Midsouth is a manufacturer of fiberglass reinforced plastics (FRP). Listed in May 2006, the company has produced good results for 2005 and 2006. Its revenue and net profit has grown by at least 35% in 2006. Shifting its production to Lingxian plant, the company is expanding its production and since the beginning of the year, its bottom line is boosted by the production of Polypropylene (PP) parts for automotive vehicles. The company will continue to benefit from China boom in infrastructure and property sectors. Also, the company is looking into exporting its parts to US and Europe markets which will provide another driver for its growth.
The company net profit margin is approximately 24% and ROE approximately at 25%. With cash from its IPO listing in 2006, the company is in a net cash position. Approximately 57% of the total shares are hold by the Executive Chairman (Gao Yanjun), CEO (Gao Yanhua) and GM (Gao Yanguo).
While I do not really like a family based business, the company’s numbers is impressive enough for me to purchase 10 lots of Midsouth at a price of $0.815 (in June) which translates to a forward PE of 9.2x. Not that compelling considering the company has just listed. However, if the company is able to execute its growth plan, there will be good returns in the coming 2 to 3 years.
The company reported a good set of results in August. Revenue grows by 37% while net profit increases by 33%. With a historically stronger contribution in the second half, it is expected that the company will continue its double digit growth rate.