Lotustpsll, who contributed this article to NextInsight, worked 32 years with a global banking group before he retired. This is a follow-up to his article ORIENTAL WATCH: "Why I consider it a small-cap gem"
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ORIENTAL WATCH – Sterling 1HFY19 Results Interim results were released on Nov 20 and it was a solid half-year performance, leading the board to declare an interim dividend of 2.8 HK cents per share (2017: 2 HK cents) and a special dividend of 8.7 HK cents (2017: Nil).
Key management imperatives to improve the gross profit margin (gross profit margin), stabilise/reduce expenses and to reduce inventory level were achieved. |
Oriental Watch is a distributor of Rolex watches, amongst others.
Photo: Company
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Rental expenses have reduced further (7% drop as compared to last 1H). Operating expenses are being managed effectively.
The further decline in inventory level is a good indicator that management is working hard to further optimise its inventory management.
This will impact positively on its free cash flow (FCF). (Note – Cashflow Statement will be available only later when the Interim Report is released)
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Stock price |
HK$2.08 |
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52-week |
HK$1.57 – HK$2.72 |
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PE (ttm) |
7.6 |
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Market cap |
HK$1.2 b |
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Shares outstanding |
570 m |
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Dividend |
5.2% |
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1-year return |
32% |
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Source: Bloomberg |
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The larger dividend pay-outs may have taken the market by surprise. As for me, I was expecting it as the Group had paid out dividends that were close to its EPS in the last FY.
This is interesting as I expect Oriental Watch to keep on paying high pay-outs to shareholders.
Barring any unforeseen circumstance, can Oriental Watch sustain its EPS growth and to maintain high dividend pay-outs? IMO, I believe Oriental Watch can deliver :-
♦ Group’s business strategies are delivering well (contain costs and improve margins)
♦ Secular demand for luxury time-pieces (China’s growing Middle Class)
♦ Financial position (net cash over H$1.0 billion) is rock solid
♦ Capex requirements continue to be modest (below H$10m)
Oriental Watch had expanded aggressively in the past. In 2013, the Group had 103 outlets and now only 62.
Lessons were painful – incurred losses, slumping cash-flows and high external debts.
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Four years on …. |
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FY14 |
FY18 |
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No. of outlets |
97 |
62 |
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Gross profit margin |
17.6% |
20.9% |
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EPS |
3.6c |
24.3c |
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Free cashflow |
$305m |
$482m |
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Net cash |
($66m) |
$1035m |
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Bank Loans |
$491m |
$75m |
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Inventory |
$1788m |
$1001m |
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Note: $ figures are in HKD $ |
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Now, the Group is completely transformed – growing profitability, rising gross profit margin, strong recurrent FCF and strong financial position.
Oriental Watch is hitting the sweet spot with its revamped business strategies and this will propel the Group forward.
The Ugly Duckling is now a Swan.
