Full apex, a second chance?

I once owned the share of Full Apex. That was the time when oil price is not so high and there are few attractive points about the company.

• They are having aggressive expansion plan to boost the production
• The key customers are Coke and Pepsi which speak a lot of their product
• As soft drink consumption set to grow, the business should expand
• Being a supplier of well known soft drink maker, the earning is sort of guaranteed

I bought the share twice, second time to even out the cost. Eventually, sell it off at a loss of 40%+. The key trend of past few years are

• Escalating oil price
• They have little bargaining power to increase the selling price dramatically
• Margin going down
• Despite the big boost in production capacity, profit only increase a bit

I recognise in this high oil price era. Holding the company and hope that the oil price would come down to enable them to have significant profit growth is difficult. Difficult as in you don't know whether the oil price would ever come down to a comfortable level. Predictability of earning is not there.

In forum, many people are quoting this undervalued stock as a good buy. Yes, it is undervalued, but the outlook to me is not fantastic. We never know when oil price is going to break $90 or even $100. We don't know whether the newly acquired PET chip company would really help with the profit growth.

Last week's Business Times article,

"Last year, it raked in a net profit of $27.3 million on a turnover of $187.5 million. For the first quarter of this year, it generated $9 million profit from revenue of $52 million. Its operating profit margin is about 20 per cent, while its returns on assets and equity worked out to 14 per cent and 17 per cent respectively."

"But despite its healthier numbers, Full Apex is trading at about nine times its 2006 earnings. Shanghai Zijiang is valued at a staggering 94 times its 12-month trailing earnings, while Zhuhai Zhongfu is trading at 79 times."

"Full Apex has somewhat fallen out of investors' favour in the last few years because high crude oil prices have squeezed its profit margin - the raw materials for PET bottles are PET chips, which originate from crude oil. To mitigate that, the company invested US$90 million to build its own 200,000-tonne PET chip plant. The plant, the biggest in Guangdong province, started operating a couple of weeks back."

" All things considered, it would appear the odds are favourable for the group to deliver decent returns for investors in the short to medium term."

Consider the questions I have asked. It is better not to enter the stock again, no second chance for me.

Good side - no debt, cashflow strong, stable business, lower valuation compare to peers(but I don't think PE of 70 is reasonable)
Bad side - oil would always be a big unknown, the result of pushing into PET chip market remain unknown

If you have holding power and willing to endure the see sawing of price, this china stock is worth the bet. However, it all subject to investor interest or whether the QDII fund would be really interested in buying it. Depends on external force is always more dangerous than a solid fundamental.

Welcome to comment on this, whether I have actually missed some points.