Portfolio Review #4 - directly held equities (part 2)

With directly held equities I have standard weighting or amount which I aim to invest in each company. An amount sufficiently large for the investment to be meaningful but not so large as to incur significant company specific risk. The following 21 companies are the Group B list, currently valued at between 0.8x and 2.0x the standard weighting.

In no particular order:

Jiangsu Express (HK:177): one of four PRC toll road operators in the portfolio. I like these companies for their yield (4.2%) and view them as a less volatile way to gain exposure to the growth of private car ownership in the PRC;

Fairwood Holdings (HK:52): an operator of low cost restaurants in Hong Kong. Sells at considerable cheaper metrics than its much larger peer (Cafe de Coral) and offers a 4.2% dividend yield;

Hang Seng Bank (HK:11): a partly owned subsidiary of HSBC focused on operations in Hong Kong. It offers a very nice quarterly dividend (4% yield( as well as exposure to the growing offshore RMB business in Hong Kong;

Anhui Express (HK:995): another PRC toll road operator offering a 3.4% yield;

Vodone (HK:82): on line gaming and services. This company is growing rapidly both organically and through acquisitions - the share price assumes modest growth in its business and will suffer if that growth is not delivered. Conversely, if it delivers then an upwards rerating could be expected. Fairly risky by my standards given the trailing PE of 48 and yield of 0.2%;

CMOC (HK:3993): China's largest molybdenum producer (it also produces other materials). Growth notwithstanding, this is still an expensive stock by most measures - and continuing to hold this company requires faith in both continued high growth in production and that prices for the underlying commodity will remain high. Trailing PE is a sky high 63x and yield is 1.2%;

Herald Holdings (HK:114): a toy manufacturer whose management has a practice of investing shareholders' funds in unrelated investments. I originally purchased this company as an asset play. It still offers an excellent dividend yield of 7.2% but I have some concerns about margins in the main business as well as the impact of the side investments;

China Gas (HK:384): gas distribution. The share price fell hugely in the month before two senior executives were arrested. The shares have been suspended since early January and the company's management has done an excellent job of keeping shareholders blissfully ignorant of developments since then. I will review as and when there are any announcements;

Cheung Kong Infrastructure (HK:1038): Controlled by Cheung Kong this company invests in infrastructure assets in a number of countries, mostly power generation, and offers a 3.1% yield;

Tai Sang Land (HK:89): one of Hong Kong's smaller property developers and investors. It sells at a very substantial discount to NAV and offers a 6.1% yield. The negatives are family control and entrenchment within management and the lack of liquidity;

Aupu Group (HK:477): this manufacturer of bathroom fittings and other home appliances has benefitted from the PRC's mass urbanisation. Current yield is 7.4%;

Tai Cheung (HK:88): another small Hong Kong property developer and investor selling at a substantial discount to NAV and offering a dividend yield of 4.2%;

V Tech (HK:303): this manufacturer of consumer electronics offers a 6.9% dividend yield;

Shenzhen Express (HK:548): unlike the other PRC toll road operators this one offers a relatively light 2.5% yield. My expectations are that this will grow as the company continues to expand operations;

GDI (HK:270): controlled by the Guangzhou government, in spite of the modest 2.7% yield, this is essentially a value based investment. The biggest part of GDI's business is water;

Varitronix (HK:710): this LCD manufacturer incurred significant losses in 2009 but appears to be back on track after a profitable interim result in 2010. If the interim results can be replicated in the second half the company will look cheap;

China Metal Recycling (HK:773): another example of a company expanding nationally as a fragmented industry starts to consolidate. Higher prices are also expected to contribute to growth in revenues. It remains to be seen whether the yield will reach meaningful levels;

China Blue Chemicals (HK:3983): at first glance this company looks expensive and the investment case rests on a resurgence in the price of and demand for its fertiliser products.

Nufarm (ASX: NUF): this fertiliser company is one of two stocks to survive from the small portfolio I held during the 1990s. While it is still well above my entry cost, the last 12-18 months have been a disaster for shareholders as bumbling management and adverse market conditions have pummelled the share price. Í should have sold when things started to go wrong. That said the damage is done and with refinancing now secured (I think) and a return to better trading conditions, I am hopeful for something of a turn around. It will take very little to see me heading for the exits at this point;

Caltex (ASX: CTX): a refiner and distributor of petrochemical products. The company has a strong balance sheet but suffered a setback last year from a combination of an unfavourable ruling from Australia's competition regulator and a squeeze in margins. I'm not sure what to do about this one;

BHP (ASX: BHP): the world's largest listed mining company with a diverse portfolio of quality long life assets and a very strong balance sheet. In spite of the modest yield, I could see myself holding this company for a long time.

There are two comments I should make about the portfolio. The first is that I have been trying to buy more shares outside of HK/PRC in an effort to achieve greater diversification. BHP, AHE and SFH were part of that effort and I expect to add more overseas shares in the future. The second point is that, on review, there are at least a couple of companies which, while I am comfortable holding them, I may be better off recycling the capital into other investments.