On January 1st 2021, Mechelany Advisors launched its CHINA DEEP VALUE PORTFOLIO, a diversified portfolio of 10 Chinese mammoth companies trading at extremely low levels of valuation by any metrics.
See Mechelany Advisors’ CHINA DEEP VALUE PORTFOLIO published on 01 Jan 2021
The CHINA DEEP VALUE PORTFOLIO was destined to provide investors with a high and stable dividend yield of 8 % per annum with a diversified exposure to Chinese and world leading companies in their sectors trading at unprecedented valuation metrics.
Since January 1st, the China Deep Value has risen by 14.48 %,
outperforming each and every Chinese and Asian equity indexes.
9 out of 10 of our investments have delivered positive performances ranging from 0.76 % to 35 % and only one is down 6 % since launch.
The 14.48 % is entirely due to capital gains as none of the stocks have paid their dividends yet.
EXANE Mechelany Advisors CHINA DEEP VALUE Index Certificate
On February 11, 2021, EXANE, the French bank launched a Swiss Certificate enabling investors to invest in the portfolio with a leverage go 1 to 1, giving a dividend yield of circa 14 % per annum and twice the capital gains that we expect in the future.
There again, since launch on February 2021, The Certificates have yielded significant value to investors rising respectively by +13.70 % and +9,5 % in three months,
Our CHINA DEEP VALUE PORTFOLIO is still extremely cheap and we expect significant performances and outperformance ahead, in addition to the high dividends
As you will see from the enclosed chats and tables, not only the companies are extremely cheap but they trade at levels last seen decades ago while their sales and profits have been growing considerably since then ( red Lines).
Their dividends are growing and their valuation metrics have never been so low.
All but one of these companies are Chinese State owned companies, something that guarantees their profitability, and the stability of their dividends.
Some of the are under US sanctions, something that may evolve in the near future as the talks between China and the US are resuming.
Finally, they are listed in Hong Kong and all trade at deep discounts when compared to their domestic equivalents.
China Communication Construction 1800 HK
CCCC and CRCC are the world’s largest construction companies and build infrastructure and real estate in China and over the world. to us, they are actually the world’s cheapest companies available.
At 2.67x next year earnings and 10.05 % next year’s dividend yield, while trading at 23 % of its book value
China Railways Construction Company 1186 HK
CRCC trades at 2.38x next year’s earnings, 30 % of its book value, offers a 6,6 % next year dividend yield and boasts an amazing 24.6 % earnings yield.
China Power International 2380 HK
China Power trades at 7.51 x next year earnings, 47 % of its book value and offers a 9.54 % next year dividend yield. Its earnings per shares jumped by 80 % in 2020 and are expected to grow at double digit clips in the years to come.
China Merchants Port Holdings 144 HK
CMPH is the world’s largest port operator with operations in tens of countries around the world. Its growth has been spectacular over the years and the resumption of world trade and strong global economic growth makes it a perfect play on the global recovery.
The stock has already gained 35 % since we added it to our portfolio, butas thee chart below shows, there is considerable mileage left on the way up now that the stock has found a clear bottom.
The stock trades at 9.9 x next years earning, 53 % of book value and offers a 6.6 % next year’s dividend yield.
BAIC MOTORS 1958 HK
China’s fourth largest automobile company is also the strategic partner of Daimler Benz in China and has made significant inroads into the Electric Vehicle space.
The disconnect between the share price of the company and its operational performance is staggering.
The company trades on 6x next year earnings, 39 % of its book value and offers a 7.46 % next year’s dividend yield.
China Telecom 728 HK
China telecom trades at 7.,5 x next year’s earnings, 46 % of books value and offers a 7.09 % next year’s dividend yield.
China Mobile 941 HK
The world’s largest Mobile telecommunication operator and leader in 5G deployment is trading at levels not seen since 2006, while its business has grown fourfold since then.
China Mobile trades on 7.5 next year earnings 72 % of book value and 8.67 % next years expected dividend yield.
Agricultural Bank of China 1288 HK
The world’s second largest bank is a steal at current valuations and, like all Chinese banks a major beneficiary of the Chinese economy’s recovery. There again, the disconnect between the behaviour of the stock and the growth of the business is staggering
AGBank is trading on 4x next year’s earnings, 47 % of boon value with a 8.01 % next year’s dividend yield. It boasts a 19.7 % earnings yield and the Chinese economic recovery will actually ease the Non performing Loan provisioning efforts, feed9ng directly into the bottom line.
Bank of Communication 3328 HK
Bank of Communication trades at 4x next years’ earnings, 42 % of its book value and offers a 9.45 % next year’s dividend yield.
China Minsheng Bank 1988 HK
The only fully private company of our portfolio and largest privately -owned bank in China chose to provision all the 2020 negative results in that year. This explains its underperformance since the beginning of the year but will also provide the trigger for a massive recovery next year.
Minsheng trades on a ridiculous 3.6x earnings next year, 28 % of book value and will pay a 7.7 % dividend yield next year. Its 21 % earnings yield will be boosted by lower provision rates in 2021 and 2022.
There is no cheaper portfolio available in the world, particularly when operating in then world’s largest consumer market and fastest growing economy.
These companies represent an aggregate of 1.5 Trillion of Sales annually and their backing by the Chinese state makes them extremely safe and stable.
Where do you get 8% or 14 % annual income today ?
Actually this portfolio represents the best hedge against future inflation that exists… Companies that benefit from inflation and are paying high and growing dividends ..
It is not too late to invest in the certificate.
In fact, the 15 % performance since the beginning of the year is juts the beginning of a massive secular rally that will see their valuation expand significantly in the next few years, yielding massive capital gains on top of the regular flow of dividends.
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