Goodbaby International (1086 HK)

[swang107]

For sharing. Recently S'pore stocks are..... well this HK small cap is interesting.

Three reportable operating segments as follows: Strollers and accessories (about 34% of sales, 35% of GP), car seats and accessories (about 41% of sales, 41% of GP) and other durable juvenile products (about 26% of sales, 15%  of GP). Ships to N. America (about 40%), Europe (about 31%), China (about 19%) and others (about 9%).

Just reported 1H16. Strong cash generative business. Revenue contracted but net profits grew, largely due to growth in gross margins. In the midst of transition from ODM to brand owner (bought Evenflo and Cybex in last 2 years). This set of earnings report shows strong signs of a successful transition, gross margin improved for its 2 key segments: Strollers and accessories (by 7.3% to 34.8%) and car seats and accessories (by 4.3% to 40.5%). Benefits from a vertically integrated business model (Production -->brand owner) is coming through. 

Personally, i think the potential for explosive growth in child seats in China is there. Enforcement for mandatory use of child seats is still very weak if i am not wrong, not even compulsary.  So lets see......

[Gaudente]

P/BV 2 P/E 20 div yield below 2% ?

[swang107]

Not trying to sell this idea. Lets see, each have to judge the 'value' for his own. Just a quick look at the multiples won't do you any good. I don't think div yield is important for me in this company's case, at this stage.

[soros]

The past dividend record is 5 cents paid in 4 years out of last 5 years and one year no dividend was paid.

Its not a share to attract dividend seekers. The P/BV = 2 will not attract the FA investor .

You need to attend the AGM and ask what is the dividend policy of the company ?

[swang107]

The past dividend record is 5 cents paid in 4 years out of last 5 years  and one year no dividend was paid.

Its not a share to attract dividend seekers.  The P/BV = 2 will not attract  the FA investor .

You need to attend the AGM and ask what is the dividend policy of the company ?

Agreed, not for the income seeking investor, last 2 years the company spent resources to acquire brands (Cybex and Evenflo). No dividend payout policy.

I am trying to speculate on a potential multi-bagger here, i am not looking for income. So the way I approach this might seem uncomfortable or too aggressive to some.

I am approaching this from Fundamental Analysis (FA) though, and i find it attractive, maybe closer to a GARP perspective than just pure value. I admit, TA also shows that we have a good entry point now.

- I am not sure if P/B is correct to value companies like this. How do u value a portfolio of brands that a company owns? This 'expensive' 2x PB, could it be because market views it as having stronger brands than competitors? I don't know.

- P/E is only useful when viewed against growth (my humble opinion). So before buying, one should do own diligence and set expectations on what EPS is expected to grow on average for the next 3 years. For e.g 18x current PE is reasonable if i am expecting 20% CAGR.

- I am attracted to its gross margins. Ultimately strong margins easier to make positive operating cash flow. All in all, I am 'speculating' on potential explosive growth in EPS as its sales grow exponentially (from better coordinated marketing/sales efforts for its brands globally, regulatory changes or just plain demographics) and from further improvement in margins (room to improve in SG&A) from its vertically integrated business model.

So there you go. My 2 cents =)