Intrinsic Value Changhong Huayi Compressor Co., Ltd. (000404.SZ)

• Previous Close: $7.01
• Intrinsic Value: $5.24
• Upside potential: -25%

Stock Valuation Context

Business Model And Market Position

Changhong Huayi Compressor Co., Ltd. operates as a specialized manufacturer within the industrial machinery sector, focusing primarily on the development, production, and global sales of compressors essential for refrigeration appliances. The company's core revenue model is derived from the B2B sale of these critical components to manufacturers of refrigerators, freezers, water dispensers, and other cooling devices. This positions it as a key upstream supplier in the consumer appliance and commercial refrigeration value chains. Operating from its base in Jingdezhen, China, the company leverages its long-standing presence since 1994 to serve both domestic and international markets, embedding itself deeply within the manufacturing ecosystems of major appliance brands. Its market position is defined by its specialization and scale in a niche but essential component market, where reliability and energy efficiency are paramount for downstream product performance. The company's integration into the Changhong corporate group provides potential strategic advantages in supply chain stability and access to related markets, reinforcing its role as a critical enabler for the global refrigeration industry.

Revenue Profitability And Efficiency

The company reported robust revenue of CNY 11.97 billion for the fiscal year, demonstrating significant scale in its specialized market. Profitability was solid, with net income reaching CNY 450 million, translating to a net margin of approximately 3.8%. Operational efficiency is evidenced by positive operating cash flow of CNY 770 million, which comfortably covered capital expenditures of CNY 321 million, indicating healthy cash generation from core business activities.

Earnings Power And Capital Efficiency

Changhong Huayi's earnings power is reflected in its diluted EPS of CNY 0.65. The company maintains a disciplined approach to investment, with capital expenditures focused on maintaining and enhancing production capabilities. The substantial operating cash flow relative to capex suggests efficient reinvestment and strong underlying earnings quality from its compressor manufacturing operations.

Balance Sheet And Financial Health

The company exhibits a strong financial position with cash and equivalents of CNY 4.08 billion significantly outweighing total debt of CNY 798 million. This low leverage ratio indicates a conservative capital structure and ample liquidity. The substantial cash reserves provide a strong buffer against market volatility and support strategic flexibility for future investments or operational needs.

Growth Trends And Dividend Policy

While specific growth rates are not provided, the company demonstrates a shareholder-friendly approach through its dividend policy, distributing CNY 0.30 per share. This payout represents a commitment to returning capital to investors, supported by the company's stable profitability and strong cash flow generation. The business is positioned to benefit from long-term demand trends in refrigeration and appliance markets.

Valuation And Market Expectations

With a market capitalization of approximately CNY 5.00 billion, the market valuation reflects the company's established position in the industrial machinery sector. The beta of 0.735 suggests lower volatility compared to the broader market, indicating investor perception of relative stability. The valuation incorporates expectations for steady performance in its niche compressor market.

Strategic Advantages And Outlook

The company's strategic advantages include its long-term industry expertise, specialized product focus, and integration within the Changhong group ecosystem. The outlook is supported by consistent demand for refrigeration components globally. Maintaining technological competitiveness and cost efficiency will be crucial for sustaining its market position amid evolving energy efficiency standards and competitive pressures in the industrial machinery space.

Sources

Company Financial ReportsShenzhen Stock Exchange