Recent Share Price: HK$0.41

Accounting: Hong Kong Accounting Standards

Fiscal Year: Dec. 31st

Market Cap: HK$1.6 billion ($238 million)


5 Year
3 Year

Hengdeli Holdings Limited operates a retail network comprising: Elegant (high-end brands, acquired 2006), Hengdeli/Watchshoppe (mid-end and mid-to-high-end brands) and single-brand boutiques. Hengdeli has 67 retail outlets, selling watches from more than 50 internationally renowned brands in Hong Kong, Macau (2010), Taiwan (2009) and Malaysia (2018). They also provide integrated after-sales warranty maintenance.

Hengdeli has a strong and intergrated relationship with SWATCH Group, LVMH Group, Richemont Group and Kering Group.

Hengdeli is heavily tied to the Hong Kong market, which has recently seen an improvement in demand.

Recent History

2018

Acquired the watch business of Watchshoppe, a well-known local watch retailer in Malaysia, thereby expanding its operations to Southeast Asia.

2017

Announced in late 2016, plans to sell majority of buisiness. The deal was fair-ish for existing shareholders with the deal valued at approximately one times net asset value.

Sold its mainland Chinese business and it low-end watch and jewelry business in Hong Kong (Harvest Max) to Yu Ping Zhang, the chairman and contolling sharehoder for RMB 3.5 billion. The valuation was based on the unaudited net asset value of the Disposal Group of approximately RMB5.1 billion and the minimum Dividend Payout of RMB1.6 billion. Profit before tax for the disposal group in 2014 and 2015 was RMB 678 million and RMB 365 million, or 5x EBT and 9x EBT respectively.

The proceeds were used to retire USD denominated debt and to pay a special dividend of HK$0.20 per share.

2013

Share price was pushed lower following a report in Next magazine which questioned the following:

  1. Some of the store outlets were either nonexistent or not branded as company stores.
  2. There was negative operating cash flow between 2006–2008 and 2010 despite being profitable.
  3. The company had lost key distribution licenses and exclusive rights for brands like Omega, Rado, Bucherer, Audemars Piguet, Fendi, and Dior.
  4. The company raised US$350 million of senior notes despite holding 3.4 billion yuan in cash as of June 30, 2012.
  5. The company has invested in a bond of 259 millon yuan with an interest rate of 13 percent.
  6. The company made three short-term loans amounting to 720 millon yuan at an interest rate of 11–18 percent.
  7. The chairman has pledged its shares to Swatch for a three-year US$100 million loan for his private business

Bloomberg wrote a follow up article in which Nick Hayek, chief executive officer of Swatch, denied the claim that relationship with Hengdeli was compromised.

Insider Ownership

Shareholders
Name Equities %
Yu Ping Zhang 1,585,556,501 34.00%
Jinbing Zhang 452,968,000 9.71%
The Swatch Group AG 437,800,000 9.39%
LVMH Moët Hennessy Louis Vuitton SE 230,280,400 4.94%
Yong Hua Huang 52,172,800 1.12%

Financials

hengdeliDownload

Write-ups

value and opportunity [here]

Disclosure: We own shares in Hengdeli Holdings Ltd (3389:HKG) (HENGY:OTC)