Orange Sky Golden Harvest a Steal?

[BigFatWhale]

Trading at just 0.12x book, Orange Sky Golden Harvest which owns Golden Village seems too good an opportunity to miss. We analysed their financials and found it worth taking a deeper look given how attractive it is based on price to book. 

The recovery of the cinema business is also on track.

Will it be a value trap? Looking forward to hearing everyone's view.

Here is the Full Article:

https://thebigfatwhale.com/investing-in-...n-harvest/

[CY09]

A painful lesson I have learnt is that assets that dont produce cashflow or profits are useless.

In this company's case, they have been in negative cashflow. Singapore might be turning around but not taiwan and HK who are still on a strict covid measures.

[weijian]

If the movie experience at the cinema is going to be obsolete, then this investment would be a big value trap.

Talk of the death of the movie theater has been around for the longest time. My educated guess is that the movie experience will survive and actually strive. In our current online world, we need offline experiential escapes. My bet is that teenagers still prefer to "patoh" in the darkness of the movie theaters, and parents still do date-night movies to escape from life drudgeries (for disclosure sake, I have experience in both). I guess there is something magical about paying obscene prices for popcorn/coke (a price we happily pay for escapism), sit in a dark room filled with other strangers and listen to some classical story telling.

But even if the movie theater experience survives or strive, this doesn't mean that the company wouldn't be a value trap. They are not the same ting. A value trap is what it is literally read as it is - there is VALUE but it is TRAPPED (normally by the controlling shareholders). If the movie theater becomes obsolete, there is no value to speak of.


The Golden Village branding is iconic, an established and trusted name in the cinema industry

I am not sure if there is any moat from the "iconic brand". The entire movie supply-value chain has evolved. Studios have consolidated (or get bought out by streaming giants) and been suppliers/distributors of the movie theaters, it doesn't bode well for the latter. It might just be me, but I also suspect most people don't care much about the theater much more than the comfort, size and location. But I do believe that as weaker players are flushed in a small market like Singapore, efficient scale kicks in (since they have 42% of Spore market by seat capacity) and this to me, is probably the lure of the business.

Finally, you have mentioned some good points about the business and the market it operates in. But to really answer the question that you pose "will it be a value trap?", the imperative is to look/discuss about the structure of the company - Who are the controlling shareholders? How are they paid? Will they be incentivized to realize value? Do their whole gang work in the company? IMHO, this is probably the 1st thing an OPMI needs to look at when they see a big P/B discount. My personal experience is that after reviewing the "structure" of many of these low P/B companies, I will not continue looking at the assets/business and save my time. Mr Market is smarter than me more often than not.

[BigFatWhale]

I think earnings will lead to price discovery. With a margin of safety below 0.2x book, we just have to see the earnings roll in and things should fall in place. Have done some sensitivity analysis on their financials, and should be able to endure another 2-3 years of drought which we hope would not be the case.