, such as wafer sorting and final testing to the semiconductor industry, focusing on logic and mixed signal semiconductors used in consumer electronics and communication devices. Firstly, I like companies that provide testing services. Esp for highly competitive industries. The companies in competitive & regulated industry tend to be more willing to spend to get the correct and better tests. Remind me of Vicom. What bugs me, is that I know practically next to nothing about the semiconductor industry (might as well be rocket science to me). And to top it all up – it is Taiwan based.
  • The replacement or rental cost for these testing equipment (that becomes obsolete quickly – read here) is a major concern. Nevertheless, the depreciation amount is diminishing (read here).
  • It is a turnaround. In FY2011 and FY2012, the net income was negative. So it wasn’t a consistent good performer.
  • It ROE is low at 4.33%, but Qtrly Earnings Growth (yoy) is a staggering 543.20%. Hence the turnaround.
  • Free Cash flow over the years is erratic.
  • I do not know the business moat for this company as compared to other similar companies.

3) Zhongmin Baihui Retail Group Ltd

  • Stumbled upon this company while reading the June issue of The Edge newsletter. It owns, operates, and manages a chain of department stores in the People’s Republic of China. As of December 31, 2014, it operated 8 self-owned stores and 4 managed stores with a total aggregate gross floor area of approximately 2,055,000 square feet. It recently started paying dividend. And free cash flow has been consistently improving over the years. It has been expanding consistently and has managed to improve profit margin by making a store more efficient (will start implementing the process to the other stores).
  • The major bugbear here is the high P/E. P/E (ttm): 52.43 (In ft.com, the P/E (ttm) is 38.69). In any case, the trailing PEG (base one EPS growth rate of 21% and dividend yield of 1.36%), is way more than 1. However when I calculated the intrinsic value, the stock price is lower than the intrinsic value (even after I use a P/E of 25). 
  • Somehow I don’t like the narrative / outlook of retail (or even department stores) – moreover some stores in China which I am not familiar with. Kind of remind me of CEO Eddie Lampert and Sears (read here). In the age of online retailing, what is the distant growth potential of stores? Even Mr Eddie Lampert is trying to create an online presence for Sears (read here).
  • Yes as the middle class in China get more prosperous, the stores will prosper, but that is too macro for a bottom up investor like me. I do not know the business moat for this company as compared to other department stores.

“The person that turns over the most rocks wins the game.” Peter Lynch

Not sure these companies are gemstones or just pebbles. Well initial thoughts.

About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat. Check out my Facebook Page: https://www.facebook.com/apenquotes.tte.9?ref=bookmarks
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