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FAIRWOOD HOLD(52)
Analysis：
Besides relaxing a number of its anti-pandemic measures, the Hong Kong government also reasserted its commitment to the economy. However, global rising inflation has signalled the likelihood of a significant global economic downturn. These two developments both represent relatively positive opportunities for Fairwood (052). As belts are tightened, it is common to see diners `trading down` their restaurant choices, especially in the dinner segment. Fairwood`s recent initiatives to expand and enhance its dinner offerings have great potential to bring such diners into its restaurants. During the pandemic, Fairwood continued to expand its network. In the six months ended 30 September, 2022, the Group opened nine new stores, made up of six in Hong Kong and three in Mainland China. As of 30 September 2022, the Group had a total of 160 stores in Hong Kong, including 148 fast food stores and 12 specialty restaurants — three ASAP, five Taiwan Bowl, three The Leaf Kitchen and one Kenting Tea House. In Mainland China, the Group was operating 22 stores as at 30 September 2022, mainly located in the Guangdong province. Fairwood`s takeaway sales, which only got underway during the pandemic, have continued to thrive, with the Click & Collect platform now generating double digit sales as a percentage of overall sales. Click & Collect members have continued to grow too, with membership standing at 320,000 as at the end of September 2022. Fairwood`s financial results in the first half of FY2022/23 are adversely impacted by the pandemic. The Group`s revenue for the period ended 30 September 2022 decreased by 0.3% to HK$1,494.7 million. Profit attributable to equity shareholders decreased by 18.4% to HK$42.8 million. Following the relaxation of anti-pandemic measures in Hong Kong and mainland China, the Group should see improvement in the second half of FY2022/23. The Group maintained a healthy financial position with bank deposits, cash and cash equivalents of HK$698 million as at 30 September 2022, representing an increase of 25.3%. the Group had no bank loan and the gearing ratio was 0.0%. The unutilised banking facilities were HK$328 million. (I do not hold the above stock)
Strategy：
Buy-in Price: $12.20, Target Price: $13.50, Cut Loss Price: $11.50
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MEITUAN(3690)
Analysis：
The group is mainly engaged in businesses including delivery services, in-store, and hotel and travel, new business and others. For the three months ended December 31, 2022. The revenue of delivery services amounted to RMB 19.77 billion, increasing 31.9% YoY. The revenue of commission amounted to RMB 14.93 billion, increasing 12.1% YoY. The revenue of Online marketing services amounted to RMB 7.77 billion, decreasing 5.0% YoY. The revenue of other services and sales amounted to RMB 17.65 billion, increasing 35.4% YoY. Cost of revenue amounted to RMB 43.2 billion, increasing 15.1% YoY. Gross profit amounted to RMB 16.93 billion, increasing 41.3% YoY. Gross profit margin was 28.2%, increasing 4.0 percentage points YoY. Operating loss amounted to RMB 730 million; loss narrowed by 85.4% YoY. Adjusted EBITDA amounted to RMB 2.96 billion, turnaround YoY. The recovery of retail sales of consumer goods in mainland has been relatively strong since the return to normal. Relevant data for the Golden Week in May also show that the mainland consumer market is relative active. In terms of the group, during the Golden Week, it undertook consumer voucher activities in many places to stimulate consumer sentiment. According to the data, the scale of accommodation orders and dine-in consumption in many places increased sharply month-on-month. We believe that relatively small consumption in the mainland is currently buoyant, which is conducive to the growth of the Group`s major businesses such as services, in-store, and hotel and travel.
Strategy：
Buy-in Price: $136.30, Target Price: $146.50, Cut Loss Price: $128.30
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Oriental Watch Holdings Limited (398.HK) - HK operation outperformed the market, Conservative spending on high-end luxury goods become a concern
Oriental Watch Holdings Limited (Oriental Watch) that founded in 1961, has developed an extensive retail shop network in the Greater China area, and has become one of the largest watch retailers. Company carries around a hundred prestigious brands, in particular, famous Swiss brands such as Rolex, Tudor, Piaget, Vacheron Constantin, IWC, Jaeger-LeCoultre, Girard Perregaux, Longines, Omega, etc. Company operates a total of 12 shops in HK SAR and Macau SAR, including Oriental Watch Company, La Suisse Watch Company, Rolex and Tudor Boutique and Breitling Boutique. In 2004, company expanded its watch retail business to Mainland China. Since then, company has opened a number of outlets and boutiques covering various cities in Mainland, China. Subsequently, company has further expanded its businesses to Taiwan region. As at 30 September 2022, company operates 44 retail points (including associate retail stores) in the Greater China region, and 1 online store in each of the Mainland China and HK respectively. HK operation outperformed the market with revenue increased by 6.1% In 1HFY2023 (for the six months ended 30 September 2022), company's revenue decreased by 10.0% yoy to HK$1,674 million, which was mainly attributable to the decrease in revenue in the Mainland China market as a result of business interruptions due to such lockdown policy and restrictions. In line with the decrease in revenue, gross profit decreased by 6.9% to HK$537 million, with gross profit margin increased by 1.1 percentage points to 32.1%, and profit attributable to owners of the company decreased by 9.6% to HK$151 million. Basic EPS were 31.03 HK cents, down 9.2% yoy. Interim dividend of 7.8 HK cents per share (1HFY2022: 8.6 HK cents per share) and a special dividend of 23.5 HK cents per share (1HFY2022: 25.8 HK cents per share). During the Period, the company's aggregated expenses related to leases increased slightlyby 5.3% to HK$80 million, accounting for 23.1% of the overall operating expenses (1HFY2022: 22.2%). The increase was mainly due to the lease renewal of retail stores which command a relatively higher rental rate. In Hong Kong, the COVID-19 pandemic situation has been under control since the first quarter of 2022. Yet, clouded by market uncertainty, the market sentiment remained cautious with the value of total retail sales decreased by 1.3% yoy during the first nine months of the year. However, sales of jewelry, watches and clocks, and valuable gifts recorded a slight increase of 0.2% during the same period. Despite the uncertain retail market sentiment, Hong Kong operation still outperformed the market with revenue increased by 6.1% to HK$504 million for the period, accounting for 30.1% of the overall revenue, segment profit increased by 81.8% to HK$42.75 million. According to the National Bureau of Statistics, the PRC's gross domestic product (GDP) has recorded a 0.4% yoy growth and 3.9% yoy growth in the second and third quarter respectively, which grew at a softer pace compared with the same period of last year. The slowdown of economic growth was attributable to the widespread lockdown as well as the weakening market sentiment. Sales of gold, silver and jewelry also recorded a decrease of 0.8% yoy from April to September 2022. According to the Federation of the Swiss Watch Industry FH, the Swiss watch exports to the PRC during the Period decreased 13.7% yoy to CHF1,267.3 million, showcasing the country's conservative sentiment on purchasing luxury watches. Due to the economic condition as well as the temporary business suspension mentioned above, revenue from Mainland China operation decreased by 15.4% to HK$1,101 million, accounting for 65.8% of the overall revenue, segment profit decreased by 23% to HK$189.86 million. Investment ThesisLooking ahead, although China and Hong Kong have entered the road to normal after the epidemic, with the uncertainty from the increase in interest rate, and the management also expects consumers to become more conservative in consumption, especially on purchasing of high-end luxury goods. Hence, the business will be under some pressure over the upcoming periods. We expect FY2023-FY2024 EPS to be 74.62 HK cents and 78.10 HK cents respectively, with PT of HKD5.14, implies a FY2023E P/B of 1.21x (~1-yrs historical average plus 1 SD). Our investment rating is “Accumulate”. Risk factors1) Economic recovery momentum is slowing down; 2) Operating costs are higher than expected; 3) Luxury goods consumption is lower than expected. Financial
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| Recommendation on 16-5-2023 | | Recommendation | Accumulate | | Price on Recommendation Date | $ 4.490 | | Suggested purchase price | N/A | | Target Price | $ 5.140 |
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