Dickson Concepts (International) / 迪生創建(國際)有限公司 (SEHK:113)

2018-06-20 18_33_42-Document1 - Word

Dickson Concepts is a profitable, dividend-paying business that generates free cash flow. It does not have the issue of collecting trade receivables as well.

It reminds me of Singapore’s FJ Benjamin.

Founded by Dickson Poon (53% share ownership), Dickson Concepts is a distributor for many luxury items such as watches, leather goods, fashion products, fragrances and others. The brands under their management include Bertolucci, S.T. Dupont, Christofle, Tommy Hilfiger, Tommy Jeans, Tod’s, Chopard and others. It has 1,433 employees.

The business’ retail network totals 107 stores comprising 25 stores in Hong Kong, 13 in China, 56 in Taiwan, 5 in Singapore, 5 in Malaysia and 3 in Macau. Geographically, Hong Kong, Taiwan, China and others contributed 76.1%, 17.7%, 2.8% and 3.4% of sales respectively.

In terms of product category, fashion and accessories contributed 37.3%, watches and jewellery 31.1%, cosmetics and beauty products 31.4% and securities trading 0.2%.

The risk lies where

  1. the brand ownerships might take back the distributorship back
  2. the continued consumer sentiment and growth in mainland tourists arrivals might turn negative
  3. the company could not grow its equity for the past 8 years, will this time be different?
  4. will it continue to be profitable?

Over the past few years, the retail scene in their core markets of Hong Kong, China and Taiwan were weak. This has led the firm to embark on cost-cutting in all levels of operations. This is shown in their tightening of selling, distribution and administration expenses. They are also more cautious towards expansion.

The management delivered. It yielded positive results for the company with the operating profits increasing by 86%, partially supported by tighter cost management and revenue growth. The company share price reacted accordingly. Basing off its last closing price of HK$3.89 and EPS of $0.392, the P/E is 9.9x.

2018-06-20 17_32_40-HKG_0113 - Google Search

2018-06-20 17_53_30-DICKSON CONCEPTS (INTERNATIONAL) LIMITED

Looking at the balance sheet closely, it gets more interesting. I will look into its cash and debt position very carefully.

2018-06-20 18_04_02-DICKSON CONCEPTS (INTERNATIONAL) LIMITED

Adding the “cash and bank balances” and “other financial assets”, the figure is HKD $1,930.59m. Deducting the bank loans from this figure, the net cash amount is HKD $1,804.15m.

Taking the number of shares outstanding (393,251,000) multiply by last share price HKD $3.89, the market capitalisation of this company is worth HKD $1,529.7m.

Cash position of HKD $1,804.15m versus market capitalisation HKD $1,529.7m?

Cash > Market Capitalisation. 

Do you see what I am seeing? The business is available for sale at an amount below its pure cash value. It is like buying a cash note of $50 for $42.5.

The distributorship business comes for FREE! Literally, you are getting a bargain.

However, how does it fare on other fundamental metrics? Its ROE is below 10%, its profitability margins are single-digits, the cash conversion cycle is alright.

This is not your typical growth investing or value investing approach. This is what Ben Graham and Warren Buffett termed as “cigar-butt” approach.

Would you invest in this company? Why and why not? Let me know your views!

The author has no vested interests in this company. 

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8 thoughts on “Dickson Concepts (International) / 迪生創建(國際)有限公司 (SEHK:113)

  1. Second largest shareholder Brandes Investment Partners, L.P. has recently sold 2M shares to reduce its stake 6.7%. Perhaps the price has shoot up too much?

    Like

    1. Kelvin Seetoh

      Hey clim!

      It is not wrong for them to realise some of their gains as the share price shot up. On whether the price has shot up too much, it is not for us to tell. We will control what we can such as buying price, a margin of safety, temperament, investment process and due diligence. The rest, it is up to Mr. Market.

      http://sdinotice.hkex.com.hk/di/NSForm2.aspx?fn=CS20180601E00087&sa2=ns&sid=184&corpn=Dickson+Concepts+(International)+Ltd.&sd=20%2f06%2f2017&ed=20%2f06%2f2018&cid=0&sa1=cl&scsd=20%2f06%2f2017&sced=20%2f06%2f2018&sc=113&src=MAIN&lang=EN&

      Like

  2. Interesting idea. This seems to be a stock that gives dividends yearly with dividend payout within their means. If it is at historical high yield levels, i would probably invest in it. Patience is key for this kind of stock. Buy n forget.

    Like

    1. Kelvin Seetoh

      If it trades above cash lvl, one might consider selling it because this is not exactly a quality business with strong compounding characteristics.

      Like

  3. as a distributor, do they have competitive advantage? other distributor easily set up one, except return customers for good service provided.
    mgmt did a good job on controlling/reduce expenses compare last year, its only 1 time event.

    (newbie)

    Like

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