Independent Research, Turtles all the way down

Turtles all the way down

Independent Research

Writing short articles about mis-priced boring stocks around the world.

Equity Bottom-Up

<ul><li>Early this year I was quite pessimistic on Hong Kong stocks.</li><li>But since then the Hang Seng is down another 20% or so. A lot of stocks with 9-10%+ dividend yields are laying around.</li><li>I should have been a bit quicker writing this up, but then you are getting it for free.</li></ul>

Early this year I was quite pessimistic on Hong Kong stocks.But since then the Hang Seng is down another 20% or so. A lot of stocks with 9-10%+ dividend yields are laying around.I should have been a bit quicker writing this up, but then you are getting it for free.

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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> reported a tepid H1 with profits coming in at 26 mn HKD, down 56.2% YoY.  This was below our expectations as the company received no subsidies.</li>
<li>No interim dividend was paid as the profit in H1 was minuscule, and business had commenced on the 21st of April, impacting a month of H2.  </li>
<li>Save for another lockdown in HK, we see a substantial improvement in profitability for <a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> in H2, along with subsidies that are being paid retrospectively.</li>
</ul>



Water Oasis (1161 HK) reported a tepid H1 with profits coming in at 26 mn HKD, down 56.2% YoY.  This was below our expectations as the company received no subsidies.
No interim dividend was paid as the profit in H1 was minuscule, and business had commenced on the 21st of April, impacting a month of H2.  
Save for another lockdown in HK, we see a substantial improvement in profitability for Water Oasis (1161 HK) in H2, along with subsidies that are being paid retrospectively.


Water Oasis: Lockdown Affected H1 FY22, Improving H2

<ul>
<li>Beauty services in Hong Kong will pick up from the 21st of April 2022 post the reopening, due to pent-up demand and the disbursement of <a href="https://www.consumptionvoucher.gov.hk/en/newround.html" target="_blank" rel="noopener">Consumption Vouchers</a> by the government. </li>
<li>Despite losing three months of H1 2022 and a month of H2 2022, we believe that <a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a>  is still trading at 5.4x PE FY22e.</li>
<li>With an 80% payout ratio, the dividend yield is alluring at 16.4%. Net cash represents 38% of market capitalization. A year of uninterrupted operations implies a 3.8x PE. </li>
</ul>


Beauty services in Hong Kong will pick up from the 21st of April 2022 post the reopening, due to pent-up demand and the disbursement of Consumption Vouchers by the government. 
Despite losing three months of H1 2022 and a month of H2 2022, we believe that Water Oasis (1161 HK)  is still trading at 5.4x PE FY22e.
With an 80% payout ratio, the dividend yield is alluring at 16.4%. Net cash represents 38% of market capitalization. A year of uninterrupted operations implies a 3.8x PE. 


Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong

<ul>
<li>
<a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> trades at a 6x FY22 ( Sept end ) PE with 31% of its market capitalization in cash ( implying ex-cash 4x PE ). </li>
<li>For FY21, <a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> paid a 22 cent dividend implying a 12.43% dividend yield. We forecast a forward yield of 14%.</li>
<li>The company will continue to execute as it opens newer stores and beds down its M&amp;A for a 15% CAGR revenue growth.</li>
</ul>



Water Oasis (1161 HK) trades at a 6x FY22 ( Sept end ) PE with 31% of its market capitalization in cash ( implying ex-cash 4x PE ). 
For FY21, Water Oasis (1161 HK) paid a 22 cent dividend implying a 12.43% dividend yield. We forecast a forward yield of 14%.
The company will continue to execute as it opens newer stores and beds down its M&amp;A for a 15% CAGR revenue growth.


Water Oasis, Execution Makes It More Compelling

<a href="https://www.smartkarma.com/entities/water-oasis-group-ltd" target="_blank" data-smartkarma-citation="entities:17348:1" rel="noopener">Water Oasis (1161 HK)</a> is a micro-cap gem with the potential to provide a solid return over the next few months owing to a resurgence in beauty treatment in Hong Kong.  We believe the stock can easily double over the next 6 months due to the following catalyst:<ul>
<li>
Improved earnings outlook: With over 2.5 months of shutdowns in H1, we believe that the company is primed to grow its revenue and profitability in H2 2021. We forecast 450 mn HKD of revenue in H2 ( up from 315 mn HKD in H1 ), enabling the company to grow its profitability easily to 134 mn HKD in FY21 placing at 5.6x FY21.</li>
<li>
Huge margin of safety with cash representing 56% of the market capitalization: We believe this will provide ample buffer for the company to do M&amp;A as well as payout dividends.</li>
<li>
Great Dividend Payout Ratio Exceeding 80%: The company's dividend payout ratio exceeds 80% (at the very minimum), which implies a 14.3% dividend yield. </li>
<li>
Opportunity for M&amp;A: We believe with the state of the industry as beaten down as it is, the opportunity for M&amp;A is good, and the company has completed one transaction that we believe will be accretive. </li>
</ul>Risks<ul>
<li>Another Outbreak of Covid in HK which could result in shutdowns of their facilities.</li>
<li>This is a microcap and the company's investor communication is less, so it could take time for the story to play out.</li>
</ul>

Water Oasis (1161 HK) is a micro-cap gem with the potential to provide a solid return over the next few months owing to a resurgence in beauty treatment in Hong Kong.  We believe the stock can easily double over the next 6 months due to the following catalyst:

Improved earnings outlook: With over 2.5 months of shutdowns in H1, we believe that the company is primed to grow its revenue and profitability in H2 2021. We forecast 450 mn HKD of revenue in H2 ( up from 315 mn HKD in H1 ), enabling the company to grow its profitability easily to 134 mn HKD in FY21 placing at 5.6x FY21.

Huge margin of safety with cash representing 56% of the market capitalization: We believe this will provide ample buffer for the company to do M&amp;A as well as payout dividends.

Great Dividend Payout Ratio Exceeding 80%: The company's dividend payout ratio exceeds 80% (at the very minimum), which implies a 14.3% dividend yield. 

Opportunity for M&amp;A: We believe with the state of the industry as beaten down as it is, the opportunity for M&amp;A is good, and the company has completed one transaction that we believe will be accretive. 
Risks
Another Outbreak of Covid in HK which could result in shutdowns of their facilities.
This is a microcap and the company's investor communication is less, so it could take time for the story to play out.


Water Oasis - Micro Cap Gem with Great Return Potential

Hong Kong

Water Oasis Group Limited is an investment holding company that provides beauty services and retails skincare and beauty products. Its services include beauty centers, spas, medical beauty centers, and dental services, while its product segment offers skincare brands such as h2o+, Erno Laszlo, and Glycel. The company was founded in 1998 and is headquartered in Hong Kong.

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Water Oasis Group (1161 HK)

Back in Hong Kong stocks

Early this year I was quite pessimistic on Hong Kong stocks. But since then the Hang Seng is down another 20% or so. A lot of stocks with 9-10%+...

Turtles all the way down

Water Oasis: Lockdown Affected H1 FY22, Improving H2

An HK beauty recovery play trading at a 5.4x/3.3x FY22/FY23 PE and a 15.7% dividend yield with >30% of cash on the balance sheet.

Sameer Taneja

Water Oasis: A Double From Here, Brace for the Re-Opening of Hong Kong

Despite losing three months of H1 2022 and a month of H2 2022, we believe that Water Oasis (1161 HK) is still trading at 5.4x PE FY22e with a...

Sameer Taneja

Water Oasis, Execution Makes It More Compelling

Trading at 6x PE FY22e with a 14.3% forward dividend yield and 31% of the market capitalization in cash, Water Oasis represents a brilliant way to...

Sameer Taneja

Water Oasis - Micro Cap Gem with Great Return Potential

Water Oasis is a micro-cap gem with a 5.5x FY21 multiple and 56% of the market capitalization in cash with a potential 14% dividend yield

Sameer Taneja

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