Intrinsic Value OK Science and Technology Co., Ltd. (001223.SZ)

• Previous Close: $54.14
• Intrinsic Value: $15.89
• Upside potential: -71%

Stock Valuation Context

Business Model And Market Position

OK Science and Technology Co., Ltd. operates as a specialized industrial machinery manufacturer focused on the tissue paper production sector. The company designs, manufactures, and supplies integrated machinery solutions for tissue paper manufacturing, converting, and packaging processes. Its product portfolio encompasses tissue making machines that produce various consumer paper products including facial tissues, napkins, toilet paper, and kitchen towels. The company has strategically expanded its capabilities to include manufacturing equipment for disposable surgical masks and KN95 respirators, demonstrating adaptability to market demands. Operating within China's industrial machinery sector, OK Science and Technology serves paper manufacturers requiring automated production lines. The company's market position centers on providing complete tissue paper production solutions, competing with both domestic and international machinery suppliers. Its foundation in 2011 positions it as a relatively established player in China's industrial equipment landscape, leveraging its Jiujiang base for manufacturing operations.

Revenue Profitability And Efficiency

For the fiscal period, the company reported revenue of CNY 434.5 million with net income of CNY 34.3 million, translating to a net margin of approximately 7.9%. The diluted earnings per share stood at CNY 0.51. Operating cash flow was negative at CNY -39.0 million, while capital expenditures were significantly higher at CNY -134.5 million, indicating substantial investment in fixed assets during the period. This capital intensity reflects the company's manufacturing-focused business model requiring ongoing equipment investments.

Earnings Power And Capital Efficiency

The company demonstrated moderate earnings power with CNY 34.3 million in net income, though operating cash flow turned negative due to working capital movements or timing differences. The substantial capital expenditure program suggests the company is investing heavily in production capacity expansion or technological upgrades. The relationship between operating cash flow and capital expenditures indicates a period of significant investment outpacing operational cash generation, which may reflect strategic growth initiatives or capacity expansion projects.

Balance Sheet And Financial Health

OK Science and Technology maintains a strong liquidity position with cash and equivalents of CNY 482.0 million against total debt of CNY 67.9 million, indicating a robust cash-to-debt ratio. The company's conservative debt level relative to its cash reserves provides financial flexibility and suggests a low-risk balance sheet structure. This financial position supports ongoing operations and potential investment opportunities without significant leverage concerns.

Growth Trends And Dividend Policy

The company has implemented a dividend policy, distributing CNY 0.10714 per share, representing a payout ratio of approximately 21% based on diluted EPS. This balanced approach returns capital to shareholders while retaining earnings for reinvestment. The capital expenditure intensity suggests the company is prioritizing growth investments, potentially targeting market share expansion or product line diversification in the tissue machinery and personal protective equipment manufacturing sectors.

Valuation And Market Expectations

With a market capitalization of approximately CNY 3.77 billion, the company trades at a price-to-earnings multiple derived from its current earnings power. The beta of 0.751 indicates lower volatility compared to the broader market, suggesting investors perceive the stock as relatively defensive within the industrial machinery sector. Market expectations appear to balance the company's specialized market position against its current financial performance and growth trajectory.

Strategic Advantages And Outlook

The company's strategic advantages include its specialization in tissue paper machinery and diversification into mask manufacturing equipment, providing revenue stream diversification. Its strong balance sheet with minimal debt provides operational flexibility. The outlook will depend on execution of current investments, demand trends in tissue paper production equipment, and the sustainability of mask machinery demand post-pandemic. The company's ability to leverage its manufacturing expertise across adjacent product categories represents a key strategic opportunity.

Sources

Company filingsMarket data