Following our previous piece where we identified 9 Singapore cash rich companies that pay more than 5% dividends, we now look at 5 cash rich Hong Kong stocks that pay more than 7% dividends, providing for a higher level of compensation for time in the market.
This time, we identify 5 companies listed in Hong Kong with a net cash holding of at least 50% of market cap. We also make the selection more robust by using a variation of the Ben Graham Net cash method, with the formula being the sum of cash and short term investments minus total liabilities.
The reason short term investments are included into the formula is because some of these companies have such strong balance sheet with so much excess cash that they have deployed them into a variety of short term investments such as fixed deposits, bonds or even equities so as to obtain better returns for their idle pile.
Deducting for all liabilities instead of only debt also provides for additional margin of safety into the computation. The stocks we have identified are also profitable and trading at a relatively low P/E ratio.
5 cash rich Hong Kong stocks that pay > 7% dividend yield
| Company | Ticker | Market Cap (HK$’m) | Graham Net cash as a of market cap (%) | Dividend Yield (%) | P/E ratio (times) | 5 year capital return (%) | 5 year revenue growth (%) |
| China Shineway Phamarceutical Group Limited | 2877:HK | 4,472 | 80 | 16.5 | 6.8 | -22 | 10.1 |
| Asia Cement (China) Holdings Corporation | 743:HK | 7,427 | 72 | 11.1 | 4.4 | 103 | 13.2 |
| COSCO Shipping International (HK) Co., Ltd. | 517:HK | 3,342 | 147 | 8.7 | 11.6 | -29 | -9.4 |
| China BlueChemical Ltd | 3983:HK | 10,972 | 78 | 7.6 | 6.2 | 21 | 9.5 |
| Sinopec Kantons Holdings Ltd | 934:HK | 6,539 | 58 | 7.6 | 6.3 | -37 | -18.5 |
1. China Shineway Pharmaceutical Group Limited (2877:HK)
China Shineway Pharmaceutical Group Limited is a manufacturer of modern Traditional Chinese Medicine (TCM), which covers the whole value chain, including cultivation, scientific research, extraction, production, and marketing of Chinese medicine. Shineway Pharmaceutical mainly targets the rapidly growing markets for middle-aged and elderly medications, paediatrics medications, and antiviral medications and its sales network covers more than 30 provinces, municipalities and autonomous regions nationwide
The company is supported by China’s policies to promote the development of the TCM and healthcare Industry and many of its products are listed on China’s National Medical Insurance drug list which is the list of drugs covered by China’s national insurance scheme.
Products on this list (presented in the chart below) may also have its prices negotiated centrally by the medical authorities which would allow for prices to be more affordable as being on the list tends to mean that there would be a minimum volume purchased or used annually.
Shineway’s also set up an Internet hospital which received approval to commence business in 2021, marking a crucial step for the company. An internet hospital’s online medical treatment services mainly consist of four types of services: online consultation and treatment, online diagnosis, follow-up treatment and health management.
Shineway Pharmaceutical has a Graham net cash position of approximately 80% of market cap and has a dividend yield of 16.5%. It has a track record of maintaining its dividends over the years and as its FY21 net profit nearly doubled, it increased its dividends proportionately, maintaining its dividend payout ratio at about 81%.
2. Asia Cement (China) Holdings Corporation (743:HK)
Asia Cement (China) Holdings Corporation, a manufacturer of cement, concrete and related products is a subsidiary of Taiwan-based Far Eastern Group, one of the biggest conglomerates in Taiwan with 9 publicly listed companies under its group.
It has a well established presence in the central and downstream region of the Yangtze River and Sichuan region with most customers coming from these two regions. Its production capacity was more diversified with 21 factories located in Southwest China, South Central China, Northwest China and in East China.
Due to the complex domestic and international environment in the first half of 2022, China plans to bolster its growth for the rest of 2022 via fiscal stimulus spending on infrastructure, Asia Cement (China) is expected to have a stronger second half of 2022 with higher volume demand for Cement.
Asia Cement (China) has a Graham net cash position of approximately 72% of market cap and has a dividend yield of 11.1%. Based on its FY21 results, its dividend payout ratio is about 40%.
3. COSCO Shipping International (HK) Co., Ltd (517:HK)
COSCO Shipping International is a subsidiary of the shipping conglomerate of China COSCO Shipping Corporation Limited, one of the world’s largest container lines. This division of COSCO is principally engaged in the provision of integrated shipping services, comprising ship trading agency, marine insurance brokerage, supply of marine equipment and spare parts, production and sale of coatings as well as trading and supply of marine fuel and related products. Its businesses network cover China, Singapore, Japan, Germany and the United States.
COSCO Shipping International was able to maintain profit levels in 2020 despite the pandemic and saw further revenue and operating profit growth in 2021 on the backdrop of an increase business volume of the shipping services business as the recovery in the shipping industry took shape. However, net profit declined due to lower share of profits from its joint ventures and associates which were in the coating, marine fuel and general trading business.
With global shipping trade volume expected to continue grow in 2022 and congestion of ports likely to last for the rest of 2022, container shipping rates will likely remain elevated and these will serve to benefit COSCO Shipping International.
COSCO Shipping International has a Graham net cash position of approximately 147% of market cap and has a dividend yield of 8.7% which equates to a dividend payout ratio of about 101%.
4. China BlueChemical Ltd (3983:HK)
China BlueChem is a subsidiary of the State Owned Enterprise, China National Offshore Oil Corporation (“CNOOC”), which is the largest offshore oil & gas producer in China. China BlueChem mainly engages in the processing of natural gas, production and sales of chemical fertilisers and chemical products.
China BlueChem’s production facilities are located in Hainan, Hubei, Heilongjiang and the Inner Mongolia Autonomous Region. Its total annual production capacity amounts to 2,360,000 tonnes of urea, 1,000,000 tonnes of phosphate and compound fertilisers, 1,600,000 tonnes of methanol, and 60,000 tonnes of Polyoxymethylene.
It has recorded revenue and profit growth for the last 5 years, with 2021’s revenue increasing 29% and earnings per share doubling. This was due to the COVID-19 pandemic affecting the global industry supply chain, including the chemical fertiliser industry, causing prices to increase substantially, driven by low inventories in both the local and international markets. However, production cost of fertilisers also surged as a result of factors such as higher bulk material prices, increasing environmental cost and rising electricity tariff.
As global supply chains were impacted, there led to a general trend of increased stockpiling of grains globally so as to safeguard food security, which led to an upward trend in international grain prices. The Chinese government treats safeguarding of the supply of grain as a critical national strategy and agriculture is a key component of China’s 14th five year plan. Therefore, China BlueChem, plays an important role as a key supplier of fertilisers.
China BlueChem has a Graham net cash position of approximately 78% of market cap and has a dividend yield of 7.6%. Based on its FY21 results, its dividend payout ratio is about 49%.
5. Sinopec Kantons Holdings Ltd (934:HK)
Sinopec Kantons is a subsidiary of the State Owned Enterprise, China Petroleum & Chemical Corporation (“Sinopec”), which is the largest oil & petrochemical products producer in China. Sinopec Kantons is the petrochemical storage and logistics division of Sinopec.
The petrochemical assets comprise jetties, crude oil pipelines, storage and logistics assets such as ports terminals and LNG vessels, situated in China, Australia, Papua New Guinea, Belgium, Estonia and UAE.
In 2021, Sinopec Kanton’s operating profits were stable when compared to 2020 and higher when compared to 2019 as the storage market for oil in 2021 being a year of two halves, recording a stronger performance in 1H21, followed by a weaker performance in 2H21 as a result of changes in crude oil price trends and the effects of the supply chain from the COVID-19 related restrictions.
Sinopec Kanton recorded lower net profits in 2021 as compared to 2020 as it wrote down the value of its assets in Belgium and Estonia due to the prevailing macroeconomic conditions and uncertain geopolitical issues. Excluding this write down, overall net profit would have been stable compared to 2020.
In 2022, the company expects performance to remain robust , underpinned by storage demand as underlying commodity prices remain elevated.
Sinopec Kanton has a Graham net cash position of approximately 58% of market cap and has a dividend yield of 7.6%. Based on its FY21 results, its dividend payout ratio is about 47% (39% when excluding the writedown mentioned above).
Conclusion
Similar to the previous piece on 9 Singapore cash rich companies that pay more than 5% dividend, of the 5 stocks presented above with more than 7% dividend, only 2 out of 5 stocks saw a capital gain over a 5 year time frame. The commonality we noted for these 2 stocks were that both had good revenue growth over the last 5 years.
This demonstrates that merely looking at time in the market coupled with dividend yields may not be a profitable investment. However when a stock comes with a high dividend yield of at least 7% coupled with additional criteria such as a strong net cash position, profitability and a track record of revenue growth, the odds of a positive investment return increases.
