I’ve seen a few variations on this ad over the past couple days, so it’s time to dig in as the questions pile up — the ad I’m looking at this afternoon is for one of the Stansberry Pacific newsletters, Brian Tycango’s Strategic Wealth Confidential.
That’s a pretty new publication, but Tycango has been a newsletter guy for at least ten years — we covered him quite a few times when he was helming other Asia-focused letters during the time of the last China mania (2007-2011 or so, you can see some of the reader feedback from that time here), before he resurfaced with Kim Iskyan and Peter Churchouse at Stansberry Pacific last year.
Kim Iskyan’s email introducing the ad is really what caught my attention — he headlined his email “Our most impressive find” and tantalized with language like this:
“One of Stansberry Pacific Research’s top analysts, Brian Tycangco, has just uncovered an extraordinary opportunity.
“A global investment trend we expect to eclipse the Bitcoin boom by a factor of 80.
“And to even surpass the Dot-Com boom which was estimated to be worth $3 trillion.
“This $26 trillion wealth event is simply too big to ignore.”
And he throws us to Tycango with the tease that the “rewards could be as high as 670%” … which ain’t half bad.
So what’s the stock?
For that we have to dig into Brian Tycango’s presentation and see what clues he drops. Let’s get started, here’s a little taste:
“How the fastest-growing area of the world can be overlooked is something I’ll never understand…
“…And then again, perhaps the numbers involved are simply too large to seem credible. After all, $26 trillion is a truly astonishing number.
“I’m not exactly sure why this story isn’t getting more coverage.
“But I do know this…
“If you get ahead of a $26 trillion investment wave, no matter what else happens, you have a great chance at making an extraordinary amount of money.”
So what is this “$26 trillion wave” he’s talking about? Infrastructure investment. Here’s a little more from Brian:
“A new investment boom, estimated to exceed $26 trillion, is rollingthrough Asia.
“It’s been called…
‘the largest infrastructure endeavor in human history.’
‘the biggest investment boom in history.’
‘the most explosive era of infrastructure expansion in human history.’
“This market’s opportunity simply dwarfs Bitcoin or any other current investment trend. It’s even several orders of magnitude bigger than the Dot-Com boom.”
And, naturally, he’s sending out this ad because he thinks this is “precisely the right time” to take advantage.
As you probably know, much of the infrastructure being built in China and elsewhere in Asia is there to support all the mega-cities that are booming as these countries modernize and urbanize. In Tycango’s words…
“From roads to housing to public transport… not to mention water and electricity, Asian cities are in desperate need of new infrastructure.
“Because of this great influx of people, they need new roads…
“New energy grids…
“And the need is pressing.”
So how does one benefit from the trillions being spent in China, India, Vietnam and elsewhere in the region? He talks about three “extraordinary opportunities,” but most of the focus is on the first one, (he says “I feel like this recommendation will become one of the very best I ever make.”)
So let’s check the clues and ID that one for you, shall we? Here goes…
“The company I’ve found is a mid-sized civil works company in Hong Kong – deep in the nitty gritty of this global infrastructure expansion….
“Hong Kong’s legislative council (LEGCO) have approved a US$11 billion infrastructure spending budget for 2018-2019, which will cover capital works like schools, hospitals, cultural facilities, etc.
“Then, LEGCO anticipates spending to rise to $16 billion a year by 2022 – just three years from now….
“This Business Is Tiny, With a Market Cap of Just $150 Million….
“Over the last 35 years, this tiny company has established a solid reputation while working on some huge national projects.
“It built the largest second subway in Hong Kong – the two farthest exits are nearly half a mile apart…
“It built the country’s premier airport, and the world’s eighth busiest…”
And he drops a few hints about their financials as well…
“Over the past six years, its revenue has grown from US$270 million to US$762 million. That’s a 30% annual average growth rate….
“And its net profits are growing even faster – rising at a staggering rate of 163% a year on average.”
We’re told that they have no net debt, and at the end of 2017 they had $91.77 million in cash… and that they are hoping to secure a higher “tier” license that will allow them to bid on big housing projects, but that they have a “very lucrative work schedule” lined up even without that, including a few specific projects he cites:
“- 11/16/2018 – Construction of a Columbarium (place to store urns)
“$93 million USD.
“- 11/14/2018 – Expansion of Sewage Treatment Works…
“$88 million USD.
“In October, it picked up half a BILLION in new projects…
“- 10/26/2018 – Cross Bay Link (Road)…
“$57 million USD.
“- 10/25/2018 – A 4.7 kilometer Three Lane Highway…
“$443 million USD.”
There’s more than that, too, totaling up to $1.707 billion in work awarded in 2018.
So what is the stock? Tycango also says that it’s “dirt cheap”, trading at four times earnings, 1.52X free cash flow, and 1.02X book value… which is where he gets the 670% gain potential from (by 2022, he says), that assumes the stock is bid up to trade at a similar PE to other Hong Kong construction companies.
Add all that into the gaping maw of the Mighty, Mighty Thinkolator and we get our answer? This is the tiny Hong Kong-listed construction firm Build King Holdings (0240.HK, there’s an OTC ticker in the US at BKHOF but it doesn’t appear to have ever traded — so this is one you’d have to buy direct in Hong Kong, which most brokers can do… I recommend Interactive Brokers if you’re interested in trading direct on overseas markets).
Build King is majority owned by Wai Kee Holdings, which has its hands in construction materials, quarrying and toll roads (through Road King, 1098.HK) in addition to the Build King stake. This is how Wai Kee explains Build King’s goal:
“Build King Holdings Limited (“Build King”, a subsidiary of Wai Kee, is a listed company in Hong Kong which is focused on becoming one of the top construction companies in Hong Kong on being the preferred partner for customers, subcontractors, suppliers and joint venture partners.
To achieve these goals, Build King has developed a unique competitive edge – a lean management with an entrepreneurial style that enable quick decision making and rapid responses. The highly motivated management team includes more than 120 professional engineers and commercial specialists and is supported by over 700 other staff.
“Build King offer comprehensive construction service in three major areas – civil engineering, buildings and environmental. With a proactive management philosophy and multidisciplinary ability, it brings broad-based skills to bear on great variety of projects in both private and public sectors.”
You can see the 2017 Annual Report for Build King here, that’s the source of many of the hints in the teaser ad and gives a good overview of the company. More recently, they just released their numbers for 2018 yesterday, which gave the stock a little spike (perhaps helped along some by the Stansberry attention) that has since faded a little.
Those annual results indicate that Build King earned 33 HK cents per share in profits last year, more than doubling 2017’s number, and the book value has also bumped up to HK$1.1 billion (though I assume that number fluctuates a lot, with big contracts flowing through a relatively small company).
The latest price in Hong Kong is HK$1.15 per share, so at 33 cents that is indeed an appealing trailing PE ratio of 3.5… and the book value, according to the Kong Kong exchange website, is HK$1.4 billion, so that’s also a relatively low 1.25X book value or so at current prices.
They’ve been paying a dividend since 2014 and have been steadily raising that dividend, so that’s encouraging — last year’s dividend was three cents, this year’s has been announced at 4.4 cents, so that’s a 3.8% yield (the dividend has not yet been approved, but presumably there will be no objection from the shareholders — it’s due to be paid to shareholders of record as of May 28, so you have time to do your research if you’re angling to get that dividend).
And yes, this is a very small company — the Hong Kong Dollar has been fixed at roughly HK$7.80 per US$1 for decades (it fluctuates a percent or so around that number, it’s at HK$7.85 to the US$ today), so if you’re thinking in US$ then each share is about 14.5 cents and the market cap is about US$175 million.
Is it worth buying? Well, I have absolutely no idea. The numbers look fantastic, and parent Wai Kee Holdings is also super cheap (610.HK, PE of about 4 and also released earnings yesterday, and set to pay about a 4% dividend), so if I were buying I’d spend at least a little time trying to figure out why these companies are so cheap.
I didn’t see any red flags in my quick read of their recent filings, but I didn’t look into their history or management at all… it’s reasonable for high-risk construction companies to be relatively cheap compared to other stocks, even if they have good balance sheets, but at these prices these are either really hidden gems, or they’re being discounted because of the convoluted ownership structure, or there’s something ugly under the surface. I can’t tell you which after a 30-minute dive, but perhaps your research will surface some wisdom that you can share with us.
And yes, Tycango did hint at a couple others — a water stock and something else. I’ll spend a few minutes looking into those as well, and I’ll share in a future piece if I find anything interesting.
But for now, dear friends, it’s your turn — it’s your money, so do your research and let us know if Build King is on your shopping list.
P.S. This is a pretty new publication, but, as always, we want to know what readers think of the newsletters they subscribe to — so if you’ve ever tried Tycango’s Strategic Wealth Confidential, please click here to share your experience with your fellow investors. Thanks!