EcoGreen International Group Limited (HKG:2341), a HK$1.2b small-cap, is a chemicals company operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a highly optimistic growth of 49% in the upcoming year , and an enormous growth of 48% over the next couple of years. However this rate still came in below the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether EcoGreen International Group is lagging or leading in the industry.

View our latest analysis for EcoGreen International Group

What’s the catalyst for EcoGreen International Group’s sector growth?

The sector seems to be mature in terms of its industry life cycle, with highly competitive companies and inevitable consolidation. In the past year, the industry delivered growth in the twenties, beating the Hong Kong market growth of 15%. EcoGreen International Group is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 29% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 65% growth next year. This growth may make EcoGreen International Group a more expensive stock relative to its peers.

Is EcoGreen International Group and the sector relatively cheap?

chemicals companies are typically trading at a PE of 8.06x, in-line with the Hong Kong stock market PE of 10.87x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 9.4% on equities compared to the market’s 9.6%. On the stock-level, EcoGreen International Group is trading at a PE ratio of 5.17x, which is relatively in-line with the average chemicals stock. In terms of returns, EcoGreen International Group generated 10% in the past year, in-line with its industry average.

Next Steps:

EcoGreen International Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If EcoGreen International Group has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at EcoGreen International Group’s fundamentals in order to build a holistic investment thesis.