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Chow Sang Sang (0116.HK)
10-10-2019, 04:33 PM. (This post was last modified: 10-10-2019, 11:50 PM by dreamybear.)
Post: #11
RE: Chow Sang Sang (0116.HK)
(10-10-2019, 03:10 PM)gemini Wrote: Its most recent reported book value is HK$16 per share, isn't it ...

May I know by book value, are you referring to NTA or NAV ?

imho, the quality of assets is more impt than the reported book value, e.g. - having a little short experience in running a bizess, those "property / used plant / equipment" hardly has any value in reality, worst case may even need to spend money to dispose or make whole to original state. So unless it's a freehold / prime / good location / property / land in a stable political environment(country with strong rule of law), i wld usually assign 0 value to property / plant / equipment(any recovery amt is a bonus). Speaking of which, land in HK and mainland China are leasehold. Some types of inventories may also become obsolete(may it be by design(fashion), perishable items, new SG cars sitting in the warehouse for a few years may depreciate quite a lot, etc) thereby not being worth as much when time goes by. Cash may also be slowly depleted if sales are very bad due to the prolonged unrest in HK. Other than that, CCS also has 496m of cash held on behalf of clients(means not its own) & 1b of receivables(can be subjected to impairments esp in a poor economic env) for its securities and futures bizness, making up part of its current assets.

Do note that I am not an accountant, just sharing my limited knowledge. As such, pls feel free to correct my understanding if necessary. Smile

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16-10-2019, 08:40 AM.
Post: #12
RE: Chow Sang Sang (0116.HK)
(10-10-2019, 04:33 PM)dreamybear Wrote:
(10-10-2019, 03:10 PM)gemini Wrote: Its most recent reported book value is HK$16 per share, isn't it ...

May I know by book value, are you referring to NTA or NAV ?

imho, the quality of assets is more impt than the reported book value, e.g. - having a little short experience in running a bizess, those "property / used plant / equipment" hardly has any value in reality, worst case may even need to spend money to dispose or make whole to original state. So unless it's a freehold / prime / good location / property / land in a stable political environment(country with strong rule of law), i wld usually assign 0 value to property / plant / equipment(any recovery amt is a bonus). Speaking of which, land in HK and mainland China are leasehold. Some types of inventories may also become obsolete(may it be by design(fashion), perishable items, new SG cars sitting in the warehouse for a few years may depreciate quite a lot, etc) thereby not being worth as much when time goes by. Cash may also be slowly depleted if sales are very bad due to the prolonged unrest in HK. Other than that, CCS also has 496m of cash held on behalf of clients(means not its own) & 1b of receivables(can be subjected to impairments esp in a poor economic env) for its securities and futures bizness, making up part of its current assets.

Do note that I am not an accountant, just sharing my limited knowledge. As such, pls feel free to correct my understanding if necessary. Smile


Does not make sense to attribute zero to property la.  Going by your assumption/reasoning, all the property stocks would crash at least 50% overnight already.

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Yesterday, 01:14 PM.
Post: #13
RE: Chow Sang Sang (0116.HK)
Chow Sang Sang (CSS) has some shares in HKEX, a small securities brokerage, and a small amount in investment properties. But these are not important to its overall value. CSS is primarily a manufacturer and retailer of gold jewelleries, and should be studied as such. 

As a gold retailer, CSS can profit in two ways:

1) ensure that it purchases gold at prices that are lower than what it sells to its customers for. 
2) produce desirable designs for which it may earn higher-margins for, also known as the labour charge.

Because gold retailers stock large quantities of gold inventory, a very large portion of the business' assets are exposed to the market price of gold. In a situation where it sells its gold to customers at market prices which are lower than what it paid for, it will incur a loss on the gold, though may make-up for it in the labour charges. To avoid exposure to the fluctuating gold price, thereby locking-in profits on their labour charges, gold retailers like CSS performing hedging by selling gold on contracts. I believe this is what the "bullion loans" are for.

The downside of such hedging is, of course, that the retailer does not enjoy any upside if gold market prices rise. The other danger is that during such increases in gold market prices -- where the retailer will incur a loss on the short contract -- the retailer is unable to monetise his/her inventory to meet the short contract obligations, even as the inventories are now worth more. In the event where the short obligations fall due but the retailer has no liquidity to fulfil those obligations, the retailer will have to melt inventories at market prices, which means forgone profits (and losses) on labour charges.  

Chow Tai Fook stated in its latest profit warning that its bullion loan to bullion inventory ratio is 60%. CSS has about HK$1b of bullion loans against HK$8b of inventories, but its gold inventories are not disclosed. It seems likely that CSS is less hedged, and thus, has higher exposure to gold market price.  

This means that a large fall in gold prices for a prolonged period of time will not only have disastrous impairments on CSS' balance sheet, as inventories represent about half of its total assets, but also possibly large losses on its P&L, as previously explained.

Hence, an investment in CSS -- or any gold retailer with little/no hedging on gold price -- will necessitate a belief that gold (jewellery) will continue to be in popular consumer demand, so as to allow continued gold price appreciation. If this is true, then CSS, which has a history of profitability, consistent dividend payouts, low gearing, and whose valuations are close to 2010 and 2014 levels, does look cheap.

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Yesterday, 01:36 PM.
Post: #14
RE: Chow Sang Sang (0116.HK)
hi, if CSS performs hedging by selling on contracts, does it mean that when it eventually sells the gold jewellry to the consumer, there will be a double selling? It sounds weird to me

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Yesterday, 01:52 PM.
Post: #15
RE: Chow Sang Sang (0116.HK)
(Yesterday, 01:36 PM)money Wrote: hi, if CSS performs hedging by selling on contracts, does it mean that when it eventually sells the gold jewellry to the consumer, there will be a double selling? It sounds weird to me

Yes. But it will have to use the sales proceeds from the customer to buyback its paper shorts. So there is no double selling.

Though, in practice, this may not exactly be how the process will flow (i.e. buy physical from supplier, sell paper to hedge, then sell physical to customer, and buy paper to cover hedge), since it is not likely that the gold shorts will be tagged to any particular piece(s) of jewellery.

I have looked through CSS AR but have not found a clear explanation of their hedging process.

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