Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> reported 1H21 results (March year-end) which demonstrated sales increasing 108% in mainland China but imploding in HK, Taiwan, and Macau. Profits from mainland China were up almost 300% as margins for particularly Rolex were extraordinary. Sales from China were 70% of total sales which is a massive reversal from a few years ago when HK made up 80% of revenues.</p><p>Overall company revenues were +16.4% and pre-tax profits were +32.7%. The bottom line was impacted by the higher PRC Enterprise Tax rate.</p><p>The company just completed a 14.55% buyback of its outstanding shares and subsequently canceled them. Shares outstanding have therefore fallen from 570.36 to 478.36 million shares. After this buyback is accounted for net cash on the balance sheet is 853M HKD (estimate). This equates to cash still being 70% of the market cap! Our expectation is that cash re-builds quickly to around 1 billion HKD and large dividends will continue.</p><p>Management also raised the interim dividend slightly to 0.12 HKD. The stock goes ex-dividend on 8 December and payment is planned right before Christmas. Just the interim dividend alone yields close to 4.5%.</p><p>Did you know that if one bought Oriental Watch after our first insight in December 2017,  reinvested all dividends, and participated in the partial tender offer your return would be 179%? Not bad for a "boring" HK watch retailer. Our Fair Value remains at 3.5 HKD or 40% upside from here.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/210/original/oriental%20watch%20total%20return%202017%20to%2025%20nov%202020.png?1606353118" class="editor-image img-responsive" data-smartkarma-image-id="174210"></figure></section>

Oriental Watch (398 HK) reported 1H21 results (March year-end) which demonstrated sales increasing 108% in mainland China but imploding in HK, Taiwan, and Macau. Profits from mainland China were up almost 300% as margins for particularly Rolex were extraordinary. Sales from China were 70% of total sales which is a massive reversal from a few years ago when HK made up 80% of revenues.Overall company revenues were +16.4% and pre-tax profits were +32.7%. The bottom line was impacted by the higher PRC Enterprise Tax rate.The company just completed a 14.55% buyback of its outstanding shares and subsequently canceled them. Shares outstanding have therefore fallen from 570.36 to 478.36 million shares. After this buyback is accounted for net cash on the balance sheet is 853M HKD (estimate). This equates to cash still being 70% of the market cap! Our expectation is that cash re-builds quickly to around 1 billion HKD and large dividends will continue.Management also raised the interim dividend slightly to 0.12 HKD. The stock goes ex-dividend on 8 December and payment is planned right before Christmas. Just the interim dividend alone yields close to 4.5%.Did you know that if one bought Oriental Watch after our first insight in December 2017,  reinvested all dividends, and participated in the partial tender offer your return would be 179%? Not bad for a "boring" HK watch retailer. Our Fair Value remains at 3.5 HKD or 40% upside from here.

1H21 Shows 108% Sales Growth in China; Bottom Line Hit by Higher Tax; Cash 70% of Market Cap

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

<p><a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> has been caught in a sideways range since gapping higher and that gap will act as solid support to propel OW toward macro rally objectives. A new and higher trading range is expected to develop.</p><p>2.05-2.25 gap zone is the ideal buy support area or on a break above 1.65 resistance. An a-b-c corrective flat is taking shape that is a bullish set up.</p><p>Trendline and price support meet at 2.25.</p><p>Macro targets are outline in our chart from early September.</p>

Oriental Watch (398 HK) has been caught in a sideways range since gapping higher and that gap will act as solid support to propel OW toward macro rally objectives. A new and higher trading range is expected to develop.2.05-2.25 gap zone is the ideal buy support area or on a break above 1.65 resistance. An a-b-c corrective flat is taking shape that is a bullish set up.Trendline and price support meet at 2.25.Macro targets are outline in our chart from early September.

Oriental Watch Gap Support and Then Higher

<p><a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a><a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0914/2020091400003.pdf" target="_blank" rel="noopener">announced</a> it is proposing to buy back a maximum of 83 million shares at 3 HKD (249M HKD). This represents a premium over 57% vs the average 30-day closing price on HKex. Once the shares are bought back they will be canceled which will reduce total shares outstanding from 570 million to 478 million. A Special General Meeting (SGM) will be needed to approve the transaction, details of which are pending an official Offer Document. <em>The full transaction has been covered by <a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener">David Blennerhassett </a><a href="https://www.smartkarma.com/insights/oriental-watch-398-hk-conditional-partial-offer" target="_blank" data-smartkarma-citation="insights:42872" rel="noopener">Oriental Watch (398 HK): Conditional Partial Offer</a><a href="https://www.smartkarma.com/profiles/david-blennerhassett" target="_blank" data-smartkarma-citation="accounts:840" rel="noopener"> </a></em></p><p>As long-time Oriental Watch followers let's step back and assess what this means:</p><ul>
<li>The controlling family's stake will rise over 30% (depending on uptake 30.85-36.10%) but they won't have to make a mandatory general offer as they have requested an exemption from HKex. Minority investors need to approve the transaction: we would advise minorities to vote IN FAVOR.</li>
<li>The founding family upping its stake at a significant premium to the latest stock price is bullish. </li>
<li>Even at 3 HKD, the shares trade far below their latest book value of 4.04 HKD.</li>
<li>With increased ownership management is now more incentivized to keep on paying large dividends going forward. </li>
<li>Mr. Market has been perenially mispricing Oriental Watch at negative enterprise value or barely above net cash over the last 5 years. As discussed at length in various previous insights we think this is wrong and the latest transaction again highlights the underlying value.</li>
<li>The company has returned 0.885 HKD/share in dividends over the past four years. When judging Oriental Watch's share price performance please make sure you look up<strong><em> the total return</em></strong> on your Bloomberg.</li>
<li>Mainland China Rolex sales have been seeing YoY SSS increases of 40-80% since April (depending month to month). Once HK opens up SSS comps become very easy after 2019 (riots) and 2020 (Covid-19). <em>Please re-read our insight on Oriental Watch being a way to play Rolex in China <a href="https://www.smartkarma.com/insights/oriental-watch-bet-on-rolex-demand-in-china-hk-and-collect-12-dividends-while-waiting" target="_blank" data-smartkarma-citation="insights:40803" rel="noopener">Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting</a> </em>
</li>
</ul>

Oriental Watch (398 HK)announced it is proposing to buy back a maximum of 83 million shares at 3 HKD (249M HKD). This represents a premium over 57% vs the average 30-day closing price on HKex. Once the shares are bought back they will be canceled which will reduce total shares outstanding from 570 million to 478 million. A Special General Meeting (SGM) will be needed to approve the transaction, details of which are pending an official Offer Document. The full transaction has been covered by David Blennerhassett Oriental Watch (398 HK): Conditional Partial Offer As long-time Oriental Watch followers let's step back and assess what this means:
The controlling family's stake will rise over 30% (depending on uptake 30.85-36.10%) but they won't have to make a mandatory general offer as they have requested an exemption from HKex. Minority investors need to approve the transaction: we would advise minorities to vote IN FAVOR.
The founding family upping its stake at a significant premium to the latest stock price is bullish. 
Even at 3 HKD, the shares trade far below their latest book value of 4.04 HKD.
With increased ownership management is now more incentivized to keep on paying large dividends going forward. 
Mr. Market has been perenially mispricing Oriental Watch at negative enterprise value or barely above net cash over the last 5 years. As discussed at length in various previous insights we think this is wrong and the latest transaction again highlights the underlying value.
The company has returned 0.885 HKD/share in dividends over the past four years. When judging Oriental Watch's share price performance please make sure you look up the total return on your Bloomberg.
Mainland China Rolex sales have been seeing YoY SSS increases of 40-80% since April (depending month to month). Once HK opens up SSS comps become very easy after 2019 (riots) and 2020 (Covid-19). Please re-read our insight on Oriental Watch being a way to play Rolex in China Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting 



Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>After <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> ("OWH") was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0831/2020083100161.pdf" target="_blank" rel="noopener">suspended</a> <em>"pursuant to the Codes on Takeovers and Mergers and Share Buy-backs</em>", the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0914/2020091400003.pdf" target="_blank" rel="noopener">partial buyback</a> from the company - 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.</p>
</div>
<div>
<p>This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.</p>
</div>
<div>
<p>Yeung Ming Biu &amp; concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.</p>
</div>
<div>
<p>Should the partial buyback complete (i.e. fully exercised) Yeung &amp; concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong's "creeper rule", and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. </p>
</div>
<div>
<p>As always, more below the fold. Plus<em><strong> Ye Olde Arb Grids</strong></em>.  </p>
</div>


After Oriental Watch (398 HK) ("OWH") was suspended "pursuant to the Codes on Takeovers and Mergers and Share Buy-backs", the immediate takeaway was to conclude the company would be subject to a Privatization Offer. But in what is becoming increasingly more common, OWH has announced a partial buyback from the company - 14.55% of shares out or 83mn shares, at HK$3.00/share, a 53.85% premium to last close.


This will cost the company HK$0.25bn (US$32mn). OWH had net cash on hand of ~HK$0.65bn as at Mar 2020.


Yeung Ming Biu &amp; concert parties hold 30.85% of shares out and will not tender. That leaves 69.15% of the register subject to the buyback, implying a minimum pro-ration of 21.04%.


Should the partial buyback complete (i.e. fully exercised) Yeung &amp; concert parties will hold 36.10% of shares out, before the exercise of any outstanding share options. That step-up in %-held oversteps Hong Kong's "creeper rule", and therefore Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 


As always, more below the fold. Plus Ye Olde Arb Grids.  


Oriental Watch (398 HK): Conditional Partial Offer

<p><a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> is near the top end of the 2 year range and will struggle on strength and would need a earnings backed impulsive breakout to clear this resistance. The good news is that the ongoing range from 2018 has formed a bullish wedge that will break higher to see major new highs.</p><p><strong>Macro stand out points:</strong> Bull wedge in price and MACD call for a major re rating for Oriental Watch (OW) but faces a tactical fade in well defined resistance in the daily chart. Macro base support clearly defined at 1.40/50.</p><p>Daily cycle resistance points are noted and formidable within the context of a more bullish cycle brewing on the back of wedge formations.</p><p>2.03 is the tactical break point for a test on 2.15/25 where the tactical cycle will be extended and corrections have unfolded until we see a better value cycle unfold.</p><p>Macro bullish with conviction.</p>

Oriental Watch (398 HK) is near the top end of the 2 year range and will struggle on strength and would need a earnings backed impulsive breakout to clear this resistance. The good news is that the ongoing range from 2018 has formed a bullish wedge that will break higher to see major new highs.Macro stand out points: Bull wedge in price and MACD call for a major re rating for Oriental Watch (OW) but faces a tactical fade in well defined resistance in the daily chart. Macro base support clearly defined at 1.40/50.Daily cycle resistance points are noted and formidable within the context of a more bullish cycle brewing on the back of wedge formations.2.03 is the tactical break point for a test on 2.15/25 where the tactical cycle will be extended and corrections have unfolded until we see a better value cycle unfold.Macro bullish with conviction.

Oriental Tactical Hurdles with Macro Bullish Pattern

Hong Kong

Oriental Watch Holdings Limited, through its subsidiaries, trades watches and invests in properties.

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Oriental Watch (398 HK)

1H21 Shows 108% Sales Growth in China; Bottom Line Hit by Higher Tax; Cash 70% of Market Cap

Oriental Watch continues to deliver great outcomes for its shareholders. Management just bought back 14.55% of its own shares and subsequently...

Nicolas Van Broekhoven

Oriental Watch Gap Support and Then Higher

Oriental Watch (398 HK) has been caught in a sideways range since gapping higher that will act as solid support to propel OW toward macro targets....

Thomas Schroeder

Oriental Watch: Forget the Tender, Management Is Bullish and Dividends to Accelerate

Oriental Watch (398 HK) has been the perennial stock in HK which has traded at cash

Nicolas Van Broekhoven