HF&G- OCTOBER 2021 - ISSUE 21- #FARCE26
COP26? Let's keep it at Farce26. A new pick this month to generate alpha for your portfolio in China's hated TCM sector.
Are you ready?
Are you really ready?
The following 14 days you will be inundated with horror stories from Glasgow’s COP26 conference. In this conference the US and Europe will outbid each other on unrealistic goals how soon the energy transition will happen. It will be the goal for most emerging markets to extract as much cash from European and American politicians as they can. Great promises of “climate action” will be made by anyone hoping to curry favor with Senior Citizen Joe and unelected EU key representative Von der Leyen.
Example #1 of unrealistic goals: Belgium just announced it is proposing to ban all new sales of petrol/diesel cars by 2027 and no more second hand cars with internal combustion engines by 2030! That’s like 6 to 9 years away. Given car development timelines and infrastructure challenges allow us to be highly skeptical of any of these targets.
Meanwhile key leaders from Brazil, Mexico, China and Russia will not attend COP26. That’s politicians representing about 2 billion people telling you: my time is better spend on something else than a spectacle hosting teenagers such as Sweden’s most famous export product: Greta! Supposedly, her youth has been stolen, but judging from her family pictures it doesn’t look too bad with Eames, and other designer chairs, at her family home. HF&G has visited dozens of emerging countries and seen much hardship among children across Latin America, Central America and Asia but Greta seems to have other issues than poverty, violence or hunger.
HF&G can already predict all the hyperbole at COP26 how we have “little time left” that it is already “5 past 12” and “Action” is needed immediately. More ridiculous targets will be launched how by 2025 or 2030 we should all ditch fossil fuels and be 100% on renewables. Students of history would be wise to go back in time and see how many times this has been repeated and literally NONE of the doomsday predictions have materialized.
A prime example HF&G posted before but it is simply too important to ignore: do yourself a favor and look at below postings and their recommendations
Bottom line: when you watch COP26 consider it a form of doomsday entertainment. Perhaps it is no coincidence COP26 starts on Halloween. #Farce26 more adequately describes this circus. Invest accordingly and look how Rex (our little petroleum company) has doubled in a short time. There’s a reason we have recommended it 3 times to our readers! Even after the impressive run it is still VERY cheap!
As usual we have been publicly sharing stock picks since February 2020. The track record is self explanatory. Clearly our multi baggers are massively outperforming our losers by a wide margin.
This month we are adding a Chinese TCM (Traditional Chinese Medicine) player to the selection. Consider TCM China’s version of homeopathy in the West. We frankly don’t think the business is special. It is pretty boring BUT…it has an incredible dividend track record. Since 2004 it has rewarded shareholders with interim, final and special dividends totaling almost 5.9 HKD/share! During this time it has accumulated another 6 HKD/share in net cash on the balance sheet.
Currently, the market is very negative on TCM players and China Shineway (2877 HK) is trading as if it is going out of business. 80% of its market cap is cash! The market cap is 780 million USD but the enterprise value is below 100 million USD. Importantly, in July this year the company said it would start to share more of its dividends with investors. As of 2022 the company will pay dividends quarterly. It is going to become like a pharma REIT. For 2021 the yield is 10% and by 2025 we expect the yield (vs current share price) to be over 20%.
Management has promised investors that the dividend from 2021 onwards will rise each year by at least 15% per year. It is very rare to see these sorts of commitments from HK listed companies. The story of China Shineway reminds us a lot of Oriental Watch which was a great performer for HF&G as the dividend story got better known by investors.
That’s it for this month. Stay safe from the COP26 disaster rhetoric and enjoy November. Cheers! If you want to know more about China Shineway or any others stocks in our selection, we are on Twitter @GreedyHuat and open to answer questions.