Haitian International Holdings (SEHK:1882) Valuation After Asset Based Guohua Disposal Update

Haitian International Holdings (SEHK:1882) has outlined its use of an asset-based valuation for the planned disposal of loss-making subsidiary Guohua Machinery, providing investors with more detail on pricing and associated balance sheet risk.

See our latest analysis for Haitian International Holdings.

The disposal update comes after a period of steadier share price performance. Haitian International’s share price is HK$23.88, with a 30 day share price return of 10.56% and a 1 year total shareholder return of 17.36%. This suggests that recent momentum has improved compared with longer term returns, such as the 5 year total shareholder return, which reflects a 1.68% decline.

If this kind of balance sheet reshaping has your attention, it could be a good moment to broaden your watchlist and check out fast growing stocks with high insider ownership.

So with Haitian International trading at HK$23.88 and indications of a valuation gap from both assets and analyst targets, is the market overlooking an opportunity here or already baking in all the future growth?

Price-to-Earnings of 10.4x: Is it justified?

On a P/E of 10.4x at a HK$23.88 share price, Haitian International trades at a lower earnings multiple than both its industry and peer averages.

The P/E ratio tells you how much investors are currently paying for each unit of earnings and is a common yardstick for capital goods manufacturers. For Haitian International, this metric is 10.4x, which is below the Hong Kong Machinery industry average of 12.9x and the peer average of 15.6x. The company has reported earnings growth of 17.6% over the past year and 4.6% per year over the past 5 years.

This mix of relatively low P/E and positive earnings record suggests the market could be assigning a more cautious price to the company’s profit outlook than those comparison groups. At the same time, our estimate of a fair P/E multiple is 10x, which is slightly below the current 10.4x. There is also an argument that the valuation multiple could move closer to that level if sentiment cools.

Compared with the Machinery industry’s 12.9x and the peer group’s 15.6x, Haitian International’s 10.4x P/E stands at a clear discount, while only modestly above the 10x level our fair ratio work suggests the market could gravitate toward.

Explore the SWS fair ratio for Haitian International Holdings

Result: Price-to-Earnings of 10.4x (UNDERVALUED)

However, you still need to factor in risks such as the loss-making Guohua unit disposal and exposure to cyclical demand across autos, electronics and consumer goods.

Find out about the key risks to this Haitian International Holdings narrative.

Another View, our DCF fair value

Our DCF model points in a different direction to the 10.4x P/E discussion. At HK$23.88, Haitian International is trading 44.7% below our estimated fair value of HK$43.21, which implies a much larger valuation gap than the earnings multiple alone suggests. Which lens do you trust more right now?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Haitian International Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 875 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Haitian International Holdings Narrative

If you see the numbers differently or prefer to rely on your own work, you can build a fresh thesis in just a few minutes by starting with Do it your way.

A great starting point for your Haitian International Holdings research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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