Friday, February 15, 2013

HK : Hengdeli (3389): Update on market rumors

According to an article by the HK Next Magazine, Hengdeli, a luxurious timepiece retailer in HK and the PRC, had lost its distribution license to sell some brands. The article speculated that Hengdeli lost its exclusive distribution licenses for certain brands, including  Rado, Longines , Omega, and Fendi in China.

According to Hengdeli Management :
it has maintained good partnerships with numerous worldwide renowned watch suppliers, achieving a win-win situation. As at yesterday, there was no notable change in the operation policy of the firm and operations were at a normal and stable manner.

Who's shareholder?
The Swatch Group, which owns the Omega, Longines and Rado brands, holds a 20.4% stake of Hengdeli. The major shareholder Mr. Zhang Yuping, holds a 36.0% interest.

We expected that Hengdeli 2012 core net profit to be RMB740M, down 2% YOY, or EPS of HK$0.21 per share. At HK$2.60 per share, the shares are trading at estimated 2012 P/E of 12.3x. While Hengdeli has long-term growth potential, as the base figures of HK’s luxurious retail figures are still high, the slowdown risk could cap its valuation.

At the moment, it is not yet confirmed if Hengdeli would lose some of its distribution rights.

Buy HKD2.50-HKD3.00

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