Cheung Woh Technologies Ltd (SGX:C50), a SGD$57.12M small-cap, is a machinery manufacturing company operating in an industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 10.16% in the upcoming year . Below, I will examine the sector growth prospects, and also determine whether Cheung Woh Technologies is a laggard or leader relative to its capital goods peers. View our latest analysis for Cheung Woh Technologies
What’s the catalyst for Cheung Woh Technologies’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. In the past year, the industry delivered growth in the forties, beating the Singapore market growth of 7.92%. Cheung Woh Technologies lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its machinery peers. As the company trails the rest of the industry in terms of growth, Cheung Woh Technologies may also be a cheaper stock relative to its peers.
Is Cheung Woh Technologies and the sector relatively cheap?
The machinery industry is trading at a PE ratio of 10x, relatively similar to the rest of the Singapore stock market PE of 14x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 10.74% compared to the market’s 7.94%, potentially illustrative of past tailwinds. Since Cheung Woh Technologies’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Cheung Woh Technologies’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Cheung Woh Technologies has been a machinery industry laggard in the past year. If your initial investment thesis is around the growth prospects of Cheung Woh Technologies, there are other machinery companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Cheung Woh Technologies fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Cheung Woh Technologies has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its machinery peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Cheung Woh Technologies’s future cash flows in order to assess whether the stock is trading at a reasonable price.