Oriental Watch - Expect a Positive Profit Alert for H1

Despite a slight slowdown in August and September, due to supply constraints from Rolex and Patek as well lockdowns in China due to Covid, we expect that Oriental Watch (398 HK) will announce a profit alert ahead of its result in November.

We continue to like Oriental Watch (398 HK):

• We believe that despite the last two months of difficulties, dividends for H1 2022 will still be more than 25 cents representing an annualized yield of 12% on the current share price.
• We expect inventories to trend lower due to these supply constraints resulting in further cash conversion on the balance sheet and net cash levels remaining over one bn HKD (representing 50% of the current market capitalization).

Risks

• Imposition of a luxury tax by the Chinese government.
• Further severe supply curtailments by Rolex and Patek Philippe.