This idea is probably only suitable for PAs due to limited liquidity

 

Tianjin Zhong Xin Pharmaceutical Group Corporation Limited, an investment holding company, produces and sells traditional Chinese medicines, western medicines, and healthcare products primarily in the People's Republic of China. It offers Chinese patent medicines, Chinese medicinal materials, pharmaceutical raw materials and western medicines, bioengineering drugs, nutritious and health products, etc. The company’s principal products include Suxiao Jiuxin Wan, Huoxiang Zhengqi Ruan Jiaonang, Zilong Jin Pian, Jinqi Jiangtang Pian, Weichang An Wan, Biqi Jiaonang, a-2b Interferon, Gliclazide, Te Zi She Fu, etc. It is also involved in the wholesale and retail sale of medicines, biochemical pharmaceutical products, and daily use products. In addition, the company sells medicinal products under its own brand and other brands to wholesalers. Tianjin Zhong Xin Pharmaceutical Group Corporation Limited was founded in 1992 and is based in Tianjin, China.

 

The company is listed on both Shanghai and Singapore exchange. Shares listed in Singapore are exactly the same as shares listed in Shanghai, but trading at a 60% discount. ($1.08 Vs $2.72). At $1.08, the company trades at 1x PB and about 9x PE. This is a company with stable earning, good growth prospect and strong barrier of entry.

 

There are couple of ways to play this value gap between Shanghai and Singapore: one can buy the Singapore shares and wait for value to be unlocked, or one can buy Singapore share and short Shanghai share to arbitrage the difference. I think it is likely that the management will buy back the Singapore shares, the wide value gap being the obvious reason. Also the Chinese government is encouraging corporations with state roots to restructure and become more efficient, so it is politically correct for the management to do something with the company, and of course finding ways to enrich themselves along the way. The Singapore shares were listed in year 1997, four years before the Shanghai listing. I guess they had to list in Singapore because in 1997 the Chinese stock market was still in its infancy. Now it is a completely different story, the Chinese market has much higher valuation and far better liquidity, just look at all the US listed Chinese company trying to return home. In addition to waiting, we are trying to establish the right channel with the management and encourage them to buy back Singapore shares. Singapore has 25% of the total float, so it is not insignificant at all. If the management is reluctant, there is still the possibility of massing enough shares and call a shareholder meeting. If you want to long Singapore and short Shanghai shares, the short side can be done via Shanghai Hong Kong connect, a scheme for Hong Kong investors to buy Shanghai shares and vice ver sa. 

 

The risks mainly comes from the illiquidity constrains and also the possibility that the Singapore shares is someone’s way of moving wealth out of China. If that is the case, the management will never agree to buy back shares.