6 Chinese private equity funds eye undervalued stocks

6 Chinese private equity funds eye undervalued stocks They're on lookout for S-chips and firms with ethnic Chinese management SIX Chinese private equity (PE) funds that are in town this week to uncover undervalued stocks have their eyes on S-chips and Singapore companies with an ethnic Chinese management.
Among them is Shanghai-based China Best Group, which has drawn up preliminary plans to set up a fund to invest in Singapore stocks in a bigger way.
It may set up an open-end fund here or undertake a reverse takeover of an existing listed company to turn it into a listed fund.
"We have not decided on the timing of setting this fund," said China Best chairman Lu Wei in Mandarin. "We have been profitable in Singapore stocks, so this can be a demonstration to the market."
Another private equity fund United Innovation Capital is interested in consumer plays with a strong branding, starting with S-chips and then Singapore companies with ethnic Chinese managers. This would make for ease of communication.
"Any investment should not make up more than 10 per cent of our portfolio and no more than 5 per cent of the shareholding in the listed company," said its chief investment officer Warran Zhang.
The two PE funds, while active in mainland China and Hong Kong, are no novices in the Singapore market.
United Innovation Capital has invested in Tianjin Pharmaceutical while China Best owns stakes in Yangzijiang Shipbuilding, Techcomp Holdings, Fuxing and Sound Global, and is a top 10 shareholder at China Sunsine and Sunpower.
They are on a "Discover Singapore" roadshow organised by Financial PR, together with other private equity funds: CDB Capital, Genesis Capital, Yong Rong Asset Management and Harvest Fund.
This trip is taking place amid a backdrop of sizzling competition among private equity funds in China that is driving up valuations of mainland companies.
In contrast, many S-chips are undervalued, Mr Lu said, adding that this is due to a proximity issue. "The further they list from the mainland, the more undervalued they tend to be," he said.
China Best is on the prowl for companies with strong profitability and cash flows in the last five years, positive industry outlook, and good management.
"We prefer companies whose key management owns more than 5 per cent stakeholding in the company," Mr Lu said. This, he believes, aligns the interest of management with that of shareholders.
So far, China Best has yielded an annualised return of 20 per cent for its entire portfolio, Mr Lu said.
Even in the case of the troubled Sino-Environment where alleged fraud occurred, China Best has not lost money and still holds the shares of Avic International Investments after the latter undertook a reverse takeover of Sino-Environment.
The Chinese private equity funds yesterday met representatives from China-based World Precision Machinery and Dukang Distillers as well as Singapore's Kian Ann Engineering and Q&M Dental.
They are scheduled to meet China Aviation Oil, Sapphire Corp, Petra Food and StarHub today.
"We believe that the inflow of PRC investment funds into the Singapore market will provide additional liquidity in the Singapore market and increase the interests in good S-chip companies in Singapore market as they can better understand the Chinese companies," said Samuel Ng, chief financial officer of World Precision.
Chief executive officer of Q&M Dental, Ng Chin Siau, said that the group is looking at onshore renminbi funds to invest in their projects in China and there have been ongoing discussions with China-based fund managers.