Chow Sang Sang (0116.HK)

(28-07-2021, 08:54 PM)karlmarx Wrote: Sticking to my knitting of the old and more predictable, CSS looks set to report growth for the past half year, if its results are in line with its competitors.

Well, you hit the mark.

CSS is a gd bet on the chinese's continued progress and prosperity.  

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ESTIMATED PROFIT INCREASE FOR THE SIX MONTHS ENDED 30 JUNE 2021 (emphasis mine)
https://www1.hkexnews.hk/listedco/listco...001045.pdf

"....based on the Board’s preliminary review of the unaudited consolidated management accounts of the Group for the six months ended 30 June 2021 (the “Period”), the Group is expected to record its profit attributable to the Shareholders between HK$518 million and HK$539 million, representing an increase of 145% to 155% as compared to the corresponding period in 2020. The Board considers that the main cause of the increase was the swift recovery of the Group’s jewellery retail business in Mainland China subsequent to the slump caused by the covid-19 pandemic during the first quarter of 2020."

I think this is the first time it released a positive profit announcement in the last 20 years, though I'm not sure if it is necessary since the large percentage gain was due to the low base of last year. Even then, it is still slightly lower compared to the pre-coivd and pre-protest profit in 1H19. I think the results can only be considered satisfactory.

Nevertheless, barring any major events, they should be on track to returning to pre-2019 levels of profit, where there were no huge impairments on margin loan receivables, and protests in HK. The massive campaign to add new stores in mainland, if successful, and the re-opening of borders between HK and mainland, are tail wind events to look out for.

But other unexpected and negative events somewhere down the road should not be discounted.

The company is now selling for HK$8.8b (up from HK$5.5b during the height of the HK protest in 2H19) and if we can assume a profit of HK$1b for 2021, and a modest profit growth rate for subsequent years, for an evergreen business and an established brand in a net cash position with growth plans, it looks cheap to me.

@AQ. Can't help you there. I'm as clueless myself. AAstocks is not very helpful to me. There's probably some discussion board for HK/PRC stocks out there but I have no idea where.

(31-07-2021, 11:23 AM)karlmarx Wrote: I think this is the first time it released a positive profit announcement in the last 20 years, though I'm not sure if it is necessary since the large percentage gain was due to the low base of last year. Even then, it is still slightly lower compared to the pre-coivd and pre-protest profit in 1H19. I think the results can only be considered satisfactory.

Nevertheless, barring any major events, they should be on track to returning to pre-2019 levels of profit, where there were no huge impairments on margin loan receivables, and protests in HK. The massive campaign to add new stores in mainland, if successful, and the re-opening of borders between HK and mainland, are tail wind events to look out for.

But other unexpected and negative events somewhere down the road should not be discounted.

The company is now selling for HK$8.8b (up from HK$5.5b during the height of the HK protest in 2H19) and if we can assume a profit of HK$1b for 2021, and a modest profit growth rate for subsequent years, for an evergreen business and an established brand in a net cash position with growth plans, it looks cheap to me.

@AQ. Can't help you there. I'm as clueless myself. AAstocks is not very helpful to me. There's probably some discussion board for HK/PRC stocks out there but I have no idea where.

Apparently all the big jewellers like CSS, Chow tai fok, luk fok, etc.. have been doing a roaring trade these past few months ever since china implemented the digital yuan. 

A lot of chinese apparently flocking to lock in their paper yuan into gold in the form of jewellery mainly, especially the ladies, possibly they dont want the gov to track their assets/hidden assets. How long this "conversion" lasts I am not sure, but could last for another half year maybe?? 

I was thinking of picking them up but their Div yields are only in the 2-3% range and the increase in business has probably already been priced in. 

For exposure to gold, I think the american or aussie gold miners are a better buy.

The worst seems to be over for CSS. Gold, luxury watches look set to be ever-popular items in China.

Really regretted selling shares of a resilient business especially after I managed to pick them up at compelling valuation for an established brand name during Mar 2020. Given the kind of resilient performance during such a difficult time like Covid and its ability to generate a quick  subsequent rebound, it is unlikely the mkt will price it at depressed levels again. 

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INTERIM RESULTS ANNOUNCEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2021
https://www1.hkexnews.hk/listedco/listco...601064.pdf
"During the six months ended 30 June 2021, jewellery and watch sales in all markets in which our Group was operating exhibited remarkable recovery. Mainland jewellery retail market showed a rapid return to the pre-covid growth trend. Cutting down on overseas travel certainly benefited domestic consumption. Overall Mainland China Same Store Sales Growth (“SSSG”) during the first half of 2021 grew 69%, completely reversing the decline in 2020. Relying mostly on local consumption, Hong Kong and Macau demonstrated relatively modest overall growth as compared with the same period last year.

On the product front, gold jewellery remained the Chinese favourite for both wedding and daily wear purposes....

Profit attributable to owners of the Company increased by 154% to HK$536 million.

China - Driven by strong demand, sales of Rolex and Tudor reached new highs..... "

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The Top 10 Luxury Brands in China  (CSS no. 8)
https://www.gartner.com/en/marketing/ins...in-china-2

Valuations are currently certainly not as low, but outlook was very bad when it was that low. Something could happen sending valuations down again. Never say never.

Nevertheless, I'm pretty sure the gold jewellry business is not going to be too different in the future,. CSS is also selling and marketing its products on online platforms, so it is good that they are moving with the times. If CSS can continue to grow (albeit slowly), I think current prices are still okay for a long-term investor to achieve modest returns.

And if PRC's long-term plan to achieve "common prosperity" is achieved, that should add even more to the middle class population and enlarge the market for gold jewellry consumption. The long-term inflation of gold price may also provide a tailwind to higher revenue.

The competitive landscape is very crowded so it is not likely that CSS will gain significant market share. CTF has better execution and marketing, so I believe they will continue to do even better in the future. But they are also more expensive. LFX is another 'blue chip' in the market. LF is a slightly smaller and less branded version of CTF which can grow a lot more if they can sustain continued improvement in operation and marketing. They are, after all, the brand with the less cachet (though probably better than CTS) If they succed on that, then LF's current valuation could be cheap.

Not sure about the effects of digital yuan on gold. Though it does make sense that there might be some capital flight towards physical gold assets, long-term investors should focus on the long-term base case for gold jewellry retailers (like CSS) to manage their expectations. Anything else is a bonus.

CTF and LF's latest sales results looks healthy:

https://www1.hkexnews.hk/listedco/listco...200527.pdf
https://www1.hkexnews.hk/listedco/listco...500667.pdf

So it seems like the consumption recovery in China, and in its gold jewellrey industry, is still doing well.

CSS' sales shouldn't be too far from either competitors, so it is likely that FY21 will be a relatively better year for them.

The industry is still fragmented with many branded players and many neighbourhood goldsmith shops. The largest player CTF has only about 8% of total sales in China, and for CSS it is only about 2%. So there is probably still some way to go for the industry to mature and consolidate.

It will be interesting to see if China's gold jewellrey sales will continue to grow in 2022 above its previous high.

Chow Sang Sang released full year results for 2022 a while back and led to a correction in share price due to dismay results. Looking back, the Covid restrictions were only lifted in December 2022. Hidden inside the statement is the sign of green shoots in the recovery of domestic consumption.

"As of the first quarter of 2023 the worst of the covid-19 impact looks to be behind us. This puts our
jewellery and watch retail on a strong recovery footing. Sales in Hong Kong and Macau, and Mainland
China for the period from 1 January to 15 March 2023 were up approximately 89% and 26% year-onyear respectively."

This is significant news since HK and Macau took up to a third of revenues in 2022. Looking forward to the 1H2023 results when it comes.

(06-04-2023, 09:59 AM)Squirrel Wrote: Chow Sang Sang released full year results for 2022 a while back and led to a correction in share price due to dismay results. Looking back, the Covid restrictions were only lifted in December 2022. Hidden inside the statement is the sign of green shoots in the recovery of domestic consumption.

"As of the first quarter of 2023 the worst of the covid-19 impact looks to be behind us. This puts our
jewellery and watch retail on a strong recovery footing. Sales in Hong Kong and Macau, and Mainland
China for the period from 1 January to 15 March 2023 were up approximately 89% and 26% year-onyear respectively."

This is significant news since HK and Macau took up to a third of revenues in 2022. Looking forward to the 1H2023 results when it comes.

And there you have it, a profit guidance that is off the charts.

https://www1.hkexnews.hk/listedco/listco...102295.pdf

The board of directors (the “Board”) of the Company would like to inform the shareholders and potential investors of the Company that the results of the Group for the six months ended 30 June 2023 (the “Period”) are expected to record a profit attributable to owners of the Company between HKD800 million and HKD850 million, representing an increase of 70% to 80% as compared with HKD472 million for the corresponding period in 2022. Turnover for the Period rose following the ending of epidemic-related restrictions in Hong Kong, Macau and the Mainland, and the comparison of profits is made against a low base in 2022.

This result places the 1H profits to be even higher than full year pre pandemic  profits. At circa HKD10 traded price now, is it cheap? That’s up to individuals. If they could distribute the HKEX shares in species, that would be the best outcome.

I checked previous years, and the middle estimate of HKD 825 Million, equaling HKD 1.22 per share, would be a record high profit for a half year.

CSS 166, King Fook 280, Emperor Jewelry 887 now look very cheap:

Annualizing PE from last half year gives: CSS 4.0, KF 4.0, EJ 3.3
P/B ratios: CSS 0.56, KF 0.43, EJ 0.25

Pros:
CSS is one of the big 3 HK jewelry companies, and cheaper than Chow Tai Fook or Luk Fook
CSS robust business
KF with a monster special dividend
KF only in HK & Macau potentially profiting most from reboot of tourism
KF cash almost equaled market cap as of 30/6/2023
KF no debt
EJ cheapest of all
EJ no debt
EJ steady dividend with approx 30% payout in past years

Cons:
Dividend payout ratios for all 3 rather low in the past, except KF's recent special dividend
CSS connected transactions
KF had problems a couple of years ago, but now looks much better
EJ complicated structure
KF & EJ small caps

Anything missing?

If any of these 3 would commit to a high dividend payout policy, would be a no brainer.