Monday, March 14, 2011

Xtep purchased

This afternoon I added mid-cap sports wear retailer Xtep (HK:1368) to the private portfolio, paying an average of HK$4.94 per share (including transaction costs).

Xtep's share price had fallen along with the market generally and in reaction to issues at other participants in the sector to the point where the stock represents (IMHO) good value even if the company does not fully meet growth expectations and excellent value if it does. Specifically, the company offers a trailing dividend yield of 4.4% and PE of 14. Operating cash flow is strong by most measures and, crucially, significantly higher than expansion related capex. Earnings and dividends are expected to improve in the current and next financial years as the company expands its network of outlets and as overhead expenses shrink as a percentage of total expenses. Concerns over rising labour costs are (again, IMHO) likely to be more than offset by workers' increased income resulting in increased consumer spending.

The balance sheet is also solid with no debt and RMB2.4 billion in cash and equivalents as at the most recent interim balance date (30 June, 2010).

As an aside, once I got past the large number of gloss pictures, the annual and interim reports were very well written - giving a clear picture of the company's position and strategy with a nearly complete absence of the vague and unspecific or irrelevant statements that clutter so many corporate reports.


Anonymous said...


I stumbled upon your blog from a google search! Looks like you are very well versed in the HK stock market! I am trying to learn more!!

Would you consider HK125 (Sun Hing Vision) an interesting company? Looks fundamentally quite sound, but there is barely any market trading in the stock.

Happy Investing!

Looks like you are well on your way to retirement!!


traineeinvestor said...


Thanks for dropping by.

First up, the self serving disclaimer - I'm not a professional and am not qualified to give advice. If you need advice on a particualr stock or your own financial circumstances, please contact a professional adviser (in Hong Kong, someone licensed by the SFC).

I had a quick look at Sun Hing Vision. At first glance it looks like it would be worth doing more analysis on - the trailing PE ratio is low (less than 11x), the most recent interim result showed continued growth, the balance sheet is excellent (no borrowings and HK$380MM in cash), free cash flow is good, it offers a decent dividend, there has been no dilution of shareholder interests through placements, the directors hold meaningful shareholdings and the company is focused on a single business which is a sensible one.

The negaitives. First, there is almost no liquidity in the stock making it difficult to buy (there were no sellers at all at the time of writing) and even more difficult to get out if things go wrong. Second, they are experiencing margin erosion due to rising costs of production in China, rising commodity prices, RMB appreciation and increased fixed costs in Hong Kong (e.g. rent). I have no idea whether they can (i) mitigate those increased costs and/or (ii) pass the costs on to consumers without damaging demand for their products.

It's the latter point that causes me the most concern.

If you have any thoughts on the latter issue, please let me know.