Chow Sang Sang (0116.HK)

[karlmarx]

Valuations are currently certainly not as low, but outlook was very bad when it was that low. Something could happen sending valuations down again. Never say never.

https://www.valuebuddies.com/thread-9276...#pid163324
"Really regretted selling shares of a resilient business especially after I managed to pick them up at compelling valuation for an established brand name during Mar 2020. Given the kind of resilient performance during such a difficult time like Covid and its ability to generate a quick  subsequent rebound, it is unlikely the mkt will price it at depressed levels again."

I suppose karlmarx was at least in part referring to my post. 

Well, the share price of CSS is even more attractive now. Though we have since transitioned to living with Covid, it wld be hard to imagine such a scenario at that point in time when Covid is in some ways unprecedented in the world and the future then was very uncertain.

So why is bear still sitting on the sidelines this time round ? While China has benefited from globalization in the past, I am worried we cld only be at the beginning of the new world order, and thus, it's hard to predict the implication for Chinese population's consumer spending when things are never going to be the same.

The China story is changing. Money and manufacturing is moving to India and other ASEAN countries. Most commenters and experts are not positive sentiments China's future. My own take is that the market is far too pessimistic.

Historically, manufacturing has always moved to lower-cost countries. It may probably only be a matter of time before ASEAN/India takes over China's place as manufacturer of the world. But so far China has been holding up because it is still more efficient. Whether they can maintain pole position depends on whether they can keep improving their efficiency, with robots/AI or whatever. 

As for the housing crisis, it is the worst that the country has gone through in recent history. It has gone on for so long that most have lost hope that the bottom is near. This crisis is negatively impacting consumption. But surely it will end at some point? By that time, the animal spirits of property investment/development may have been put to sleep, at least for some time. Less spending on multiple properties may translate to more retail spending. This is speculation, of course.

With slower consumption, the gold jewellery retailing industry is contracting after years of expansion, like F&B and most other retailers. This is certainly good for the stronger players as it will mean less competition for them when the recovery comes. CTF and CSS have strong brands and balance sheets. It is not likely that the current gold retailing recession will hurt their strategic/financial position in the long term.

For CSS, this could mean lower profits this year and the following year. But will CSS profits continue to be as depressed? Will the Chinese economy and consumer sentiment not improve at some point? Or is China as a country next to be isolated like Russia? Current valuations of CSS seem to suggest the company is in terminal decline. For now, these scenarios seem unlikely and too pessimistic to me. 

P/B of around 0.3 (and forward P/E of around 6) for a business which has been profitable and paying dividends every year for at least the past 2 decades, that is one of the market leaders, in an industry which does not yet face any long-term threats. Is this cheap? Different investors will have different take. Will CSS' profits, in say 2028, be $500m, $1,000m, $1,500m, or $2,000m? No idea, but it will probably be an improvement if the dark clouds surrounding real estate pass. CTF, the market leader, is yielding close to 10% with P/E around 10. This also looks cheap to me.

Way back in 1998, there were racial riots in Jakarta and Suharto soon fell after. Many big name stocks were selling at P/E of around 4-6 at the time, and have gone up 10-20 times since. What a shame we may say to ourselves. Of course, things are always different and not exactly comparable. China's situation could get worse. Or it could take a very very long time to recover.