Equity, Bottom-up Analyst, Investics Research

Sameer Taneja

Equity, Bottom-up Analyst

Investics Research

It is important to note that the information provided by Investics Research is based on publicly available data and own knowledge, which has been gathered and analyzed from a variety of sources. While every effort has been made to ensure the accuracy and completeness of the information provided, it is not guaranteed to be free from errors or omissions. All forecasts and estimates are based on information that has been obtained from public sources that are considered to be reliable. The sources include but are not limited to, company announcements, exchange filings, presentations, etc. Investics does not guarantee the accuracy and completeness of the forecasts, estimates, and/or other information.

Equity Bottom-up Research

Equity Bottom-Up

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<a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a>  went ex-dividend on the 4th of January and has settled at an appetizing valuation of 6.8x PE with 60% of the market cap in cash.</li>
<li>The market post-golden week and into the new year has been tepid.</li>
<li>We expect the company to continue paying out 100% of its profits as dividends, based on which the dividend yield is close to 14% at the current share price.</li>
</ul>



Oriental Watch (398 HK)  went ex-dividend on the 4th of January and has settled at an appetizing valuation of 6.8x PE with 60% of the market cap in cash.
The market post-golden week and into the new year has been tepid.
We expect the company to continue paying out 100% of its profits as dividends, based on which the dividend yield is close to 14% at the current share price.


Oriental Watch (398 HK): Ex-Dividend, Cash Levels To Mkt Cap at 60%, 6.8x PE, 14% Dividend Yield

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<li>
<a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> reported an 8% YoY profit decline for H1 FY24 (Vs. our expectation of 10-15% growth) due to a higher taxation rate and lower margins in HK. </li>
<li>Despite that, the company distributed 100% of its profits for a 28.5 cent HKD/share dividend (15% annualized) and built net cash/investments to 1.25 bn HKD (62% of market cap). </li>
<li>Trading at 7x FY24e PE with abundant cash and real estate with a 15% yield, the stock is worth exploring with the perspective of building a high-yield portfolio.</li>
</ul>



Oriental Watch (398 HK) reported an 8% YoY profit decline for H1 FY24 (Vs. our expectation of 10-15% growth) due to a higher taxation rate and lower margins in HK. 
Despite that, the company distributed 100% of its profits for a 28.5 cent HKD/share dividend (15% annualized) and built net cash/investments to 1.25 bn HKD (62% of market cap). 
Trading at 7x FY24e PE with abundant cash and real estate with a 15% yield, the stock is worth exploring with the perspective of building a high-yield portfolio.


Oriental Watch (398 HK): H1 FY24 Lower than Expectation But A 15% Div Yield, Cash >60% of Mkt Cap

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<li>We remain cautious on <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> despite the recovery in sales in June this year. Wealth destruction in financial markets could impact sales in the short term.</li>
<li>Having said that, the stock is extremely cheap at 6.7x FY23 earnings (-32% YoY from FY22), with more than one bn HKD in cash (60% of market capitalization). </li>
<li>With a generous payout ratio of &gt;100%, the stock trades at &gt;17% yield. We believe the company will dip into cash reserves to maintain a high yield.</li>
</ul>


We remain cautious on Oriental Watch (398 HK) despite the recovery in sales in June this year. Wealth destruction in financial markets could impact sales in the short term.
Having said that, the stock is extremely cheap at 6.7x FY23 earnings (-32% YoY from FY22), with more than one bn HKD in cash (60% of market capitalization). 
With a generous payout ratio of &gt;100%, the stock trades at &gt;17% yield. We believe the company will dip into cash reserves to maintain a high yield.


Oriental Watch: Trading at 17% Yield, 60% Mkt Cap in Cash

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<li>
<a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a> profit alert for &gt;350 mn HKD affirms our conviction on the increasing dividend (74 HKD cents for FY22, implying a 15.7% dividend yield). </li>
<li>Lockdowns in China (accounting for 67% of the revenue) cast doubt around how H1 2023 will shape up. </li>
<li>With cash &gt; 50% of market capitalization, we remain positive on the company maintaining its high dividend payout for FY23 despite weakness in H1. </li>
</ul>



Oriental Watch (398 HK) profit alert for &gt;350 mn HKD affirms our conviction on the increasing dividend (74 HKD cents for FY22, implying a 15.7% dividend yield). 
Lockdowns in China (accounting for 67% of the revenue) cast doubt around how H1 2023 will shape up. 
With cash &gt; 50% of market capitalization, we remain positive on the company maintaining its high dividend payout for FY23 despite weakness in H1. 


Oriental Watch: Good Results in the Bag, Cautious H1 2023

In his insight, <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> has made a very compelling case to stay on in <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a>.  I will attempt to make a case for why dividends could be larger in H1 FY22 than H1 FY21, which we believe could further catalyze the stock. Our rationale for the same is:
<ul>
<li>Recovery of Hong Kong. </li>
<li>Continuous strength in China.</li>
<li>The massive decline in costs HoH as we expect employee and staff bonuses to come down.</li>
</ul>
Risks and Concerns
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<li>The outbreak in Nanjing could temporarily disrupt sales in China.</li>
<li>The potential upcycle owing to the inability of people in China to travel will reverse at some stage resulting in the normalization of earnings.</li>
</ul>
With the stock trading at 7x PE FY22, around 50% of the market capitalization in cash, and an estimated dividend of greater than 40 cents HKD around the corner in H1 FY22 ( after the declaration of a final dividend of 39 cents HKD in H2 FY21 ) we believe there is good upside in <a href="https://www.smartkarma.com/entities/oriental-watch-holdings" target="_blank" data-smartkarma-citation="entities:19950:1" rel="noopener">Oriental Watch (398 HK)</a>.

In his insight, Nicolas Van Broekhoven has made a very compelling case to stay on in Oriental Watch (398 HK).  I will attempt to make a case for why dividends could be larger in H1 FY22 than H1 FY21, which we believe could further catalyze the stock. Our rationale for the same is:

Recovery of Hong Kong. 
Continuous strength in China.
The massive decline in costs HoH as we expect employee and staff bonuses to come down.

Risks and Concerns

The outbreak in Nanjing could temporarily disrupt sales in China.
The potential upcycle owing to the inability of people in China to travel will reverse at some stage resulting in the normalization of earnings.

With the stock trading at 7x PE FY22, around 50% of the market capitalization in cash, and an estimated dividend of greater than 40 cents HKD around the corner in H1 FY22 ( after the declaration of a final dividend of 39 cents HKD in H2 FY21 ) we believe there is good upside in Oriental Watch (398 HK).

Oriental Watch: Sit Tight and Stay On For Larger Dividends

Hong Kong

Oriental Watch Holdings Limited, through its subsidiaries, trades watches and invests in properties.

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Oriental Watch (398 HK)