Oriental Watch: Deep Value at its Finest

Oriental Watch is a luxury watch retailer that owns stores in China, Hong Kong, Macau and Taiwan. The company’s stock is currently selling for HK$1.05 and my estimate of liquidation value is around HK$2.50-$3.00. Any company selling for 35-40% of liquidation value is bound to have its fair share of problems and Oriental Watch is no different. They were profitable as recently as 2014 but there are significant headwinds facing the Asian luxury watch segment. Thankfully the management team has already been making moves to cut expenses and return to profitability.

One note: they are listed on the Hong Kong Stock Exchange (symbol: 0398) and on the American pink sheets (ORWHF). Unless otherwise stated, all numbers in this write-up will be in Hong Kong Dollars (HK$). The conversion is currently HK$1.00 to US$0.13.

Business overview

While the majority of their stores are in China (68 out of 87), these stores are smaller and less important to the story than the thirteen locations in Hong Kong. The company’s two operating segments are Hong Kong and then China, Taiwan and Macau combined as one. For simplicity I’m going to refer to this second segment as China since only six stores total exist in Taiwan and Macau and they are all through joint ventures. The thirteen Hong Kong stores make up around 70% of revenue and are still profitable as opposed to the China stores dragging down the results.
Continue reading “Oriental Watch: Deep Value at its Finest”