Disclosure: The AIM Equity Fund
currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
·
Hollysys provides automation and
control technologies in the industrial, railway, subway, nuclear power, and
mechanical and electronic industries in Asia, Europe, and the Middle East. It was
negatively affected by the downturn of the Chinese economy this summer.
·
On November 10, HOLI announced that they
were awarded ATP (Automatic Train Protection) and TCC Train Control Centers for
two rail lines, as well as a control system for a subway line.
·
HOLI has also been awarded an ATP
contract valued at $75.5 million on December 14, 2015. 180 sets of high speed trains (>200 mph) will be delivered in 2016 and was a major win.
·
HOLI has had a strong ability to bounce
back from lows of summer to hit their price target. Stock is up nearly 30% in past three months.
Hollysys Automation Technologies (NYSE:
HOLI) In the spring of 2015, HOLI was pitched to the AIM
portfolio representing potential upside due to the transportation needs in
China and the nuclear power support and control systems they can provide. This thesis remains intact today and should continue to play out in 2016.
This
summer, the Chinese economy was put in turmoil.
The Chinese GDP rate came in much lower than estimated, the government
was artificially boosting the stock market, and China devalued their
currency. This affected all Chinese
stocks, especially ones like HOLI that are intertwined with the Chinese
economy. Even so, the congestion in
China outlines the needs for high-speed rail.
Long-term prospects for HOLI are good, as can be seen by the continued
contracts HOLI gets for their ATP systems.
China’s future will rely upon finding
better ways to transport its citizens in the mega-cities. Congestion on the highways is very large, and
cannot fulfill the full transportation needs of all the citizens. HOLI is able to provide support for both the high-speed
trains as well as subways. HOLI is also
the only Chinese company that can provide nuclear power support and control
systems. As it is expensive to enter
these markets due to the regulatory need and the possibility of failure, HOLI
has a strong moat which will help continue their future growth.
What
has the stock done lately?
Since the stock announced earnings on November
12th, has traded between $19 and $22. This band is much higher than the trading
band during the turmoil in the Chinese economy this summer. The stock dropped
as low as $16, but has shown good price momentum recently.
Past
Year Performance: HOLI’s
stock is down about 10% on the year. It
is also down almost 21% from the high point early in the summer. Much of the depreciation in stock price came
from the Chinese turmoil, which caused the stock to go the early 2014 trading
range. HOLI’s stock is back around the
price it was bought in the AIM program and the story and upside potential
remains intact.
Source:
Factset
My
Takeaway
With all that has gone on in China during
the past year, HOLI’s stock has done well to appreciate back to its pre-summer
price. HOLI has strong growth prospects
in China due to their moat with the ATP systems and the nuclear power control
systems. While the stock may not
appreciate to its 52 week high in the short term because of the reeling affects
of the Chinese economy, the future prospects for the transportation growth of
China and South-East Asia remain positive. The company is located in Beijing,
China and has many important Chinese government ties!
