Shanxi Lanhua Sci-Tech Venture Co.,Ltd produces and sells coal. It also offers coal chemicals, urea, dimethyl ether, and caprolactam. The company was founded in 1998 and is based in Jincheng, China.

China

Shanxi Lanhua Sci-Tech Venture Co.,Ltd

Basic Materials

The company pays dividends most of the time. It has paid dividends in almost every one of 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 barely been above zero and was substantially below that of its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. On average, the company pays dividends annually. 

600123.SS reported revenue of CNY 11 627mn in the last 12 months, down 1% from FY24. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 14% from FY24 to CNY 0.41. Market expects EPS to reach CNY 1.13 in FY25.

The stock has been falling steadily in the past six months, losing 25% in total. The stock has lagged its global peers from the same sector and industry (as shown above), underperforming then by 11ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 8.4% in the last 12 months, a decline from 34.6% in FY23. 

Historically, 600123.SS has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 5.3%, down from 14.8% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 2.0% in the last 12 months, a decrease from 6.4% in FY23. The market analysts predict that RoA will be 3.1% in FY24, again weaker than its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 2.9%, below the peers. The consensus estimate for FY24 for RoCE is 6.8%, again behind the peers. 

Shanxi Lanhua Sci-Tech Venture Co.,Ltd reported a return on equity (RoE) of 3.8% in the last 12 months, down from 12.2% in FY23. The market consensus projects an RoE of 5.6% in FY24, again behind its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.2 in the past several years. This ratio implies a strong shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

600123.SS boasts high trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually quite stable and remains extremely favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, excessive margin volatility, and poor working capital management.

In highly turbulent market conditions, 600123.SS is not overly volatile. In other words, the stock will fall less 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 low. 

In normal market circumstances, 600123.SS is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to average. We would also like to highlight the average intraday volatility of the instrument. 

From both historical and forecast perspectives, the stock is moderately underpriced compared to similar stocks. In particular, the stock is reasonably priced on P/E, 'cheap' on EV/EBITDA, trading at neutral levels on P/FCF. 

Shanxi Lanhua Sci-Tech Venture Co.,Ltd

CN¥ 6.85

5

Shanxi Lanhua Sci-Tech Venture Co.,Ltd

CN¥ 6.85

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

CN¥ 6.85

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