Author Topic: 0703.HK - Future Bright Holdings  (Read 58074 times)

yadayada

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0703.HK - Future Bright Holdings
« on: July 24, 2014, 10:51:07 PM »
Does catering, restaurants, food courts in Macau mostly i think. Also leases out a building, trades at less then 10x earnings (if I base it on their Q1, 12x 2013).

V high return on capital (they run like 24/7 because that fking city never sleeps), but the two most interesting things are capacity added in 2014 and 2015 (more then double their sqft) and the huge tailwinds Macau will see in the next few years. From the first you will see some margin expansion as well. And even with little sqft added revenue/sqft is growing, and now over 600$US / sqft.

Seems their moat is their locations, and owner/operator is legislator in Macau. As long as they don't fk it up, they will be fine. Also they seem disciplined in closing down places that give inadequate returns

Some reading material on that:

http://www.kimeng.com.hk/upload/research_reports/FutureBright_20121211_CV.pdf
http://www.ebscn.hk/upload/20130301/201303011362107131617.pdf
http://www.emperorcapital.com/filemanager/tc/content_66/2013-09-05.pdf
http://www.chinastock.com.hk/ewebeditor/uploadfile/20140305094057140.pdf

They have a decent record of paying out dividends, and it seems to me this thing can more then double within a few years. It basicly lifts on the gambling industry because a lot of their restaurants are in or next to the casino's. They have 2 restaurants in Macau airport, and do catering as well. And you get this pretty cheap imo.
« Last Edit: July 25, 2014, 06:58:21 PM by Parsad »


60°North Investments

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Re: 703 - Future Bright
« Reply #1 on: July 25, 2014, 12:51:08 AM »
Future Bright got just yesterday (24 July) the approval of their land bid in Hengqin http://corpsv.etnet.com.hk/webservice/jsp/ETNET/CorpAn/eng/detail.jsp?VERSION=ENG&DOCCD=81183.

From the analyst posts yadayada posted above, China Galaxy International (the last one) estimated that Hengqin would add 5.70-5.90HKD into their valuation if approved. However, they estimated that the company would get 140k m2 of GFA, when the company now received 50k m2. Also, the price of the land is higher 4.2kRMB / m2 compared to what these guys estimated.

I tried to draw the picture quickly and came up with some numbers based on the China Galaxy Intl report. This deal they got, 4.2k RMB per m2 for the land, about 14kRMB per m2 for construction. If it's worth 45-50kRMB per m2 that'd make 2.2-2.5bRMB (2.7-3.1bHKD) in total value? If you discount that with 50% and divide by 694m shares you get to 2-2.3HKD per share.

Would be great if someone had thoughts on whether that's in the right ballpark or not!

yadayada

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Re: 703 - Future Bright
« Reply #2 on: July 25, 2014, 03:58:20 AM »
well  50k sqm is 536k sqft right? They will build food plaza's, restaurants etc there. If they get 3000 HKD/sqft (half of what they do now), with half the net profit margins (about 14%) then that would be about 220 million HK$ in net income, or about 2.7 bn hk$ in value. If you assume better margins, then it would be more then 3 bn$. So more then 4$ per share. I guess 3-4$ per share sounds about right.

I have my sights set on more nearby expansion in Macau though, and growth due to infrastructure projects. I thinkn it will be at least several years before hengqin is finished.

I guess since they target to invest 1 bn hk$, 2-3 bn hk$ of value over the next decade sounds about right for Hengqin. that is probably the target, but if they fail in execution it could be less. So yeah 2 hkd is probably the minimum unless they completely mess it up.

So they have about 450mm hk$ now on the balance sheet. I guess they will invest another 600 million in the next few years. That probably means they will pay out about 20-30% of their net income in dividends.

I think that if they open their new places in Macau, and more inflow of people due to improved infrastructure + some operating leverage they can do close to 500 million in net income within 2 years or so.
« Last Edit: July 25, 2014, 04:02:36 AM by yadayada »

60°North Investments

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Re: 703 - Future Bright
« Reply #3 on: July 25, 2014, 04:18:21 AM »
Thanks for your thoughts yadayada! I thought about looking at the value that way as well but realized I don't really have an idea how much of that 536k sq.ft. will be restaurants and what portion will be other spaces. But like you said, it seems reasonable to think that with total investment of +1bnHKD they'll get to about 3bnHKD in value if things go according to plans. Management anticipated the Hengqin project's construction to take 3 to 4 years.

Please correct me if I'm wrong, but I think they're supposed to open about 160k sq.ft. of restaurant space this year (Huafa Hall being the largest part with 120k sq.ft.)? If this is the case, I wonder if you can simply expect that this doubling of restaurant space approximately doubles revenues within couple of years like you yadayada anticipate?

Any thoughts on what are the biggest factors/risks that could get this screwed over instead of being +7bnHKD (back-of-the-envelope: 2bnHKD Hengqin + 5bnHKD restaurants + 0.5bnHKD properties) in 2-3 years time?

yadayada

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Re: 703 - Future Bright
« Reply #4 on: July 25, 2014, 05:34:32 AM »
they have a building of 22k sqft in the middle of Macau, and they will rent it out for 25 million HKD next year (15 million past year, but leases ran out, and prices shot up in Macau). If you give a 50% discount (because it is not Macau centre but Hengqin), that would be 291 million HKD a year. Or with a 75% discount, 140 million a year. So I think 50% being added there in net income (100 million) is veyr conservative and somewhat of a worse case scenario.

So I think in 3-4 years, they could do between 350 million (very conservative, assumes Hengqin is a total failure, and doubling of sqft will not be as big of a succes in Macau) and 7-800 million hkd in net income a year (if Hengqin pays off). Currently they do over 200 million.

Just seems that even in a total bear scenario you cannot really lose on this one.

Also to give you an idea, Mcdonalds does like 1k$/sqft I think. They do about 600$/sqft in macau currently, but a lot of these places are open 24/7. So there might be some room to grow there. And if you look at their SG&A costs, they will not go up much. They are currently about 90 million HKD. So if they manage to go to 700$/sqft there is some operating leverage.

I also think that gross margins will go up, because some other costs like food distribution are centralized as well, and benefit from scale.

I think the biggest risk here is that when they get bigger management will lose some control over quality. And that might hurt revenue/sqft or cause more failures. Im not sure how big of a risk that is.

Another risk is that they do not pay out shareholders at least 30% of earnings like they stated. This will probably cause a low rating of the stock.
« Last Edit: July 25, 2014, 05:39:45 AM by yadayada »

yadayada

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Re: 703 - Future Bright
« Reply #5 on: July 25, 2014, 05:46:25 AM »
btw to give some idea on infrastructure improvements.

There will be a 30 min train line between macau and Hong Kong airport within the next few years (this is huge, because Hong Kong airport is much bigger then macau airport). The number of hotel rooms in Macau will double between 2015-17 to about 60k.

There will be a train line through macau improving ease of travelling. There will be better connections to mainland China. And border control will be a lot more efficient allowing  through almost twice as many people in the same time.

Also penetration of mainland china people visiting Macau is like 1.5% vs 10% for Las Vegas. And length of stay is less then half that of Hong Kong and Las Vegas. To improve this they will build a lot of entertainment facilities on Hengqin island. I think they already finished a large water park in 2013.

Add in probably more disposable income for Chinese people over the next decade, and it would be hard to be bearish on Macau at all.

yadayada

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Re: 703 - Future Bright
« Reply #6 on: July 25, 2014, 06:48:15 PM »
http://quinzedix.blogspot.de/2014/07/future-bright-holdings-part.html

Not much new, except he thinks they could do even 900 million in net profit in a few  years. Either way, plenty margin of safety here.

jch548

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Re: 0703.HK - Future Bright Holdings
« Reply #7 on: August 05, 2014, 08:55:37 PM »
The board (“Board”) of directors of the Company wishes to inform the shareholders of
the Company and potential investors that based on its unaudited management information
currently available, the Group will record a remarkable increase in profit for the six months
ended 30 June 2014 (“Period”) as compared to that for the six months ended 30 June 2013.



http://corpsv.etnet.com.hk/webservice/jsp/ETNET/CorpAn/eng/detail.jsp?VERSION=ENG&DOCCD=81269

SpecOps

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Re: 0703.HK - Future Bright Holdings
« Reply #8 on: August 06, 2014, 07:28:37 AM »
Gross operating profit up 29% in the first half sounds good, but the share count has increased by 10% too. At this rate I estimate they are on course to earn HK$200m attr. to equity holders excluding the 'property gains', so not hugely cheap with a market cap of $2.8bn.

Doubling square foot will obviously increase earnings a lot, but how much new equity will they raise to pay for it? I'm a bit confused why they pay a dividend when they are constantly issuing equity for growth.

I also worry a bit about Macau, obviously booming at the moment, but it will probably suffer disproportionately in a crisis.
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yadayada

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Re: 0703.HK - Future Bright Holdings
« Reply #9 on: August 06, 2014, 08:47:06 AM »
I think they will do 250-300 in net profit this year. And that is conservative. You have to understand their business. It is very high return on capital, and a pretty good competitive advantage.

the only large upfront cost will be Hengqin. The other ones do not require very large up front costs as they lease. And since this is a very high return on capital business they get a lot of FCF as they grow.

The share issuance was for the Hengqin project mostly. That will be very accretive in a few years if they can lease it out. By my calculations they do not really need to sell additional shares for that.

As for a crisis, that is not a large risk. On the short term it is. But I don't think China will collapse in the long term. It will just be a hiccup, and an annoyance because now you have to wait longer. Or a opportunnity to add if the stock crashes :).
« Last Edit: August 06, 2014, 08:48:49 AM by yadayada »