Golden Resources (GRD) is GRD is a principal importer, wholesaler and marketer of rice in Hong Kong, and this is a stable but boring business. Generates high > 20% ROIC.
But what is the hidden GEM here? Company is the no.1 leading convenience retail chain, Circle K, in Vietnam! GRD is an play on rising consumers in Vietnam. Generates around 40~50% of rev from convience stores (no.1 in Vietnam) which runs around 320 stores. Company expects to expand towards 500~700 stores by 2023. However, given that CVS division is making a loss now coupled with the fact that it has a legacy business (rice wholesaler) has punished the company valuation towards extremely cheap levels. Now company is trading only at P/B of 0.8x!! When looking at all other CVS stores around the world, multiple is much higher at 5~14x!
1. According to our penetration analysis, Vietnam CVS market should grow > 30% in the next five years, as it has among the lowest penetration (CVS stores per capita) in the world. As GDP per capita grows, I believe CVS stores should expand further.
2. Many other players, especially Japanese CVS players are facing difficult expanding in Vietnam as they are facing difficulty localizing. On the other hand, Circle K continues to expand via # of stores / sales per store growth.
3. If we value the company using market cap per store (comparing to peers in Thailand, Philippines, Japan, Korea), company could easily be 2x~3x current market cap simply assuming # of stores will stay constant. Now, should the company expand to over 3,000 stores in Philippines (such as Philippine Seven) or more than 13,000 stores (such GSR in Korea), then company could be > 10x bagger in the next few years.
4. Company very close to breakeven according to our interviews with CVS owners (once over 300 stores, companies are close to breakeven).
So, the company has multi fold tailwinds: Multiple expansion + > 30% earning growth and management showing alot of confidence as they are buying the shares recently (and they havent been doing this for years!)
This is one of the powerful ideas I have faced with in years.
Safe trading!
But what is the hidden GEM here? Company is the no.1 leading convenience retail chain, Circle K, in Vietnam! GRD is an play on rising consumers in Vietnam. Generates around 40~50% of rev from convience stores (no.1 in Vietnam) which runs around 320 stores. Company expects to expand towards 500~700 stores by 2023. However, given that CVS division is making a loss now coupled with the fact that it has a legacy business (rice wholesaler) has punished the company valuation towards extremely cheap levels. Now company is trading only at P/B of 0.8x!! When looking at all other CVS stores around the world, multiple is much higher at 5~14x!
1. According to our penetration analysis, Vietnam CVS market should grow > 30% in the next five years, as it has among the lowest penetration (CVS stores per capita) in the world. As GDP per capita grows, I believe CVS stores should expand further.
2. Many other players, especially Japanese CVS players are facing difficult expanding in Vietnam as they are facing difficulty localizing. On the other hand, Circle K continues to expand via # of stores / sales per store growth.
3. If we value the company using market cap per store (comparing to peers in Thailand, Philippines, Japan, Korea), company could easily be 2x~3x current market cap simply assuming # of stores will stay constant. Now, should the company expand to over 3,000 stores in Philippines (such as Philippine Seven) or more than 13,000 stores (such GSR in Korea), then company could be > 10x bagger in the next few years.
4. Company very close to breakeven according to our interviews with CVS owners (once over 300 stores, companies are close to breakeven).
So, the company has multi fold tailwinds: Multiple expansion + > 30% earning growth and management showing alot of confidence as they are buying the shares recently (and they havent been doing this for years!)
This is one of the powerful ideas I have faced with in years.
Safe trading!
Trade active:
Big earning surprise!! Golden Resources Development International Limited provided group earnings guidance for the six months ended 30 September 2019. After preliminary review by the management of the Company based on the management accounts of the Group, the board of directors of the Company wishes to inform the shareholders of the Company and potential investors that the unaudited interim results of the Group are expected to record a net profit after tax for the six months ended 30 September 2019 as compared to a net loss after tax for the corresponding period in 2018. Based on the information currently available, the Board considers that such turnaround in profits is primarily attributable to the increasing number of stores and in-store revenue from Circle K business in Vietnam, as well as effective cost control measures and the improved sales of rice products in Hong Kong.
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Golden Resources Development International Limited reported unaudited consolidated earnings results for the six months ended September 30, 2019. For the period, the company reported revenue was HKD 835,021,000 compared to HKD 686,529,000 a year ago. Profit from operations was HKD 29,301,000 compared to loss from operations of HKD 3,437,000 a year ago. Profit for the period was HKD 24,768,000 compared to loss for the period of HKD 9,511,000 a year ago. Company said that finally the VIETNAM business has turned EBITDA positive!! As company builds over 370 stores now, expect better unit economics as purchasing power increases!
Comment:
Vietnam's leading minimart store (similar to Convenience store but lower quality stores) owner Vinmart was sold to Masan group. What is super interesting is that the valuation per store was a whopping US$1.2mn.!. Once we apply this to the SOTP valuation fo Golden Resource Development, this is 120% upside to current price & also assuming 0 value to the HK rice division!! If we assume ofcourse that the company continues to increase # of stores at a fast pace, we can assume a much higher valuation.
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Company posted 398 stores set up until now! this is a great development compared to other players who are reducing stores!