Time Watch Investments Ltd (2033:HK) is the manufacturer, brand-owner and retailer of China’s largest national brand for watches. The company, managed the brand, Tian Wang, which has a market share of more than 10% of all the national
brands of watch. The company also has an impressive growth track record, boosting its revenue with at an annual rate of 27% for the past 4 years. It achieved a revenue of more than HK$2.4 billion in FY2014. Its profit growth is even more impressive at 50% compounded annual growth rate (CAGR) from FY2010 to FY2014.
Yet, the company’s share price is only trading at 8.8 times price to earnings ratio and has a dividend yield of more than 4.6% currently. What seems to be the issue here? Is the company greatly undervalued? Here are three possible reasons.
Time Watch Investments Ltd has not been listed for a long time. It was listed only since the beginning of 2013. For an investor interested in the luxury retailing space, there is quite a number of choice for her to choose from. Therefore, there might be a natural tendency to disregard a company with a shorter track record compared to more established player in the market.
The company is quite tightly held by its founding family. The Tung family still held more than 68% of the company and there is no real established institutional investment in the company yet. A company that is less followed by the investment community tends to be more “misunderstood”.
The retail market in China is not exactly in a great shape right now. Many of the leading retailers in China has been seeing their growth slowdramatically. Even Prada SpA (1913:HK), the famous global luxury brand, saw its share price fell 40% off its peak. Without a clear rebound in the consumer market in China, there is not catalyst to realize the full value of the company.
Value In Action
Of course, there might be many more reasons why a fast growing company is trading at such a low valuation. However, just because a company is trading at a low valuation does not mean it is “cheap”. Many times, there are real fundamental reasons for the company to deserve its low price.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above.