- Kwung’s Aroma invested RMB50 million of surplus cash into a Jihai-managed private equity fund via Anhui Fenyuan, redeemable after 90 days but subject to annual fees.
- After strong FY2024 growth, H1 2025 earnings fell sharply as EU anti-dumping duties (up to ~70.9%) hit a major share of EU sales.
- Shares look low-multiple but near fair-value by most models, with limited upside unless the EU duty risk eases.
- Analyst and technical signals are mixed to cautious, with targets roughly HK$1.00–HK$1.50 and charts leaning Sell.
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1. Investment into Private Equity Fund – Strategic Liquidity Use
The deployment of RMB50 million into Jihai Zhize Panshi Private Equity Investment Fund via its subsidiary Anhui Fenyuan reflects a move by Kwung’s Aroma to seek higher yielding uses of surplus cash beyond its core manufacturing operations. The 90-day redeemable nature gives flexibility, though management/other fees will erode returns somewhat. As it is a discloseable transaction under Hong Kong listing rules, the scale is material, potentially impacting short‐term liquidity if poorly timed but likely modest compared to overall cash reserves.
2. Financial Performance: Reality Check Against Strong 2024
The full year 2024 was impressive: revenue ~RMB1,001.2 million (≈24% YoY growth), net profit ~RMB118.7 million (+93%) due to gains such as disposal of a subsidiary, new customer orders, and exchange rate tailwinds. However H1 2025 shows weaker margin pressure: revenue rose only ~6.7%, while income fell ~55.7%, primarily due to the provisional 70.9% anti-dumping duty imposed by the EU impacting over half of EU sales. This external trade regulation shock is a key risk to earnings in 2H 2025 and beyond.
3. Valuation and Analyst Recommendations: Cautious Upside
Simply Wall St places intrinsic/fair value at HK$1.34, suggesting current share prices (HK$1.25–HK$1.30 range) are near fair value, with limited significant undervaluation. GuruFocus’s free cash flow based intrinsic value is HK$0.99, which implies the current price is modestly overvalued under that model. Analyst targets range between HK$1.00 and HK$1.50, but with recent updates tending toward the lower bound. Technical sentiment across multiple platforms tilts toward Sell, with moving averages and MACD indicators showing resistance. [Primary]
4. Key Risks and Strategic Implications
• EU anti-dumping duties represent a substantial headwind, potentially cutting margins and reducing access to key markets unless mitigated via alternate production locations, legal appeals, or passing costs downstream.
• The private equity investment could yield incremental returns but introduces risk (market, credit, liquidity), especially if scheduled redemption periods cluster with potential cash needs.
• Low trading volume, modest market cap (≈HK$450-550 million across sources), and Sell‐biased technical signals suggest limited institutional momentum and potentially thin liquidity; small adverse news could trigger outsized share price movements.
5. Areas for Further Scrutiny
– Breakdown of EU exposure by contract and customer to assess how much revenue is affected long-term.
– Cash flow trends: how sustainable operating cash flow is, given dependence on non-recurring gains in 2024.
– Terms of the private equity investment: fee structure, asset allocation, risk profile.
– Management’s response strategy to duties—whether they can shift manufacturing or source inputs differently to reduce exposure.
Supporting Notes
- Revenue in 2024 increased ~24% to RMB1,001.2 million; net profit rose ~95%, attributed to new customers, existing orders, disposal of a subsidiary, and favorable FX.
- In first half of 2025, revenue up ~6.7%, while total comprehensive income and EPS dropped ~55.7%, due to EU’s preliminary anti-dumping duty of 70.9% impacting over 50% of EU sales.
- The provisional EU anti-dumping duty (implemented August 15, 2025) ranges from 10.6% to 70.9%, with Kwung’s subsidiary and related entities mostly facing the higher bracket.[1search4][1search8]
- Recent investment: RMB50 million into private equity investment fund managed by Jihai, through Anhui Fenyuan, redeemable after 90 days without cost, but with annual fees. [Primary]
- Price targets by analysts vary: some showing HK$1.50 target (recent Buy), others HK$1.00; AI models show Moderate Buy but note downside potential. [Primary]
- Valuation metrics: P/E around 4× compared to peer average ~6.1×; Simply Wall St’s intrinsic fair value ~HK$1.34 vs current ~HK$1.28; GuruFocus proj-FCF intrinsic value ~HK$0.99.
- Technical indicators: MACD, moving averages & daily chart tools indicate Sell or Strong Sell in several platforms.[Primary]