Original Source: My Snowball
Rationale#
Recently, I plan to organize my investment portfolio and take this opportunity to systematically practice some of the knowledge I learned from books. I will write a series of articles on reading financial reports to analyze my selected stocks and holdings, as well as analyze their financial reports.
Learning is endless, and I am just a small mountaineer. If there are any errors in the article, I hope you can correct them. Thank you.
Welcome any form of non-commercial reprinting, please indicate the source, and for commercial reprinting, please contact me for authorization. Thank you.
Series Links:
Hong Kong and US Stock Financial Report Series 1 - SuperDividend® ETF (SDIV)
Hong Kong and US Stock Financial Report Series 2 - US Preferred Stock ETF (PGX)
Hong Kong and US Stock Financial Report Series 3 - Mizuho Financial Group (MFG)
Abstract#
This time I want to talk about a niche Hong Kong stock, Junsu Group (01412.HK). After observing and studying for a while, I found that this company has its unique value as a diversified investment target. Let's first take a look at the introduction of this company.
Junsu Group (01412.HK) is a paper product manufacturer and printing service provider with a history of over 30 years, headquartered in the New Territories of Hong Kong. It has factories in Dongguan, Guangdong and Heshan, Guangdong. The company's main product categories include board games, greeting cards, early childhood toys and supplies, packaging boxes, etc. In addition to providing a large number of wholesale OEM products to customers, Junsu Group has also established long-term partnerships with companies in the United States and Europe.
The above is some basic information. Next, I would like to talk about my personal understanding of the strengths and weaknesses of this company:
First, the company is a leader in the vertically segmented field: The company holds a 2.7% market share in the Chinese domestic board game and related product manufacturing market, ranking first in this field. It holds an 8.1% market share in the Chinese paper greeting card manufacturing market, ranking second in this field. This reflects the company's long-term competitive advantage in the industry.
Second, the company has also established long-term OEM partnerships with multiple board game customization companies in the United States and Europe, including well-known companies in this field such as BoardGamesMaker.com and makeplayingcards.com. This ensures and consolidates the company's main source of profit. Despite the impact of the global Covid pandemic in 2020, Junsu Group's business was not severely affected. In the upcoming annual report, we can also see that the net profit in 2022 H1 increased by 11.6% compared to 2021 H1.
Some of the disadvantages include the relatively low gross profit margin in this industry, only about 20-25%; the low technological barriers of the products, which can easily lead to a free competitive market. The company's main partners are in Europe and the Americas. In extreme market conditions, shipping disruptions and rising costs may erode the company's profits.
Next, let's analyze this company using the 2022 interim report as an example.
Annual & Semi-Annual Report#
Next, let's take a look at the financial report, starting with the income statement:
This is a table with mixed results. It can be seen that the gross profit margin of the company in the 2022 fiscal year increased by 20 basis points compared to the previous year, while the selling expenses actually decreased by 4 million HKD. The cost of financial borrowing also decreased compared to the previous year, reflecting the company's excellent use of leverage. EBITDA reached 10 Hong Kong cents, a significant growth compared to 6 Hong Kong cents last year. Considering that the profit margin last year was limited by the increase in shipping costs and reduced demand due to the Covid pandemic, this growth rate can be considered neutral preference.
On the other hand, the comprehensive income statement was affected by the depreciation of the Hong Kong dollar, resulting in the company's actual shareholder income not being better than last year. This can be considered an unavoidable loss. While waiting for the Hong Kong dollar exchange rate to return to the mean, I believe that the company can try to use currency derivatives to hedge against the risk of exchange rate decline and preserve more profits.
Next is the balance sheet:
Let's start with the assets. Basically, there is not much change in both non-current assets and current assets compared to the previous year. In the 2022 fiscal year outlook, the export situation and exchange rate direction are still uncertain, so the company did not implement any expansion plans. This is reasonable.
The liabilities are also similar, and the only thing worth noting is the category of derivative financial instruments. The report does not explicitly state what type of instruments were purchased in this category. I speculate that it may be related to the purchase of currency swap products (interest rate swaps). Interested readers can refer to relevant information and reports.
Overall, the changes in the assets and liabilities in the 2022 fiscal year are not significant, and there is no significant information worth noting.
Next, let's look at the cash flow statement:
The cash flow statement is the table I personally pay the most attention to because the data on this table is difficult to manipulate and represents the actual inflows and outflows of cash. From the table, we can see that the operating cash flow increased by 80% compared to the previous year. Considering that the operating cash flow last year may have been damaged, using the mid-value method to restore the original cash flow in 2021: 57797 / (31978 + (57797 - 31978) / 2) * 100 = 128%, conservatively estimating a 28% year-on-year growth, which is a relatively good growth.
Looking at the investment part, we can see that the company reduced its expenditure on fixed assets last year and obtained net cash inflows through financial derivatives. This confirms my previous judgment that the company may have purchased derivatives related to exchange rates and gained additional income during the process of exchange rate decline.
In terms of financing, the company increased some financing borrowings. It is understood that the company plans to spend 5,000k Hong Kong dollars to open a new factory in Vietnam in the 2022 fiscal year. This part of the borrowing may be used as targeted investment. The company's cash reserves further decreased but are still within a reasonable range.
Comparing the comprehensive income statement:
Although the company has been over-distributing dividends for the past two years, the retained earnings on the company's books are still abundant, indicating a very good corporate structure. The dividend payout ratio has also been carefully considered to maintain stability, reflecting the management's attitude towards future information and returning to shareholders.
Summary#
Through the analysis of Junsu Group's financial statements, we can roughly understand its strengths and weaknesses. The summary is as follows:
As a leader in the board game and greeting card market in the printing industry, Junsu Group's advantages include:
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Having stable and extensive downstream business partners
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The industry is mature, with stable upstream raw material prices and little impact from economic cycles
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Stable and abundant revenue and cash flow
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Management has an open business strategy and awareness of risk diversification
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Stable dividend distribution with significant growth potential
In summary, this stock has the potential to be an excellent value growth stock.
The weaknesses of Junsu Group include:
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As a printing company, Junsu Group's customers are mainly distributed in Europe and the Americas, and its export products are affected by fluctuations in shipping prices, tariff changes, and exchange rate fluctuations.
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As a heavy asset industry, the concentration of factories makes it vulnerable to potential geopolitical threats.
Junsu Group has actively responded to the above issues, including establishing an independent factory in Vietnam, one of the emerging markets, and using financial derivatives to hedge against exchange rate risks.
Looking ahead, Junsu Group, as a leader in the board game and greeting card market, is expected to experience a recovery in offline activities and consumption after the impact of the Covid pandemic. There is further room for growth in export orders.
【Special Risk Warning】
The content of this article is for the purpose of sharing knowledge only, for learning and communication purposes, and is not intended to provide any professional advice (including but not limited to financial, tax, legal, or accounting advice). It does not constitute any investment advice. I do not recommend, criticize, or imply any association with the mentioned targets in the article. Although the data and charts in the article have been carefully checked, errors may still exist. Please exercise caution as an investor.
【Disclaimer】
The market carries risks, and investment should be cautious. Please make rational decisions and act prudently. The author of this article does not assume any form of responsibility or joint liability for any losses suffered by you due to your reliance on the views or information in this article.