Continental Aerospace Technologies Holding Limited, an investment holding company, engages in the design, development, and production of general aviation aircraft piston engines and spare parts in the United States, Europe, and internationally. It also provides repair and maintenance services for aircraft engines, as well as provision of aftermarket services and supports for piston engines. The company was formerly known as AVIC International Holding (HK) Limited and changed its name to Continental Aerospace Technologies Holding Limited in June 2021. Continental Aerospace Technologies Holding Limited is headquartered in Admiralty, Hong Kong.

Hong Kong

Continental Aerospace Technologies Holding Limited

Industrials

The company pays dividends on rare occasions. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been strong and significantly above its peers. At the same time, the average five-year yield has been significantly lower, at very close to zero. 

0232.HK reported revenue of HKD 1 805mn in the last 12 months, down 1% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 0% from FY23 to HKD 0.00.

Over the past six months, the stock has consistently climbed, resulting in 18% total increase. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 15ppts and its growth accelerated by 2ppts in the past month. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months it exceeded the performance of this peer group by 11ppts and accelerated its growth by 5ppts in the recent month. Given the stock's valuation versus its peers, its total price movement is mildly favourable.

The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 10.2% in the last 12 months, a decline from 13.4% in FY22. 

Historically, 0232.HK has reported modest net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 3.1%, down from 8.9% in FY22. 

Another important profitability metric, return on assets (RoA), amounted to 1.4% in the last 12 months, a decrease from 1.4% in FY23. 

Continental Aerospace Technologies Holding Limited reported a return on equity (RoE) of 1.9% in the last 12 months, down from 1.9% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 1.6%, below the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.4 in the past several years. This ratio implies a weak shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

0232.HK has very poor trading liquidity. It will take several trading days for the average private investor to sell a common position under normal market conditions. Liquidity may be unstable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a very small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, negligible return on capital, and poor working capital management. We note strong debt servicing capacity, adequate interest coverage, and an favourable capital structure, among the positive credit factors. 

In highly turbulent market conditions, 0232.HK is moderately volatile. In other words, the stock will fall more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be moderate. 

In normal market circumstances, 0232.HK is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild. We would also like to highlight the mild intraday volatility of the instrument. 

Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. Specifically, the stock is fairly valued on P/E, undervalued on EV/EBITD. 

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Continental Aerospace Technologies Holding Limited

HK$ 0.13

4

Continental Aerospace Technologies Holding Limited

HK$ 0.13

4

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HK$ 0.13

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