Oriental Watch Holdings Ltd (398:HKG)

Oriental-Watch

Accounting: Hong Kong Accounting Standards

Oriental Watch Holdings Limited is a Hong Kong-based investment holding company principally engaged in the trading of watches. The Company operates through two geographical segments, including Hong Kong segment and Taiwan, Macau and the People’s Republic of China (PRC) segment. The brands under the Company include Roger Dubuis, Bulgari, Rolex, Gucci and Calvin Klein, among others. The Company is also engaged in the holding of properties through its subsidiaries.

According to the 2017 Annual Report (Fiscal Year: March), the Group operates 64 retail and wholesale points (including associate retail stores) in the Greater China region, (Hong Kong 13, Macau 1, Taiwan 3, China 47).

The aggregate rental cost (excluding related property management fees) decreased by 5.7% to HK$214 million, accounting for 42.3% of the Group’s overall operating expenses (2016: 42.1%).

Recent History

In 2012, China launched an anti-graft campaign that created significant headwinds for purchases on luxury goods.

In 2012, the company sold, (and agreed to a leaseback), one of their retail properties for HK$86.8 million. It was listed on their books for HK$9.3 million.  The retail shop (less than 1,000 sq. ft.) took up two floors in a 15 story building. [Ground Floor and Mezzanine Floor, Block C, General Commercial Building, 160 Des Voeux Road Central, Central, Hong Kong]

In 2016, the company closed down 1 store in Hong Kong, as well as selling their Macau business, Hei Tung Watches Company Limited (“Hei Tung”), (a 45% interest in a joint-venture).  The deal is for HK$83.2 million in cash and the transfer of HK$66.8 million in debt.  The JV was listed on their books at HK$83.2 million.

Insider Ownership

Through personal and corporate holdings, Dr. Yeung Ming Biu and his wife control 155,754,144 shares (27.3%).

Other

  • From the 2013 stock option program, 54,560,000 shares have been issued to key personnel and are exercisable at HK$3.44 per share.
  • From their interim report ending Sept 2017, operating lease agreements are HK$344.3 million.
  • They have undervalued real estate assets on the books.
  • During the downturn, shares outstanding have held steady.  If this picks back up, I suspect they will start reissuing shares.
  • The pension is a defined contribution plan.

 

3/31/15 3/31/16 3/31/17 9/30/17
Cash and Short-term Investments 344,037,000   $ 403,804,000   $ 645,188,000   $ 863,787,000 $
(0.75 * Accounts Receivable) 78,117,000   $ 79,836,000   $ 74,318,250   $ 76,714,500 $
(0.5 * Inventory) 892,000,000   $ 785,000,000   $ 638,000,000   $ 575,500,000 $
Total Liabilities 495,621,000   $ 377,064,000   $ 208,732,000   $ 238,396,000 $
NNWC 818,533,000   $ 891,576,000   $ 1,148,774,250 $ 1,277,605,500 $
NCAV 1,780,379,000 $ 1,718,936,000 $ 1,823,268,000 $ 1,894,604,000 $
NCAV + LT Investments 1,941,663,000 $ 1,874,417,000 $ 1,890,746,000 $ 1,963,793,000 $
TBV 2,210,000,000 $ 2,157,000,000 $ 2,146,000,000 $ 2,202,000,000 $
Enterprise Value 487,952,301   $ 300,686,323   $
Retained Earnings 2,099,457,000 $ 2,088,945,000 $ 2,145,252,000 $
Dividend Payout (4,279,000) $ (1,996,000) $ (2,567,000) $ (27,046,000) $
Shares Outstanding 570,610,224 570,610,224 570,610,224 570,610,224
P / NNWC 86% 61% 89% 84%
P / NCAV 39% 32% 56% 57%
P / NCAV + LT Investments 36% 29% 54% 55%
P / TBV 32% 25% 48% 49%
NCAV Burn Rate 4.6% -3.5% 6.1% 3.9%
Debt / Equity 15.3% 10.0% 5.2%
F-Score 5 6 9
FS-Score 5 7 10
Z-Score 3.6
Beneish M-Score (3.9)
EV / Operating Income (5yr) 166%
EV / Operating Income (10yr) 39%
Operating Income (10yr) 1,242,031,000 $

The company traded above NCAV in 2012.

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Writeups:

  • Egregiously Cheap here
  • ValueInvestorsClub (seeker) here
  • ValueInvestorsClub (Z199Y) here
  • Bargain Hunter here

Disclosure: We own shares in Oriental Watch

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