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China Oil Gangran Energy Group Holdings Limited (SEHK:8132), a HK$343.98M small-cap, operates in the electrical equipment industry, which often track the broad economic cycle. During growth, businesses have excess cash, and are comfortable buying ancillary equipement. However, when economic conditions are challenging, businesses may try to repair equipment instead. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 14.44% in the upcoming year , and a massive growth of 30.45% 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’ll take you through the sector growth expectations, and also determine whether China Oil Gangran Energy Group Holdings is a laggard or leader relative to its capital goods peers. See our latest analysis for China Oil Gangran Energy Group Holdings
What’s the catalyst for China Oil Gangran Energy Group Holdings’s sector growth?
The electrical equipment industry is relatively fragmented, with an exception of few dominant players with a large portion of sales. Operating structures involve high fixed costs, as well as fluctuating cost of raw materials used in manufacture of products, which impacts the companies’ earnings performance. Over the past year, the industry saw growth in the forties, beating the Hong Kong market growth of 11.08%. China Oil Gangran Energy Group Holdings lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means China Oil Gangran Energy Group Holdings may be trading cheaper than its peers.
Is China Oil Gangran Energy Group Holdings and the sector relatively cheap?
The electrical equipment products sector’s PE is currently hovering around 11.8x, in-line with the Hong Kong stock market PE of 13.17x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.43% on equities compared to the market’s 10.16%. Since China Oil Gangran Energy Group Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge China Oil Gangran Energy Group Holdings’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
China Oil Gangran Energy Group Holdings has been a electrical equipment industry laggard in the past year. If China Oil Gangran Energy Group Holdings has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its capital goods peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at China Oil Gangran Energy Group Holdings’s fundamentals in order to build a holistic investment thesis.