This article was first published on Jun 12, 2014
Hong Kong, a city well-known for its food, shopping and rude
people. It is also home to Asia largest Jeweller, Chow Tai Fook (1929: HK). In fact, there are numerous companies in the Jewellery and watches space listed here in Hong Kong. Some of the larger companies includes Luk Fook (590: HK), Chow Sang Sang (116: HK), Emperor Watch & Jewellery (887: HK), Hengdeli Holdings (3389: HK) and Oriental Watch (398: HK).
Lowest Valuation Ever
If you are an investor that follows the retail space, you realize that most retailers tend to trade at a rather high price to earnings ratio most of the time. Especially for famous brands like Prada or LVMH Moet Hennessy Louis Vuitton (MC: FP). Interestingly, most of the Hong Kong discretionary retailers are currently trading at a very low valuation. Why is this the case?
Gold Price etc, etc, etc
Well, there are several reasons but the most likely are that gold price has since fallen off its peak and many of the jewellers still based most of their business in gold trading. Since most of their inventory are in gold, as gold prices drop, so will the value of the company.
Another important point is the Chinese Government crack down on corruption. Previously, jewellery and watches are common gifts both in the government and private sector. Now with the stringent crack down, investors fear that the demand for these products will diminish tremendously in the future.
Are these companies Value BUY or Value Trap?
The correct question to ask for investors is whether these risks will persist for the long term or temporarily. If investors are able to confidently answer that, you might have just made an investment decision.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim owns shares in Hengdeli Holdings.