Profit update on our Chinese Dragon plays

by Siu-Yee Ng

China Petroleum & Chemical Corp. (SNP:NYSE) was added to Taipan’s portfolio in January 2002 with a sell target of US$20. In March 2003 that target was met. But for those who missed the sell target, you had the chance to sell again on April 30, 2003. That’s a 48% profit!

SNP reported an increase in its first-quarter 2003 profit due to surging oil prices and strong demand for its petroleum products.

Of course, China has been getting a lot of bad press lately. Does this mean we should liquidate all

the Chinese holdings in our portfolio? Absolutely not. Despite the SARS outbreak, exports and manufacturing remain strong. After a pullback on its earnings announcement and the SARS scare, China Yuchai International Limited (CYD:NYSE) is rebounding.

But there are a couple of rumors circling around China Yuchai. First, Guangxi Yuchai Machinery Holdings Company has yet to pay past dividends to its parent company, China Yuchai. But the company has already paid its minority shareholders. So it looks like Guangxi Yuchai and China Yuchai’s management are butting heads.

Second, there’s speculation that there may be a problem with the company’s listing filing in China, and that the Chinese government will delist the company because of it. We saw a selloff in the stock. But it’s been recovering since then, a positive sign.

We already knew about the dividends dispute from the earnings release. But I’m confident that management will come to a compromise. As for the delisting rumor, I find it hard to believe that there will not be some kind of compromise there also.

We saw a similar pattern last year when the stock ran up in November and pulled back the following month before continuing its run. The company is in a growing market and the stock will continue to grab market attention.

Hold China Yuchai for more profits. But in case the parties are unable to compromise, I want you to still be able to lock in profits, so maintain a 20% trailing stop. We’re currently up 39%.