|Market Growth LT||null|
|Market Growth ST||F|
Company's Business Shows a Steep Contraction that Will Probably Require Drastic Corrective Measures
China Zenix Auto International recently posted a 13.88% decline in quarterly revenue for the period ended on May 24, 2013, with total sales of $120.38 million million compared to $139.78 million a year before. Including this latest figure the company's 12-month trailing sales were $0.00 million, which we cannot compare to equivalent figures for the period ended three or two years ago because of insufficient data like we usually do. The company also reported in its latest earnings announcement a year-over-year drop in profits. Our measure of long term profit growth, which usually compares full year (12-month trailing) net income growth over a three year period was, in China Zenix Auto International's case, limited to a two year comparison for a lack of sufficient publicly available financials going far enough back. MISSED CASE
Despite meeting the consensus estimate of $0.03 per share in its Third quarter report, announced May 24, 2013, the company's stock dropped 5.67% following the announcement, a sign investors were expecting the company to beat the street or provide better guidance for future earnings. Despite meeting the latest consensus estimate its average earnings surprise record is very poor; it has missed analysts' estimates by an average of 0.00% over the last four reports. It should be pointed out that much of this record is attributed to the company's May 24, 2013 report, in which it missed the Street's estimate by 0.00%.
|Price/Cash Flow Ratio||A+|
The Stock's Valuation is Attractive Based on the Company's Overall Financial Strength
China Zenix Auto International's stock is trading presently at 2.51 times trailing 12-month earnings per share, which represents a 83.24% discount to the company's "optimum" P/E ratio of 15.00; this ratio is calculated by MarketGrader based on the company's two-year EPS growth rate, which in turn is computed by looking at the rolling 12-month periods ended in each quarter within the two years and measuring their growth. By this measure, China Zenix Auto International's earnings per share have grown at an annualized rate of 8.72% in the last two years. The company's small margin growth, together with its positive overall Profitability grade and its EPS growth rate could stem from small market share gains, a favorable indicator of future gains for the stock. The stock is also valued at 0.00 times the company's forward earnings estimates for the next four quarters, which means that it trades below its trailing P/E and the market's forward P/E of 15.20 (based on earnings estimates for the S&P 500). Therefore investors may see the current valuation as fully reflecting the company's EPS growth prospects and its current fundamentals.
Investors are currently valuing China Zenix Auto International at 0.42 times its tangible book value per share, which either undervalues the company significantly or anticipates a sizable asset write-down. Tangible book value excludes intangible assets such as goodwill in an attempt to arrive at a conservative estimate of the company's liquidation value; this is sometimes helpful to understand what kind of premium investors are willing to pay for its ongoing business and future earnings. China Zenix Auto International's intangible assets represent only 0.76% of its total stockholders' equity. The price of the stock is only 0.91 times the $3.14 in cash flow per share generated by the company in the last four quarters. While on its own this appears to be an attractive valuation, it seems investors are assigning little value to the company's future earnings prospects in light of its overall poor fundamentals. Its shares also trade at 0.24 times its trailing 12-month sales, a small 73.00% discount to the Auto Parts: O.E.M. industry average price to sales ratio of 0.87. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. From this perspective China Zenix Auto International's market cap of $143.99 million , which is only 10.51 times larger than its latest quarterly net income (plus depreciation), seems like an attractive valuation.
|Return on Equity||B-|
|Quality of Revenues||A+|
Profitability Grades Are Solid, Indicating the Company's Business Is Strong and Healthy
China Zenix Auto International's profitability indicators are pretty strong across the board, with strong returns on shareholder equity, industry-beating operating margins and a very healthy net profit margin. The $67.15 million in net profits earned by the company in the last 12 months account for 10.71% of all revenue booked in the period. The Auto Parts: O.E.M. industry had an average operating margin of 7.88% in the period. The company's operating margin of 13.94% exceeded that average by 68.99%. While China Zenix Auto International's 18.91% return on equity is solid--based on 12-month trailing earnings--it represents a slowdown from the year-earlier period's return on equity of 21.08%. Our system looks at this ratio in an attempt to measure management's efficiency in rewarding investors in the company's common stock.
Despite this moderate downturn the company's leverage is low enough that it could be increased without overburdening the company in order to ensure that current profitanility is sustained. Its total debt is only 0.34 times total equity while long term debt makes up 0.00% of total capital. China Zenix Auto International's core operations, as measured by the company's EBITDA, have generated $108.74 million in earnings over the last twelve months, a modest -6.28% decline from the $116.02 million earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core earnings since it includes money earned in its operations such as interest expense, income taxes paid and depreciation and amortization, both of which are non-cash charges.
|Cash Flow Growth||A+|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||B+|
Company's Cash Flow Is Very Well Managed as Our Analysis Reflects a Very Healthy Operation
China Zenix Auto International reported positive cash flow of $50.71 million in its latest financial statements, reversing $-30.58 million in cash flow posted in the comparable period the year before. Better yet, this seems part of an accelerating trend when put in the context of the company's twelve month trailing cash flow, which grew 0.00% relative to the twelve months ended in the same quarter last year. Even though the company has $120.21 million in total debt, its net debt is virtually zero since it has $163.98 million in cash on hand; and since it generated $17.41 million in earnings before interest, taxes, depreciation and amortization last quarter, it's safe to say its liquidity is remarkable. Therefore the company's debt is not only very manageable with its own cash flow but could be increased if it wanted to pursue strategic growth opportunities. The company also has the ability to enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future value of its earnings. Even more positive is the fact that during the last 12 months while the company's cash on hand increased 63.34% from last year's $100.39 million, its leverage actually fell, with total debt as a percentage of total capital now at 25.29% compared to 36.45% a year ago.
An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA, which measures each company's true return to shareholders after accounting not only for the cost of running the business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both equity and debt, EVA measures the creation of true economic profit. In this case China Zenix Auto International had $355.14 million in invested capital in its most recent quarter, a combination of both equity and long term debt. However, the company's weighted cost of equity of 1.59% is much larger than the weighted cost of debt, which is 0.00%. When combined, the two result in a total cost of capital of 1.59%, quite low compared to the company's total return on invested capital of 24.62% based on 12-month trailing operating income. The result is an excellent economic value added of 23.03%, a very high return to investors after all capital costs are covered. China Zenix Auto International, which doesn't currently pay a dividend, actually used to do so until suspending payouts on March 31, 2012. China Zenix Auto International paid out $2.73 million in common dividends during the 12 months ended last quarter, accounting for 1.69% of cash flow and 4.07% of total earnings after taxes. This relatively modest payout is slightly higher than the 3.79% of total earnings is paid out in the 12 months ended a quarter earlier. Assuming it maintains its generally positive fundamentals, the company has ample flexibility to increase its payout by a bigger margin in the future should it wish to do so.