|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||1,440||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
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Hang Fung Gold is a leading gold and jewelry retailer and manufacturer in Hong Kong, Macau, and mainland China, trading at a considerable discount to its net asset value and at a 13.1% TTM FCFE yield with considerable upside as they expand their retail footprint. We are recommending a long position in the equity.
1 3 5 8 13 15 15 18 23 23 52 59 70 77 100 109 5 12 26 25 40 48 99 191 29 38 83 92 123 140 214 318
Retail Store Locations
31-Dec-08 HK & Macau Stores(1)
(1) all company owned
Cost (HK$, MM)
Market Value (8/15/07)
Market / Industry Overview:
|(in MM of HKD)||
Fiscal Year Ended March 31,
|EBDA (assuming 17.5% tax rate)||117.7||138.9||190.0||192.6||219.9||296.6||434.8|
|maintenance cap ex assumption (1% of sales)||17.0||20.7||25.7||28.8||31.3||36.9||46.7|
|FCFE yield (FCFE / current market cap)||7.0%||8.2%||11.4%||11.4%||13.1%||18.0%||27.0%|
|HK & Macau Stores||1||3||5||8||13||15||18|
|Mainland China Owned||23||23||52||59||70||100||109|
|Mainland China Franchised||5||12||26||25||40||99||191|
There are a handful of publicly traded competitors to Hang Fung Gold. Their closest comp is Luk Fook Holdings (590 HK), which is also a vertically integrated gold and jewelry retailer, manufacturer and distributor, with 33 company owned stores primarily in Hong Kong and Macau, as well as nearly 300 franchised stores throughout the PRC. Luk Fook has also been expanding very aggressively in their retail segment, and opened 90 franchised outlets in the PRC during FY07. Although the stock has come down ~15% during the recent market pullback, Luk Fook is still up ~132% YTD, compared to ~42% YTD for Hang Fung, and trades at a significant premium to Hang Fung using a number of valuation metrics. Luk Fook trades at ~9.2x EV / EBITDA, compared to ~4.3x for Hang Fung’s non-exhibit hall business. In addition, Luk Fook trades at ~2.8x P / Tangible Book, compared to Hang Fung trading at ~0.9x P / Tangible Book. We believe the relative valuation discrepancy between Hang Fung and its peer group is partly a function of the lack of sell side analyst coverage, and the limited number of investors who have taken the time to understand the various business segments. Below is a brief summary of their closest competitors listed on the Hang Seng exchange.
Current Price (HK$)
Market Capitalization (US$ MM)
EV / Adjusted EBITDA
P / Tangible Book
Price % change, YTD
|Luk Fook Holdings||
|Chow Sang Sang Holdings||
|Peer Group Average||11.1||2.0||108%|
|Hang Fung Gold Technology||
Risk / Negatives:
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