China Mining International Limited (SGX:BHD), a SGD$64.54M small-cap, operates in the basic materials industry which is sensitive to changes in the business cycle, as it supplies materials for construction activities. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 21.27% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Singapore stock market as a whole. In this article, I’ll take you through the sector growth expectations, and also determine whether China Mining International is a laggard or leader relative to its basic materials sector peers. Check out our latest analysis for China Mining International
What’s the catalyst for China Mining International’s sector growth?
Overall, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a natural trend. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth in the forties, beating the Singapore market growth of 7.92%. China Mining International lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means China Mining International may be trading cheaper than its peers.
Is China Mining International and the sector relatively cheap?
The metals and mining industry is trading at a PE ratio of 11x, relatively similar to the rest of the Singapore stock market PE of 14x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 4.98% compared to the market’s 7.92%, potentially indicative of past headwinds. Since China Mining International’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge China Mining International’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? China Mining International recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto China Mining International as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value China Mining International based on its cash flows to determine if it is overpriced based on its current growth outlook.