Water Oasis 1161 Value, Growth & Reopening Play

[bmann025]

Last trading at HKD 1.39

WO was low PE, high yield, with high payout ratio for most of the time in the past years, 

http://www.aastocks.com/en/stocks/analys...mbol=01161

and only recently started to focus on growth, aggressively opening new outlets, expanding service area, and made an acquisition of the struggling competitor Millistrong in June 2021.

Results of the new, fast growth strategy were already visible in the past year with:
 
EPS HKD 0.25
HKD DIV 0.22
https://www1.hkexnews.hk/listedco/listco...001532.pdf

The 1st half was also covid19 plagued, but still produced EPS HKD 0.087, the 2nd half result was a massive HKD 0.16.

This result may be further increased with recent expansions, potentially turning Millistrong as profitable as the rest of the group, a reopening boom, government handouts, and the closure of some competitors.

Insiders (management) bought in March & April,
https://di.hkex.com.hk/di/NSAllFormList....&g_lang=en&

while Mrs. Lai Yin Ling sold some more in January. She has been selling for years
https://www.wateroasis.com.hk/wp-content...0420_e.pdf

Water Oasis will report half year tomorrow, and due to extended Covid19 closures, the results may be poor. That may be a good entrance point.

The main story will be told in the outlook of the half year report, another point to pay attention is, how quickly & at what cost they manage to restore their workforce, which has been idled in the past months, and some of them probably may have found jobs elsewhere.

[dreamybear]

Water Oasis will report half year tomorrow, and due to extended Covid19 closures, the results may be poor. That may be a good entrance point.

The main story will be told in the outlook of the half year report, another point to pay attention is, how quickly & at what cost they manage to restore their workforce, which has been idled in the past months, and some of them probably may have found jobs elsewhere.

Thanks for creating the thread.

WO's half year results - revenue increased by 23.3% mainly due to Millistrong's contribution while profit decreased by 55.1%

https://www1.hkexnews.hk/listedco/listco...701775.pdf

This counter has been on my watchlist but I have yet to really research into it. So far, the main issue I still can't figure out is why it wasn't able to achieve similar successes in PRC(e.g. many more Oasis centres in HK than in PRC). Its main revenue is still derived mainly from HK/Macau with PRC only contributing a fraction. Imho, even if tourism(e.g. Chinese visitors to HK) resumes in the future, there is still only so much growth/capacity in the HK/Macau mkt. If the entry point is not low enuff, may be quite difficult to be a multi-bagger.

[bmann025]

Water Oasis will report half year tomorrow, and due to extended Covid19 closures, the results may be poor. That may be a good entrance point.

The main story will be told in the outlook of the half year report, another point to pay attention is, how quickly & at what cost they manage to restore their workforce, which has been idled in the past months, and some of them probably may have found jobs elsewhere.

Thanks for creating the thread.

WO's half year results - revenue increased by 23.3% mainly due to Millistrong's contribution while profit decreased by 55.1%

https://www1.hkexnews.hk/listedco/listco...701775.pdf

This counter has been on my watchlist but I have yet to really research into it. So far, the main issue I still can't figure out is why it wasn't able to achieve similar successes in PRC(e.g. many more Oasis centres in HK than in PRC). Its main revenue is still derived mainly from HK/Macau with PRC only contributing a fraction. Imho, even if tourism(e.g. Chinese visitors to HK) resumes in the future, there is still only so much growth/capacity in the HK/Macau mkt. If the entry point is not low enuff, may be quite difficult to be a multi-bagger.

I think their growth in HK is impressive. They had 35 beauty/spa outlets in 2017, 44 in 2020 and expect 59 end of 2022 plus increasing service areas / spectrum of services in certain spas.

Average revenue 2017-2020 was 662 Mio/year, now they produced about 300 Mio in the 3 months before closure.

They took over Millistrong at a very low price/revenue ratio.

Record earnings of 16 cents in mostly covid19 free H2 2021 indicate earnings correlate with growth. There also seems to be little dependence on tourism.

After the FY2021 earning report the share price was already in re-evaluation mode and reached HKD 2, but was then shot down by the 5th covid wave and a sale by Mrs. Lai Yin Ling.

I agree, expansion to mainland China is slow, but I imagine they should be really busy now executing opportunities in HK & Macau.

[dreamybear]

I agree WO is doing well in HK but I just feel there is insufficient long enough runway for me. Referring to the earliest AR on the website, i.e. AR2002, it seems WO has already been trying to make inroads into PRC decades ago. I think I will be more comfortable if I am able to find out more info on the PRC business for the last 20 years ...

".....The Directors believe that the PRC represents a major new opportunity for the Group. Hence the Group’s policy of aggressive expansion, which has seen the opening of 23 retail outlets mostly between August and September 2002. Urban Chinese in the PRC are driving a huge demand for foreign and luxury products, and the Group believes that now is the time to establish a powerful presence on the Mainland...."

--------------------

https://www.wateroasis.com.hk/investor-r...im-report/
https://www.wateroasis.com.hk/wp-content...02_eng.pdf  AR2002

[bmann025]

These were H2O retail outlets.

Water Oasis lost that business in 2012, when H2O Plus LLC terminated Water Oasis’s exclusive distributorship of H2O’s products in Mainland China and Taiwan.

Long term. mainland business, I don't know. I am in for a potential re-evaluation supported by recent progress in revenue & earnings in HK & Macau, which may happen at any time between next week and after the FY22 report.

[bmann025]

The H1 2022 result was (pre tax)  37.7 Mill vs 71.4 Mill in H1 2021, a decline of 33.7 Mill.
Subtracting H1 2021 gov subsidies of 18.4 Mill, reduces the difference to 15.3 Mill.

Head count increased from 827 (31.3.2021) to 1043 (31.3.2022) by 26%.
Staff cost increased from 107.1 to 151.7 Mill by 41.6%, despite more closing days in 2022.
Hence WO invested more money this year to keep employees within the company during the closure.

Assuming the performance is similar to H2 2021 with a profit of 16 cents after tax, they may have earned 8 cents from oct-Dec 2021, and lost 4 cents Jan-Mar 2022 during the closure.

Overall I see potential of earning 32 cents / full year without special situations like covid19, and assuming a 80% payout rate, a potential dividend of 25 cents. There is further potential with the execution of recent expansions and improvement of the profitability of Millistrong.

Generally, my rule of thumb is that a valuation of a stable or growing business is cheap at a 10% dividend rate. Do your own maths what price that would be for this counter.

[bmann025]

An update on Water Oasis from Smartkarma.
https://www.smartkarma.com/insights/wate...proving-h2

There likely won't be much news until final results are announced, but I assume every month open is good news.

There are 2 things to follow though,
1) insider trading, further purchases from management would be very positive
2) jobs advertised at sites like https://hk.jobsdb.com

[bmann025]

Co-Founder, Executive Director & mother of the current CEO, Mrs Yu Lai Chu, bought 852K

https://di.hkex.com.hk/di/NSAllFormList....g=en&&pg=1

https://www.wateroasis.com.hk/about-us/management/

[bmann025]

Profit warning:
https://www1.hkexnews.hk/listedco/listco...300670.pdf

Expected 60-70 millions profit for FY, or 34-44 mill for 2nd half. Adjusted for a 1 time expense for Millistrong of 33 mill gives approx. 67-77 mill. 2nd half.
Government subsidies were not mentioned, so I assume it was similar to the 18.4 mill from a year ago. Subtracting this would give a 'normalized' profit of approx 49-59 mill or approx. 8 cents per share in 2nd half.

Business was closed for 84 days in first half, 20 days in 2nd half,.

8 cents per half year was a very typical result pre-Covid19 (eg. 8.1 cents in H1 2019/20, 7.7 cents in H2 2019/20), i guess we currently sit around 10 cents in 2nd half further adjusting for these 20 closed days. Lifting full potential may require HK reopening & economy to pick up.

[bmann025]

In addition to re-opening optimism, the successful listing of Beauty Farms (2373) may have also contributed to recent price increases of Water Oasis (1161) and Modern Healthcare (919). Beauty Farms stock price increased 55% since listing on HKEX at Jan 16, 2023.

Comparing 2373 vs 1161 for FY 2021

Revenue: HKD 2150 Mill vs. 830 Mill -> factor 2.6
Net Income: HKD 233 Mill vs. 170 Mill -> factor 1.37
#Employees: 3681 vs 968 -> factor 3.8
Market Cap @ 10/2/2023: HKD 6.91 Bill vs 1.11 Bill -> factor 6.2

https://www.barrons.com/market-data/stoc...trycode=hk
https://www.barrons.com/market-data/stoc...trycode=hk

(Keep in mind that Water Oasis' net income was substantially lower in 2022 due, in part, to Covid19 closures).

Not guarantee for numbers, DYOR.