In an earlier article, we covered Orange Sky Golden Harvest stock which is listed in Hong Kong as a value investment. They are the owners of the popular Golden Village cinemas. They also have a presence in Hong Kong and Taiwan. Their latest foray is into China with a 360 theatre in Suzhou that is meant for live performance- it is able to house up to 2700 spectators.
Source: AAStocks
The stock has seen exciting movements after our article, on a quick upsurge to 18 cents in March 2023 from the 6.5 cents level. It has actually reached our target (18 cents) which was highlighted in our report. It was mainly speculative flow as it has since retreated back. The catalyst was mainly due to the newsflow that TVB is getting their stars to do live-stream sales on the Taobao online platform.
This is our recently published book where we touched on how we go about valuing stocks and our insights into the investment world. Authored by a Chartered Financial Analyst, it encompasses 2 decades of experience in the market that is condensed into this book. You could purchase the EBook(Book Sample Pages) or the Paperback through these 2 links on Amazon.
Loss More than Doubled
Source: Orange Sky Golden Harvest Announcement
Recently, the company has seen a further drop in prices to a low of 4.6 cents, which could be due to their latest financial results announcement. The headline number is the loss has more than doubled on a half-yearly basis.
However, the loss has more than doubled because there was a non-recurring gain in the first half of 2022 of HK$56.5 million. If we exclude the one-off gain from the disposal of office property, there was actually a 64% reduction in loss. So things are turning better from the numbers itself.
Â
Financial Health
Source: Orange Sky Golden Harvest Announcement
As for their financial health, there is a bank loan of 483 million HK dollars and excluding cash and bank deposits of 215 million HK Dollars, the net debt-to-equity ratio is at 18% which is not at alarming levels.
To be on the conservative side, if we deduct 1 billion worth of intangible assets and goodwill from the equity, the net debt-to-equity levels will be at 54%.
There has been no impairment of assets too at the latest financial result announcement but to be conservative, we are ignoring the goodwill and intangible assets on the balance sheet. This would bring our net asset value to 18 cents from 54 cents. Based on 18 cents book value, the price-to-book value is at 0.27 which is relatively attractive if profits start to roll and trend up.
Â
Looking at the Different Regions
Â
Source: Orange Sky Golden Harvest Announcement
We took a look at the segmental performance of the different geographical locations. All the countries have shown marked improvement in terms of their profit and loss. Only Hong Kong is still in the red and China experiencing a slight loss. Singapore and Taiwan are profitable where the consolidated profit for the group is at 23.95 million HK Dollars.
There was a depreciation charge of close to 84.8 million HK dollars which is a non-cash expense. If we exclude this charge, the company would be profitable as there was a loss of 24.4 million HK dollars.
Â
Looking at the cinema attendance numbers in Singapore, there is a gradual improvement but holistically, it is still far from the levels in 2019.
The group is also looking at expanding its cinema network in Singapore, Hong Kong and Taiwan which shows confidence in the management's view of the industry's prospect. They will be opening up a new 6-screen cinema in Singapore in the second half of 2023. They are also looking to boost initiatives such as converting their cinemas to integrated lifestyle hubs- hosting mini-concerts.
Â
Summing Up
Though the company is still loss-making we are seeing signs of recovery with only Hong Kong showing noticeable losses. Taiwan and Singapore have recovered and are churning out profits for the company. At a price-to-book of 0.27, after discounting the goodwill and intangible assets from the balance sheet, the margin of safety seems intact at the current level of 5 cents.
They are also looking into expanding rather than contracting their business which shows management's confidence in the current landscape.
We find the current price to be attractive if the cinema business is not going into sunset. With Covid 19 practically behind us, we hope the new initiatives (lifestyle hub, holding of mini-concerts and the 360 theatre business in China) of the company could drive further growth ahead.
Based on their financials, they should be able to face short-term liquidity needs but as per our previous article, we do not write off the need to tap existing shareholders for funds.
With this backdrop, we are cautiously optimistic about the prospect of Orange Sky Golden Harvest as a value stock.
Read Also: Investing in the Cinema Business at Good Value- Orange Sky Golden Harvest
Â
Â
Disclaimer:
The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.
Â
Â
