Quicky on Bauhaus International (483 HK)

I stumbled over Bauhaus Int’ using some filter on Hong Kong stocks for high dividend yield, low valuation multiples and considerable net cash some time ago. I only wrote down the ticker at that time. What a pity …

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.

The Group is principally engaged in the design and retail of trendy apparel, bags and fashion accessories. It operates various retail channels (both online and offline) primarily in Hong Kong and Macau. The Group’s turnover is mostly contributed by its major in-house labels like “SALAD”, “TOUGH”, “80/20”and some seasonal in-house design brands as well as certain reputable licensed brands including “SUPERDRY”. (AR 2021)

If Dillards fat 50% dividend yield (see tweet) on its low price some time ago gets you excited, you should keep reading … (nice price chart for DDS US btw)

The stock traded at around HKD 0.50 before exploding above 1.30 in June. After paying out considerable dividends along the way, it now trades around HKD 1.27 (Nov 29) for a total return of 1031% from its low on March 24, 2020 (thereof 170% price). It may be the poster child for realizing value for shareholders by selling underutilized HK properties.

This is another part of my series of Quickies on new companies.

Financial results are anything but smooth — and therein might lie the opportunity.

The company announced interim results for the six months ended 30 SEPTEMBER 2021.

The company pays dividends like crazy.

Aligned management

Currently, no options are outstanding and no options were granted since 2015. That sounds very good to me. Some minor transactions (<1mHKD p.a. for last 2yrs; computer systems and maintenance) to related parties seem ‘OK’ to me. Executive directors took pay cuts of 25% from Apr-June 2020 (AR 2020).

The company is controlled by management through direct and indirect share ownership of c. 67%. This could be worrying but based on the above, I think it is OK. A very big positive is the ownership of 7.9% of David Michael Webb (if you do not know him visit his webb-site). He seems to own a considerable stake since 2013.

Dividends to come

Since management seems to be aligned and willing to pay cash dividends to its shareholders the question of interest becomes: How much dividends are likely to come? I think the operating retail business might well roar back to profitability but it is uncertain and I tread it more of additional upside. The question here that I am most interested in is how many dividends will shareholders likely receive in the short-term.

The fair value of remaining unsold properties might have been HK$263 million as at 31 March 2021. Since then the company realized some of this value. Land and buildings were reported with a net carrying amount of HKD 25,189k (or about 10% of fiar value).

Based on a valuation performed by an independent professionally qualified valuer, the fair value of remaining unsold properties as at 31 March 2021 is about HK$263 million.

(AR 2021, p1)

At Sept 2021, PPE net carrying value is down to 15,220k (and land and buildings is only a (small) portion of this). But, property held for sale now sits at HKD 7,814k and is actually worth 126m (or at least it will trigger cash flows of 126m)

  • Other properties were sold off during the lat reported six months
    • spare warehouse in new territories for 48m (gain of 33.7m)
    • head office and two car parks for 126m (gain of 118.2m)

I guess the current market cap (HKD 404m, Nov 28) is largely covered by assets that will moslty be paid to shareholders via dividends. Is is less if adjusted for tax on dividends and time to actual payments. Either way, the chance (option) for the business to get back to long-term profitability or other hidden value to be realized (and paid out) seems to account for the minority of current market price.

The company mentions

  • seasonality: better sales + profits during H2 within which the holiday seasons of Christmas, New Year and the Lunar New Year fall.
  • online distribution channels: with potentially better margins
  • recovering retail sentiment

I am excited to watch the price reaction of 483 HK on Monday (tmr). On the one hand, news released on Friday after market close were strong, especially with hte dividend announced. On the other hand, markets were trading down on Friday on fears of a new covid variant and retail should be hard hit. Fears might have abated over the weekend.

Unfortunately, the stock price increased about 20% for a marcep cap of 474m. I hoped for lower prices and might have bought. I might still give it some thought.

I hope you enjoyed this post.

3 thoughts on “Quicky on Bauhaus International (483 HK)

  1. The post was not well written or structured I guess but I hoped I made it clear that I was mostly interested/believing in the company to further realizing value by selling property (way above carrying value) and paying dividends

    Like

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