Underestimation of Luen Thai Holdings (00311) (2)

As mentioned above, the two transactions of Luen Thai Holdings last month were:

1. Selling a joint venture with a 50% stake at a price of $4.3 million. The joint venture is principally engaged in the spinning business in Vietnam. The loss after taxation in 2017 was US$ 7.58 million, which means that Luen Thai will have to bear a loss of US$ 3.79 million for this joint venture in 2017.

Upon completion of the transaction, Luen Thai’s loss from the joint venture company will be significantly reduced, and a one-off gain of approximately US$1.5 million will be recorded.

2. A company with a price of US$28 million (approximately HK$218 million) to acquire a bag and small leather goods manufacturing business in Myanmar, Thailand, Hong Kong and China. The company’s net profit for the financial year ended March 2018 was as high as 41.63 million Hong Kong dollars, with a net asset value of 185 million Hong Kong dollars. That is, the valuation of the acquisition is only 5.2 times the price-earnings ratio and 1.18 times the price-to-book ratio, which is relatively cheap.

Reasons for and benefits of the acquisition: The resources and its main business of the Target Group, together with its existing business relationship and the establishment of a complete production facility in the two preferential countries (ie Myanmar and Thailand), the acquisition is A valuable opportunity for the Group to diversify its apparel accessories business, expand and complement its customer base, and enhance market penetration. In addition, the acquisition will not only improve the Group’s competitive advantage, but will also achieve geographical diversification.

Obviously, this acquisition is to increase overseas production capacity, which is believed to be a preparation for the possible deterioration and continued trade war between China and the United States. This is also the current worry of the company, because the company’s current production capacity is in the country, will be affected by the Sino-US trade war.

Trying the email company and the company’s PR to query the current capacity distribution, but the PR company did not provide information on the distribution of the situation because it did not disclose the relevant information. However, Luen Thai directly ignored my email and the reply was saved. This kind of attitude towards the minority shareholders is really disappointing. Maybe next year, I have to take time to attend the general meeting of shareholders, ask the management whether to say one set, do one, and do not want to deal with the consultation of minority shareholders.

The company’s annual report is very well written, very decent, but unfortunately it is a set, do a set!