Quick thoughts on Oriental Watch (398 HK)

As of Monday, the stock (398 HK) is down to HKD 3.32 from its June 22 high at 4.55 (-27%). And who knows, Chinese/HK stocks might go a lot lower with Evergrande/property developers/debt -stories unfolding.

This is not investment advice. Please read the disclaimer.
I might currently or at a later point in time own shares (economic interest) in mentioned or related companies.

Oriental Watch profited from very strong Asian demand for expensive watches and limited supply. This led to record profits for the last reporting period (six month ending March 2021, or H2 2021).

  • reported record EPS of HKD 0.4317 for FY 2021 after HKD 0.1759 (2020)
  • declared and approved a total final dividend of 39 HKD cents (12 final + 27 special final) after interim dividends payable in October. Ex-date was Sept 20th, which I believed to be earlier when writing this post, and explains two thirds of the big drop on Sept 20th.

With so much going on in China, it is difficult to keep up and to make sense of it all (esp. without any special China knowledge/background), the question here becomes, is the company affected or is the sell-off unwarranted?

  • Chinese tech crackdown
  • Policies for common prosperity. Might it
    • lower the level of income/wealth concentration (and thus number of potential buyers), and/or
    • lower the willigness to buy expensive watches, since it might signal that buyers earn way above average income
  • New politics regarding Macau casinos should affect foreign casino operators more than actual gamblers coming to Macau (and buying an expensive watch with money won?)
  • Evergrande illustrates issues within the real estate sector and potential financial risks
  • Some assets might be partially impaired
    • but most of its assets is cash and should be rather safe (for any scenario stopping short of a real banking crisis or a very unlucky selection of banks)

Above developments should have only minor effects for Oriental Watch, or so is my guess. Further, extraordinary demand for expensive watches might persist for some months (even benefitting from RE investments losing its luster?), resulting in higher profits. Sales volumes might come down in the mid-term from currently very high levels, but for now Chinese travel less internationally, and thus they buy less watches in Dubai, London or Singapore. 2020, China was the only market with strongly growing imports of Swiss watches. Consumer demand (incl. speculation) is also fueled by social media accounts, and TV series.

With its current assets representing a big part of market capitalisation and lots of it in cash; and high dividends, I think Oriental Watch is very interesting here. I might add to my current position (3.7%).

Addendum: recent EPS and dividends in (HK cents!) below. As of March 2021, book value per share is HKD 4.08 with cash per share at 2.18 (1.79 adj for dividends to be payed).

I hope you enjoyed this post.

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