Amidst a backdrop of robust stimulus measures from China, the Hong Kong market has experienced a significant uplift, with the Hang Seng Index gaining 13%. This positive sentiment provides an opportune moment to explore small-cap stocks that may be undervalued and have seen insider buying activity. Identifying good stocks in this environment often involves looking for those with strong fundamentals and potential growth catalysts that align with broader economic trends.
Top 5 Undervalued Small Caps With Insider Buying In Hong Kong
Overview: China Lesso Group Holdings is a leading manufacturer and distributor of building materials and interior decoration products, with a focus on plastics and rubber, operating in the construction industry.
Operations: The company generates revenue primarily from the Plastics & Rubber segment, with a recent revenue figure of CN¥29.13 billion. The cost of goods sold (COGS) is CN¥21.55 billion, leading to a gross profit of CN¥7.59 billion and a gross profit margin of 26.04%. Operating expenses are reported at CN¥3.44 billion, which includes sales and marketing as well as general and administrative costs, impacting overall profitability. Net income for the latest period stands at CN¥1.92 billion with a net income margin of 6.58%.
PE: 6.3x
China Lesso Group Holdings, a smaller player in Hong Kong's market, has recently shown signs of insider confidence with 4 million shares purchased by Luen Hei Wong, valued at approximately CNY 10.05 million. However, the company's financial position is challenged by its reliance on external borrowing for funding. Despite this, earnings are projected to grow annually by 10.65%. Recent earnings for the first half of 2024 revealed a decline in sales and net income compared to the previous year.
Overview: Lee & Man Paper Manufacturing is engaged in the production and sale of packaging paper, tissue paper, and pulp, with a market capitalization of HK$11.68 billion.
Operations: The company generates revenue primarily from packaging paper and tissue paper, with packaging paper contributing the largest share. Over recent periods, the gross profit margin has shown variability, reaching a peak of 29.08% in December 2017 before declining to 12.49% by October 2024. Operating expenses include significant allocations for sales and marketing as well as general and administrative functions.
PE: 7.9x
Lee & Man Paper Manufacturing, a small player in the Hong Kong market, has shown insider confidence with Ho Chung Lee purchasing 483,000 shares valued at approximately HK$1.1 million, marking a significant increase in their holdings. Despite relying on higher-risk external borrowing for funding and having debt not fully covered by operating cash flow, the company reported strong earnings growth for the first half of 2024. Sales rose to HK$12.5 billion from HK$12.2 billion year-on-year, while net income more than doubled to HK$805 million. With earnings per share improving from HK$0.0715 to HK$0.1769 and an increased interim dividend declared at HKD 0.062 per share, Lee & Man demonstrates potential for future growth amid its financial challenges.
Overview: Gemdale Properties and Investment is involved in property development and property investment and management, with a market capitalization of approximately HK$8.16 billion.
Operations: The company's revenue primarily comes from its Property Development segment, contributing CN¥17.26 billion, and the Property Investment and Management segment with CN¥1.23 billion. The gross profit margin has shown fluctuations, most recently at 10.57% as of December 2023, following a period where it turned negative in early 2023. Operating expenses have consistently increased over time, reaching CN¥677.46 million by June 2024, impacting overall profitability alongside significant non-operating expenses.
PE: -2.2x
Gemdale Properties and Investment, a smaller player in the Hong Kong market, has recently seen insider confidence with Non-Executive Director Lian Huat Loh purchasing 10 million shares valued at CNY 2.6 million, suggesting belief in the company's potential despite current challenges. The company reported a net loss of CNY 2.18 billion for the first half of 2024, largely due to increased impairment losses on properties under development and joint ventures. Despite volatile share prices and reliance on external borrowing, Gemdale's contracted sales reached RMB 12.43 billion from January to August 2024, indicating operational activity amid financial hurdles.
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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.
Companies discussed in this article include SEHK:2128 SEHK:2314 and SEHK:535.
