Dingyi Group Investment Limited (SEHK:508), a HKDHK$3.69B small-cap, is a financial services company operating in an industry, which tends to be appealing to risk-averse investors attracted to steady revenues, low volatility and high dividend yields. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 6.67% in the upcoming year . Today, I will analyse the industry outlook, and also determine whether Dingyi Group Investment is a laggard or leader relative to its financial sector peers. View our latest analysis for Dingyi Group Investment
What’s the catalyst for Dingyi Group Investment’s sector growth?
Recently, government and overseas regulators involvement has increased to play a prominent role, closely examining and controlling day-to-day business administration of certain companies. In the past year, the industry delivered growth in the teens, beating the Hong Kong market growth of 11.30%. Dingyi Group Investment 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 Dingyi Group Investment may be trading cheaper than its peers.
Is Dingyi Group Investment and the sector relatively cheap?
Financial services companies are typically trading at a PE of 14x, relatively similar to the rest of the Hong Kong 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 lower 6.68% compared to the market’s 10.00%, potentially indicative of past headwinds. Since Dingyi Group Investment’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Dingyi Group Investment’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Dingyi Group Investment has been a financial services industry laggard in the past year. If your initial investment thesis is around the growth prospects of Dingyi Group Investment, there are other financial services companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Dingyi Group Investment fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Dingyi Group Investment 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 financial services 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 Dingyi Group Investment’s future cash flows in order to assess whether the stock is trading at a reasonable price.