As every comedian knows, timing is everything. Last week's 5.02 per cent decline in H-shares could provide a reasonable entry point - and put the smile back on the faces of investors who missed out on the sector's four-week rally. Analysts say many mid and small-cap mainland plays offer great value - especially when examined against first-half results. Andy Mantel, manager of the China Mantou Fund, cites a number of positives, ranging from the coming Qualified Domestic Institutional Investors (QDII) scheme, which gives foreign investors access to mainland markets, to the inevitable yuan revaluation and economic growth. 'Overall I think the rise in China stocks so far is justified given the increasing earnings showing in the interim reporting period,' he says. 'There is still a long way to go for a lot of the China shares.' The China Mantou Fund has about 30 holdings on the long side, selected from more than 1,200 companies. To qualify for inclusion in the hedge fund, stocks must derive 50 per cent of their revenue, earnings, or production from the mainland. This gives the fund a wider mandate, allowing it a broad choice ranging from stocks listed in China, to red chips and H-shares in Hong Kong, to mainland-related companies traded overseas. He says many of his favourite picks remain great value largely because they have not yet hit the radar screens of global investors. 'There are a lot of things happening in the market here and they tend to be overlooked in the beginning,' he says. 'A good area to look at are those companies brought to market by the Greater China investment banks. They are generally trading at between four and eight times earnings in the first month or two, but then tend to be revalued upwards.' An example is Kwang Sung Electronics. Listed in Hong Kong in July, the company manufactures and supplies a broad range of components for electronic appliances and communications equipment. Operated by a Korean management team, 90 per cent of sales are in China and Hong Kong. With a market cap of HK$426 million, and profits of HK$63 million last year, the company is trading at price earnings (PE) of five times. Mr Mantel says greater competition among investment banks has led to reasonable pricing of new listings. 'A lot of times, they sell to their clientele, who are really Asia-based, therefore the rest of the world doesn't see these stocks when they first come out.' Another value play is Wing Shing Chemical. The Guangdong-based company manufactures and sells paints and blended solvents. It also manufactures and sells plastic colourants and chemical materials to hundreds of toy manufactures throughout the Pearl River Delta. Gross margins are about 30 per cent. The company listed in Hong Kong at the end of last year at 50 HK cents, but is now trading at 25 cents. That seems cheap, Mr Mantel says, for a company expecting to increase capacity 10 per cent to 20 per cent through to 2005. He estimates it is selling at three to four times forward earnings. 'It is a small company and its competitors are larger, so there are some risks involved,' Mr Mantel says. 'But it does have a profit record and is performing very well within a niche industry.' Among the large caps, China Telecom catches Mr Mantel's eye for its diverse business lines and fast growth story. The shares skidded last week, despite an overall robust first-half performance in which profits rose 9.1 per cent and the total user base swelled to 62.2 million. The company's xiaolongtong semi-mobile service, available in more than 400 cities, attracted 2.18 million subscribers in the first half. 'These little smart telephones are a very strong growth area,' Mr Mantel says. 'I am holding (the stock) and will likely purchase more. It is a very good core holding.' He also likes the looks of Beijing Datang. As the dominant power producer in the northern China region, the company is well positioned to take advantage of future growth opportunities, with plans on the drawing board to double generating capacity by 2006. 'Fund managers want to own China because of its high growth prospects,' he says. 'There will be increasing money flows coming into the China stock universe.' Winson Fong, fund manager with SG Asset Management's China Sogelux Fund, expects strong corporate earnings will drive stocks in the coming months. Among his favourites is Comba Telcom Systems, which is primarily engaged in the manufacture of telecommunications equipment for network providers such as China Mobile and China Unicom. Sales are expected to boom next year, Mr Fong says, when Beijing finalises 3G licensing issues. 'There will be a lot more demand for capital expenditure from the wireless sector next year,' he says, estimating the company currently trades at 11 to 12 times forward earnings. Hong Kong-based Group Sense also makes the hit list. The firm's new mobile handset has received rave reviews and the stock is trading at between eight and 10 times forward earnings. For something Sars-proof, Mr Fong recommends large cap Cosco Pacific. It has posted strong earnings in the first half and looks to build upon strength in its container leasing and ports services. 'The demand will continue to grow, regardless of whether China is overheating because they are mainly doing business for external demand,' Mr Fong said.