Posts Tagged ‘ China ’

Michael Pettis on China Slowdown

September 19, 2015
  • Michael Pettis has been writing about China for years. Looking for a sustained slowdown.
  • Sees little correlation between the stock market and real economy.
  • GDP growth target needs to fall below 7%. Lowering the growth target actually suggests confidence in economic transition.
  • Privatization steps crucial.

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Richemont Business Booms in Asia – Cartier and Piaget Growing in China

November 11, 2011



  • Richemont SA (CFR VX) is the second largest maker of luxury goods in the world.
  • The company owns a number of luxury brands including; Cartier, Piaget, IWC, Alfred Dunhill, Van Cleef, Montblanc, Chloe, and many others
  • Richemont reported that first half net income hit plan and boosted sales assumptions for the second half of the year.
  • First half sales growth was up 29% and in the month of October, sales are up 28% – so essentially no slowdown.
  • The Asia-Pacific region was up 48% and distribution expansion related to China is driving growth
  • Cartier and Piaget have been particularly strong brands (from a growth rate standpoint)
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Coach’s Lew Frankfort: “No Hard Landing In China”

October 25, 2011

Coach results were strong this morning coming in $0.03 ahead of the Wall Street consensus ($0.73 vs. $0.70 expectations). The drivers of the strong results are North American comp sales of +9.2% coupled with tremendous international growth. Coach is a global brand which is in the early stages of its growth cycle as distribution across Asia is hitting high gear. Over the past decade, Coach built a very strong business in Japan and has surpassed all the European luxury brands save Louis Vuitton (but this shouldn’t count as a brand in Japan it is really the Japanese women’s uniform).

Coach has one of the strongest business models in the world with 72% gross margins and very high operating margins (above 30%) as inexpensive handbags are made in China and sold around the world due to the tremendous brand equity in the “affordable luxury” space. Coach has no debt, and generates enough operating cash flows to self-fund all its own capital expenditure requirements, pay a dividend, buy back shares, and still generate excess cash for the balance sheet to boot. Coach’s growth is very high visibility as long as you believe that consumers in China, Asia Ex-Japan, Brazil, India, and Russia will want the product. The growth of the internet and global pop-culture is doing wonders for the growth rates of authentic global brands.

Coach is poised to earn well above Wall Street estimates this year. I forecast that the consensus $3.38 in earnings can easily exceed $3.50 and next year’s estimates of $3.89 are likely to be more like $4.10. Within 12 months time, if Coach can get back to its historical multiple range the shares have potential to trade to $75. Despite the recent rally from crisis lows, the shares look to have another 20% to go over the next year with a 1.5% dividend paid out along the way.

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Zuoan Fashion (ZA) – Shares Jump 25%

October 10, 2011

I keep an eye on a lot of the Chinese ADRs in order to gauge market sentiment. The sector has been hammered (perhaps I need a stronger tool for my description) based on dual fears of corporate governance issues and a China hard landing.

While not invested in the space, I’ve pondered that the stocks can’t all be frauds. Listing via reverse merger transactions is certainly a major red flag but recently even the companies that went through actual IPOs and have real auditors have been demolished.

Zuoan Fashion (ZA) shares IPO’d at $7 last year and subsequently traded down to the $2s. The company operates high ROIC apparel concessions in Chinese department stores. Same store sales have been healthy and I take note today that the shares are up 25% today.

Last week, I highlighted budget hotel operator Home Inns (HMIN) when the shares sold off to $24. With the market rally they are trading at $28.50 today (+19% in seven trading days)

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Macau Gambling Revenues Grow 39%

October 4, 2011

china modelThe Macau gaming sector has been demolished as fears of credit tightening and distress amongst the junket operators mounts. Macau’s Gaming Inspection and Coordination Bureau just released that revenues for the month of September grew at a 39% rate. This is another data point which demonstrates that China Hard Landing fears are just that, fears. Contrast the strong growth to the Macau geared gaming stocks which have seen rapid declines as investors lost confidence in the space. Here are number of leaders and what the stock prices have sold off since September 1st. This may be an opportunity for investors willing to make a wager.

Wynn Resorts (WYNN) down 24%
Wynn Macau (1128.HK) down 35%
Las Vegas Sands (LVS) down 18%
Melco (200.HK) down 49%
Shun Tak Holdings (242.HK) down 40%
Galaxy Entertainment (27.HK) down 53%

*note that Shun Tak is the Macau ferry operator and also involved in Macau real estate

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China Xiniya Fashions ADR – Trading Sub Cash

October 3, 2011

The route in all things related China has created a number of anomalous investment situations. Hong Kong listed stocks have been pulverized over China hard landing fears but any China stock that has been US listed and subject to less corporate governance scrutiny has been annihilated. There are many stocks in this space where to go down from here; the stocks must be a fraud. That isn’t to say that there are not many other Chinese ADR frauds. I would speculate that there are for companies that have not gone through the IPO process. For stocks that have IPO’d and are not reverse mergers it may be far-fetched to believe that all the stocks are frauds.
Here is just one example among many. China Xinya Fashion is a small cap Chinese ADR. The stock has a USD market capitalization of $85M. The cash on the balance sheet is $121M. The company is free cash flow positive the past five years and generating cash. There is no debt on the balance sheet. My conclusion is that there must be fraud going on for this stock to trader lower from here. Interesting situations that the market crisis has created.

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