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China Jinjiang Environment Holding Company Ltd Shares Are Near A 52-Week Low: Does The Company Have A Quality Business?

China Jinjiang Environment Holding Company Ltd (SGX: BWM) focuses on the development, construction, operation, and management of waste-to-energy (WTE) facilities in China.

It is a relatively new company in the Singapore stock market, having been listed only in August 2016. Since its listing, China Jinjiang has seen its share price fall by 13.9% from its IPO price of S$0.90 to S$0.775 currently. That’s just 1.3% higher than a 52-week low of S$0.765, and the situation thus captured my attention. I wanted to know if China Jinjiang has a high quality business.

There’s no easy answer, but a simple metric can help shed some light on the question: The return on invested capital (ROIC).

A brief introduction to the ROIC

In a previous article of mine, I explained how the ROIC can be used to evaluate the quality of a business.

The simple idea behind the ROIC is that a business with a higher ROIC requires less capital to generate a profit, and it thus gives investors a higher return per dollar that is invested in the business. High-quality businesses tend to have high ROICs while the reverse is true – a low ROIC is often associated with a low-quality business.

You can see how the math works for the ROIC in the formula above.

China Jinjiang’s ROIC

Here’s a table showing how China Jinjiang’s ROIC looks like (I had used numbers from its fiscal year ended 31 December 2016):


Source: China Jinjiang 2016 earnings

In 2016, China Jingjiang generated a ROIC of 18.5%. This is slightly above average, based on the ROICs of many other companies I have studied in the past.

One thing investors should pay attention to here is that China Jinjiang held RMB 989.7 million in short term debt on its balance sheet at the end of 2016. This is excluded from the calculation of the tangible capital employed seen above. If it was included, the company’s tangible capital employed would have increased to RMB 5.56 billion, thereby reducing the ROIC to about 15.2%, which is still a respectable performance.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.