Lianhe Sowell International Group Ltd is a provider of machine vision products and solutions in China. The company focuses on inventing and integrating technologies that address critical manufacturing and distribution challenges, such as the precision and accuracy required in the manufacturing of electronic products.

China

Lianhe Sowell International Group Ltd Ordinary Shares

Technology

The company does not pay dividends at all, or it pays them sporadically. There have only been a few years with dividend payments in the past ten years. 

Over the last six months, the stock performance has varied, with an increase following a drop. 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 3ppts and its growth decelerated by 11ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is slightly unfavourable.

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 8.6 in the past several years. This ratio implies a excellent 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.

LHSW has poor trading liquidity. The average private investor can sell his common position in the stock in a single trading day. Liquidity is relatively stable and remains favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly. 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 moderate. We note resilient historical revenue growth, low margin volatility, strong debt servicing capacity, adequate interest coverage, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to bleak profitability, negligible return on capital, poor working capital management, and poor cash flow generation.

In highly turbulent market conditions, LHSW is exceptionally volatile. In other words, the stock will be among the worst-performers in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be critical. 

In normal market circumstances, LHSW is exceptionally volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change quite unpredictably. The stock's losses on its worst days (less than 1-5% of the time) will range from critical to immense. 

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. Specifically, the stock is overvalued on EV/EBITDA. 

Lianhe Sowell International Group Ltd Ordinary Shares

$ 2.08

2

Lianhe Sowell International Group Ltd Ordinary Shares

$ 2.08

2

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 2.08

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