Author Topic: 0703.HK - Future Bright Holdings  (Read 58075 times)

SpecOps

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Re: 0703.HK - Future Bright Holdings
« Reply #10 on: August 07, 2014, 02:19:32 AM »
Is that 250-300 excluding the property gains they usually include in the income statement, and after minority interests?

I guess I am a lot more conservative :p
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yadayada

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Re: 0703.HK - Future Bright Holdings
« Reply #11 on: August 07, 2014, 05:58:33 AM »
yeah and also excluding 25m rent they get I think. They did 180 last year I think. And judging by gross income and some operating leverage, I think they are on track to do at least 250 this year if they do not grow. But they have not yet opened the bulk of their new places. And also if they open these new places, they operate in prime locations with a lot of foot traffic. Or they do personel catering for some hotel or casino that is running. So it ramps up somewhat quickly. Not comparable to some restaurant in a small town trying to compete with 6 similar restaurants nearby.

And there are huge tail winds coming for Macau.

You gotta see it like this I think. They currently have like 140k sqft . This will be expanded to about 390 by 2017. They currently do about 6k/sqft with 35% gross margins. So if you assume foot traffic does not really increase, and their new places are only a moderate success at 4k/sqft and a 30% gross margin, then that will add over 300 million. Maybe add 70 million in SG&A expenses on top, I get +200 million in NPAT, or about 380m total NPAT. as 12x multiple on that is 62% upside.

BUT this assumes that new stores are not very succesfull, this assumes that current foot traffic does not increase, and this assumes that Hengqin will not really add anything. so this seems like a pessimistic base case to me.

If you look at Hengqin, that will be 80% let 20% operate. they get 1100hkd/sqft for their current Macau building. If they would only get 400/sqft then that is 171 million hkd. and a conservative 120mill for operating the other 20%.

If they actually improve revenue/sqft in Macau, then I get like 600 million excluding Hengqin by 2017. Hengqin will cost a billion hkd. They will pay 260 million this year for the land. Since they generate 200 mill + from operations, and opening new restaurants/catering do not require large upfront investments, and they currently have 600 million in cash, they will not need to issue shares.

Ofcourse the CEO is well connected so that plays a role in this, they have a good history of operating these things as well. Execution will be key here.
« Last Edit: August 07, 2014, 06:59:12 AM by yadayada »

jch548

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Re: 0703.HK - Future Bright Holdings
« Reply #12 on: August 07, 2014, 11:59:33 AM »
The roll out of restaurant openings is pretty slow. I think of the 158k sg ft they have slated to open maybe 10% has been achieved by the end of the first half. I wonder about this rather lofty 158k sg ft. projection. I have no idea how profitable these new locations will be as they seem to be stepping out of Macau here.

I do like the stock with the new casinos and hotels opening up over the next few years.

yadayada

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Re: 0703.HK - Future Bright Holdings
« Reply #13 on: August 07, 2014, 01:06:12 PM »
Profit before taxes was like 117 million. That is about 100 million NPAT? This does not include property business and food souvenir business. So that will likely be more then 200 million this year. If you include property rent, that is another 25 million, or about 225 million if this does not grow and food souvenir does not add anything. So a 12x multiple. But I think it is pretty unlikely that they will do worse then 275-300m in net income this year. Red thinks it is almost 400, but I think that is too optimistic.

Also not included in 'to be opened' are the catering projects that could be won in the new hotels and casino's. This could add materially.

You basicly have to look at it like this, comps are trading at 18x earnings, you get a business with very high return on capital that will likely not decline for a  non growth multiple with lot's of potential option scenario's. So yeah bear case, you break even, bull case you make 5-6x your money within a few years.

Your paying 12x earnings for the catalyst and dividend while you wait.

jch548

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Re: 0703.HK - Future Bright Holdings
« Reply #14 on: August 08, 2014, 08:08:46 AM »
More news was out last night. they signed a ten year franchise agreement to operate two Korean restaurant chains for ten years. An Italian themed chain and an upscale Korean eatery. I was hoping to see something like this as it expands their offerings.

SpecOps

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Re: 0703.HK - Future Bright Holdings
« Reply #15 on: August 12, 2014, 03:21:12 AM »
yeah and also excluding 25m rent they get I think. They did 180 last year I think. And judging by gross income and some operating leverage, I think they are on track to do at least 250 this year if they do not grow. But they have not yet opened the bulk of their new places. And also if they open these new places, they operate in prime locations with a lot of foot traffic. Or they do personel catering for some hotel or casino that is running. So it ramps up somewhat quickly. Not comparable to some restaurant in a small town trying to compete with 6 similar restaurants nearby.

And there are huge tail winds coming for Macau.

You gotta see it like this I think. They currently have like 140k sqft . This will be expanded to about 390 by 2017. They currently do about 6k/sqft with 35% gross margins. So if you assume foot traffic does not really increase, and their new places are only a moderate success at 4k/sqft and a 30% gross margin, then that will add over 300 million. Maybe add 70 million in SG&A expenses on top, I get +200 million in NPAT, or about 380m total NPAT. as 12x multiple on that is 62% upside.

BUT this assumes that new stores are not very succesfull, this assumes that current foot traffic does not increase, and this assumes that Hengqin will not really add anything. so this seems like a pessimistic base case to me.

If you look at Hengqin, that will be 80% let 20% operate. they get 1100hkd/sqft for their current Macau building. If they would only get 400/sqft then that is 171 million hkd. and a conservative 120mill for operating the other 20%.

If they actually improve revenue/sqft in Macau, then I get like 600 million excluding Hengqin by 2017. Hengqin will cost a billion hkd. They will pay 260 million this year for the land. Since they generate 200 mill + from operations, and opening new restaurants/catering do not require large upfront investments, and they currently have 600 million in cash, they will not need to issue shares.

Ofcourse the CEO is well connected so that plays a role in this, they have a good history of operating these things as well. Execution will be key here.

But how many shares will they issue to pay for this? I would guess Hengqin will need a lot of money for development so isnt quite a free option
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yadayada

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Re: 0703.HK - Future Bright Holdings
« Reply #16 on: August 12, 2014, 04:50:27 AM »
This is a high return on capital business, FCF will be pretty high. If you read the post you would see they need another 400 million. I think they will generate 150-300 million this year alone. They don't need large up front investments for their other expansions because they lease it. So maybe they will issue some debt, but I don't think you will see any share issues from now on.

sirius24

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Re: 0703.HK - Future Bright Holdings
« Reply #17 on: August 12, 2014, 10:36:53 PM »
I think FB is definitely is an interesting story with great historical operational performance and a good runway of growth to come.  The part I am getting hooked up on is how to actually think about the new risk profile given the majority 125k sqft (almost 100% of today's GFA) is coming from outside Macau.  I know you did discount the Macau operations when you ran the new sqft projections, but given the experiences of other HK brands moving into China and the difficulties even a top brand like Tsui Wah is encountering I could definitely see further downside to those #'s (granted Tsui Wah is investing for a full scale invasion unlike these guys).  And if you look at 50k of the new sqft as being a food court in the brand new Zhuhai mall and realizing they just shut down a food court in the Galaxy (their own backyard) - I can't completely eliminate the scenario where an entire 50k is not making money or in fact losing money for a couple of years.  Furthermore, I have some doubt that their brands really carry any weight at all outside of Macau, it seems their success is mainly due to their convenient locations within hotels like you guys touched upon earlier (don't see a local Zhuhai resident knowing/caring about Edo or whatever other brands they might role out).   

Don't get me wrong I don't think this is a base case by any means but given what happened at Galaxy I don't think it should be eliminated from consideration either and just wondering if you have a better way to think about this near term risk because I definitely want to be there for the Cotai stuff down the road.

Laxputs

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Re: 0703.HK - Future Bright Holdings
« Reply #18 on: August 22, 2014, 10:00:27 AM »
Full interim report out http://fb.etnet.com.hk/ca-ann-e.html

yadayada

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Re: 0703.HK - Future Bright Holdings
« Reply #19 on: August 22, 2014, 10:05:50 AM »
Sirius you are not counting in wins with catering operations from new hotels in the next few years. They are not mentioned in new 2014 footprint. That could be significant as well.