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

<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 a long term favorite of mine as the company was a perennial cheap HK travel play. Chinese residents would come to HK and Macau to buy luxury watches which were cheaper vs the mainland.Since 2020 and the onset of Covid the story has changed with mainland citizens unable to travel to HK, Macau, Europe or the US. Chinese travelers were notorious for spending lavishly in cities across Europe and the US in luxury boutiques. Today's Bloomberg article <a href="https://www.straitstimes.com/asia/east-asia/cautious-china-keeps-borders-shut-despite-mass-covid-19-vaccination-drive" target="_blank" rel="noopener">"Cautious China Keeps Borders Shut Despite Mass Vaccination Drive"</a> again highlights that the opening up of China is going to take much longer than investors expect. This is bullish for domestic luxury players.With no foreign holidays mainland Chinese buyers have gone on a spending spree buying luxury watches in mainland China. While no official data is available we estimate Oriental Watch is the largest importer and reseller of Rolex watches in China. During 1H21, 27% of its sales were generated in HK, 70% came from China, 2.8% from Macau, and 0.2% from Taiwan. Contrast this with pre-Covid times when HK/Macau generated a combined +/-75% of annual revenues.Oriental Watch will report FY21 results later this month. We expect record results and a good dividend (minimum 0.25 HKD/share). The question is how much is already discounted with the stock up 60% YTD. As highlighted by fellow insight provider <a href="https://www.smartkarma.com/profiles/sameer-taneja-a0539e0c-84dd-4e66-9c40-6e598edfb4c5" target="_blank" data-smartkarma-citation="accounts:352" rel="noopener">Sameer Taneja</a> in March the stock is still not expensive on a SOTP basis.

Oriental Watch (398 HK) has been a long term favorite of mine as the company was a perennial cheap HK travel play. Chinese residents would come to HK and Macau to buy luxury watches which were cheaper vs the mainland.Since 2020 and the onset of Covid the story has changed with mainland citizens unable to travel to HK, Macau, Europe or the US. Chinese travelers were notorious for spending lavishly in cities across Europe and the US in luxury boutiques. Today's Bloomberg article "Cautious China Keeps Borders Shut Despite Mass Vaccination Drive" again highlights that the opening up of China is going to take much longer than investors expect. This is bullish for domestic luxury players.With no foreign holidays mainland Chinese buyers have gone on a spending spree buying luxury watches in mainland China. While no official data is available we estimate Oriental Watch is the largest importer and reseller of Rolex watches in China. During 1H21, 27% of its sales were generated in HK, 70% came from China, 2.8% from Macau, and 0.2% from Taiwan. Contrast this with pre-Covid times when HK/Macau generated a combined +/-75% of annual revenues.Oriental Watch will report FY21 results later this month. We expect record results and a good dividend (minimum 0.25 HKD/share). The question is how much is already discounted with the stock up 60% YTD. As highlighted by fellow insight provider Sameer Taneja in March the stock is still not expensive on a SOTP basis. 

Oriental Watch: Buying a Rolex in Milan or New York? No, Thanks We Will Get It in Shanghai & Beijing

Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

<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> still presents a great opportunity come the H2 results in May 2021. We believe that the company has the potential to show good growth for profits in H2 as the SSSG was strong over the last few months due to &gt;120% YoY SSSG in the Chinese stores, which has more than compensated for weakness in the HK market.There is deep value in this name with over 850 mn HKD of the market capitalization in cash ( representing 1.75 HKD/share or 67% of the market capitalization).  The stock currently trades at a PE of 9x FY21 (3x ex-cash).

Oriental Watch (398 HK) still presents a great opportunity come the H2 results in May 2021. We believe that the company has the potential to show good growth for profits in H2 as the SSSG was strong over the last few months due to &gt;120% YoY SSSG in the Chinese stores, which has more than compensated for weakness in the HK market.There is deep value in this name with over 850 mn HKD of the market capitalization in cash ( representing 1.75 HKD/share or 67% of the market capitalization).  The stock currently trades at a PE of 9x FY21 (3x ex-cash).  

Oriental Watch: Deep Value and a Good H1 2021

<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.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.<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

<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.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 (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

<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. 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>As long-time Oriental Watch followers let's step back and assess what this means:<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 the total return 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). 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> 
</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

Hong Kong

Glorious Sun Enterprises Limited, through its subsidiaries, retails and exports casual wear apparel.  The Company also manufactures casual wear products and trades fabric.

Dickson Concepts (International) Limited, through its subsidiaries, sells watches and fashion products.  The Company also trades luxury goods, and provides management and technical services.

Goldlion Holdings Limited, through its subsidiaries, distributes and manufactures garments and accessories.  The Company also invests in properties and operates a commercial center with restaurants and a business center.

Emperor Watch & Jewellery Ltd retails luxurious branded watches, and offers design and sales of jewellery products.

International Housewares Retail Company Limited operates retail houseware retail stores. The Company offers customers a variety of houseware products in Hong Kong, Singapore, West Malaysia, China and Macau.

International Housewares Retail (1373 HK)

Symphony Holdings Limited, through its subsidiaries, manufactures and trades footwear products.  The Company also invests in properties.

Sa Sa International Holdings Limited, through its subsidiaries, retails and wholesales cosmetics. The Company also provides beauty and health club services to members.

Mulsanne Group Holding Limited offers omni channel branding and marketing services. The Company offers online advertising, social media campaign, and other services. Mulsanne Group Holding provides its services throughout China.

Auto Italia Holdings Limited distributes brand-name products including motor vehicles. The Company serves customers in Hong Kong, Macau, mainland China, and elsewhere in Asia.

Giordano International Limited, through its subsidiaries, retails and distributes casual apparel and accessories under theGiordano, Giordano Ladies, Giordano Junior, BSX and Concepts One brands.

Adairs Limited operates as a retailer of manchester and homewares. The Company offers bed linen, bedding products, towels, cushions, throws, books, homewares, wall art, and furniture.

NISSAN TOKYO SALES HOLDINGS CO., LTD sells new and pre-owned passenger cars and commercialvehicles produced by Nissan Motor mainly in central Tokyo area. The Company also sells car parts and provides maintenance service. NISSAN TOKYO SALES HOLDINGS also operates office building rental, car leasing service, and insurance service.  The Company's subsidiaries sell Jaguar and Renault cars.

Bell-Park Co., Ltd., is an independent primary dealer of Softbank mobile telephones and the related service subscription contracts.  The Company also markets land line and ADSL services and provides employment services.

Beijing Digital Telecom Co., Ltd. is a communication company that services The People's Republic of China.  The Company is a distributor of communications terminals and related services. It also retails mobile communications and digital products.

Hallenstein Glasson Holdings Limited owns and operates retail stores that sell men's, women's, and young men's apparel products and sportswear. The stores are located throughout New Zealand and Australia.

CHIYODA CO., LTD. operates specialty store chains including shoes stores, toy stores, and also casual clothe stores nationwide.  The Company sells its shoes under a number of store chains including The SHOES, Kutsu Chiyoda, and SHOE PLAZA.

FTGroup Co., Ltd. develops and sells telecommunication equipment such as business phones, facsimiles, and CTI (Computer Telephony Integration) products. The Company also provides maintenance services for its products. FTGroup works as an agency for telecommunication service carriers and also sells mobile phones through its franchises.

HARD OFF CORPORATION Co., Ltd. operates a chain of secondhand goods stores based in Niigata.  The Company buys and sells PCs, audio & visual products, cameras, musical instruments, watches, CDs, and game software.  HARD OFF operates its own stores and also franchise stores.

Singer Thailand Public Company Limited assembles and distributes Singer brand household appliances such as sewing machines, refrigerators, televisions, washing machines, stereos, VCRs and gas stoves.  The Company has its own retail network and offers installment financing to its customers.

LS Networks Co., Ltd. manufactures leather and athletic shoes, sports apparel, golf accessories, and leisure items.  The Company also operates a building leasing business.

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

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Oriental Watch (398 HK)

Oriental Watch: Buying a Rolex in Milan or New York? No, Thanks We Will Get It in Shanghai & Beijing

Oriental Watch has morphed from a cheap HK travel play to a domestic China luxury spending story. The stock has run up 60% YTD in anticipation of...

Nicolas Van Broekhoven

Oriental Watch: Deep Value and a Good H1 2021

Oriental Watch presents an excellent opportunity to buy with a 67% of the market capitalization in cash, 3x ex-cash PE as well as potential...

Sameer Taneja

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

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