Sapphire Corporation: A Hidden Gem?

http://www.sapphirecorp.com.sg/

Sapphire restructured from its steel making business in 2014 as it was loss making. They first acquired Mancala, a mining operation in 2014. In 2015, the next acquisition was Ranken Infrastructure, the 2nd largest privately-owned rail transport infrastructure business in China.

QUALITATIVE ASPECTS
PROS

1. Divested loss-making mining business Mancala.
2. Ranken, the railway infrastructure business is asset-light and scalable (based on annual report).
3. Ranken possesses the highest triple A standards for carrying out design and construction (barriers to entry for competitors).
4. One Belt One Road initiative by the Chinese government is beneficial to Ranken due to government spending on infrastructure.
5. Ranken's key management are in Sapphire's board of directors and also have deemed interest in Sapphire's stock.
6. Veteran investor Li Xiaobo is a major shareholder of Sapphire (10%).

CONS

1. 1 customer from the infrastructure business represented 11% of revenue in FY2015. Revenue from Ranken was represented for only one quarter in FY2015, so the percentage of revenue from the major customer could be more in FY2016. (Annual report for FY2016 is not out yet at the time of writing)
Edit: Based on FY2016 annual report, 2 customers from the infrastructure segment represent 40% of total revenue.
2. Sometimes Ranken's clients may also be competitors bidding for the same projects. These competitors are larger in size and Ranken may have to be their sub-contractor, possibly reducing revenue and/or profits.
3. The railway infrastructure sector is competitive and Ranken may not win the bid for projects.
4. Possibly no dividends.

QUANTITATIVE ASPECTS

Lets compare with China Railway (CREC), who is one of their clients as well. However, CREC is much larger than Sapphire in market cap and also has other businesses such as mining and property. Also, CREC results for FY2016 are not out yet at the time of writing and I believe reading somewhere that the business tends to be seasonal, where the first half of the year is weaker.

Sapphire (FY2016 4Q) / CREC (FY2016 2Q TTM):

Return on Invested Capital: 32% / -89.42%
Net Operating Profit after Tax: 10% / 3.7%
Invested Capital Turnover: 3.2 / -24.2
Equity Multiplier: 3.71 / 5.11
Market Cap: S$105mil / HK$207bil

Revenue from Ranken is recognised for the full year the first time in FY2016, so there is no past information to compare with. A ROIC of 32% looks good.

VALUATION

Current EPS from continuing operations (Ranken excluding Mancala)= 0.036
PE ratio at the time of writing this (31 Mar 2017) is around 11.5
This gives us a fair value of 11.5*0.036=0.414
Margin of safety=18% (Based on last closing price of 0.34)

Vested at $0.33
Related:
Sapphire FY2016 AGM - Notes