Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

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Equity Bottom-up Research

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> is a micro-cap gem with the potential to provide a solid return over the next few months owing to a resurgence in beauty treatment in Hong Kong.  We believe the stock can easily double over the next 6 months due to the following catalyst:<ul>
<li>
Improved earnings outlook: With over 2.5 months of shutdowns in H1, we believe that the company is primed to grow its revenue and profitability in H2 2021. We forecast 450 mn HKD of revenue in H2 ( up from 315 mn HKD in H1 ), enabling the company to grow its profitability easily to 134 mn HKD in FY21 placing at 5.6x FY21.</li>
<li>
Huge margin of safety with cash representing 56% of the market capitalization: We believe this will provide ample buffer for the company to do M&amp;A as well as payout dividends.</li>
<li>
Great Dividend Payout Ratio Exceeding 80%: The company's dividend payout ratio exceeds 80% (at the very minimum), which implies a 14.3% dividend yield. </li>
<li>
Opportunity for M&amp;A: We believe with the state of the industry as beaten down as it is, the opportunity for M&amp;A is good, and the company has completed one transaction that we believe will be accretive. </li>
</ul>Risks<ul>
<li>Another Outbreak of Covid in HK which could result in shutdowns of their facilities.</li>
<li>This is a microcap and the company's investor communication is less, so it could take time for the story to play out.</li>
</ul>

Water Oasis (1161 HK) is a micro-cap gem with the potential to provide a solid return over the next few months owing to a resurgence in beauty treatment in Hong Kong.  We believe the stock can easily double over the next 6 months due to the following catalyst:

Improved earnings outlook: With over 2.5 months of shutdowns in H1, we believe that the company is primed to grow its revenue and profitability in H2 2021. We forecast 450 mn HKD of revenue in H2 ( up from 315 mn HKD in H1 ), enabling the company to grow its profitability easily to 134 mn HKD in FY21 placing at 5.6x FY21.

Huge margin of safety with cash representing 56% of the market capitalization: We believe this will provide ample buffer for the company to do M&amp;A as well as payout dividends.

Great Dividend Payout Ratio Exceeding 80%: The company's dividend payout ratio exceeds 80% (at the very minimum), which implies a 14.3% dividend yield. 

Opportunity for M&amp;A: We believe with the state of the industry as beaten down as it is, the opportunity for M&amp;A is good, and the company has completed one transaction that we believe will be accretive. 
Risks
Another Outbreak of Covid in HK which could result in shutdowns of their facilities.
This is a microcap and the company's investor communication is less, so it could take time for the story to play out.


Water Oasis - Micro Cap Gem with Great Return Potential

Quality-first, Business-perspective Strategy, Urbem (HK) Limited

Steven Chen

Quality-first, Business-perspective Strategy

Perfect Medical Health / Equity Bottom-Up

<ul>
<li>Perfect Shape's interim results are largely as expected;</li>
<li>The business still maintains a robust financial position throughout the pandemic;</li>
<li>While the recovery is hopeful but still uncertain, the management is looking to take advantage of any downturn to widen the competitive gap.</li>
</ul>


Perfect Shape's interim results are largely as expected;
The business still maintains a robust financial position throughout the pandemic;
While the recovery is hopeful but still uncertain, the management is looking to take advantage of any downturn to widen the competitive gap.


Perfect Shape: Our Takeaways From H1 Results

<ul class="">
<li>No company is perfect from an investing perspective, with Perfect Shape being no exception;</li>
<li>Meanwhile, there is a lot that long-term, quality-focused investors like us can like about the stock;</li>
<li>In particular, skillful capital allocation, promising growth prospects, a track record of outperforming competitors, and an attractive valuation can together lead to a long-term alpha opportunity with a margin of safety.</li>
</ul>


No company is perfect from an investing perspective, with Perfect Shape being no exception;
Meanwhile, there is a lot that long-term, quality-focused investors like us can like about the stock;
In particular, skillful capital allocation, promising growth prospects, a track record of outperforming competitors, and an attractive valuation can together lead to a long-term alpha opportunity with a margin of safety.


Perfect Shape Is Not Perfect But Here Is What We Like About It

Thematic (Sector/Industry)

<ul>
<li>Founder-led businesses are supposed to receive more appreciation among investors;</li>
<li>It would be intriguing to explore how Chinese founders and business owners pay themselves, as executive compensation is a significant part of corporate governance, a common weakness among most Chinese public companies;</li>
<li>We examine a pool of selected value-generative, founder-led, Chinese businesses across industries, and market caps to demonstrate the similarity and any dissimilarity.</li>
</ul>


Founder-led businesses are supposed to receive more appreciation among investors;
It would be intriguing to explore how Chinese founders and business owners pay themselves, as executive compensation is a significant part of corporate governance, a common weakness among most Chinese public companies;
We examine a pool of selected value-generative, founder-led, Chinese businesses across industries, and market caps to demonstrate the similarity and any dissimilarity.


<ul>
<li>The stock of Water Oasis is hitting a mid-single-digit P/E and a high-teens FCF yield;</li>
<li>But buying cheap does not always produce a sizable return for owners;</li>
<li>We would like to examine the business fundamentals through a few factors that help identify a value trap.</li>
</ul>


The stock of Water Oasis is hitting a mid-single-digit P/E and a high-teens FCF yield;
But buying cheap does not always produce a sizable return for owners;
We would like to examine the business fundamentals through a few factors that help identify a value trap.


Hong Kong

EC Healthcare operates as a non-hospital medical service provider. The Company principally engages in the provision of medical, aesthetic medical, beauty and wellness services, and sale of skincare, healthcare and beauty products. EC Healthcare conducts businesses in Hong Kong, Macau, and Mainland China.

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EC Healthcare (2138 HK)

Water Oasis - Micro Cap Gem with Great Return Potential

Water Oasis is a micro-cap gem with a 5.5x FY21 multiple and 56% of the market capitalization in cash with a potential 14% dividend yield

Sameer Taneja

Perfect Shape: Our Takeaways From H1 Results

While the recovery is hopeful but still uncertain, the management is looking to take advantage of any downturn to widen the competitive gap.

Steven Chen

Perfect Shape Is Not Perfect But Here Is What We Like About It

We think that Perfect Shape offers a long-term alpha opportunity with a margin of safety at the current level, even after a nearly 30% rally in the...

Steven Chen

How Chinese Founders Pay Themselves

Take a look at how Chinese founders and business owners pay themselves and gauge the soundness of corporate governance among founder-operated and...

Steven Chen

Water Oasis: Deep Value or Value Trap?

Buying cheap does not necessarily produce sizable returns. We employ our value-trap framework to assess the risk profile of Water Oasis, a...

Steven Chen

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