Business of Asiaray Media, Dream Intl, and Miricor

Next week, I am heading to Hong Kong to visit some friends and attend an Annual General Meeting of a company in my portfolio. Each time I go back, it is always a new experience with different groups of people. To be frank, the past 2 – 3 weeks were hectic. I am looking forward to rest. If anyone is in Hong Kong, drop me an email!

Previously, before I left for Thailand, I wrote a post on Beauty Community PCL and I believed the stock was not cheap at all. It has since corrected significantly. Due to some concerns about the management share sale and the safety of its products, its share price fell from THB $19.10 to somewhere THB $7. I will spend some time after my Hong Kong trip to analyse it carefully.

Here are some interesting companies that are listed on the Hong Kong Stock Exchange.

Do note that their financials may not be the most ideal, this is for awareness purposes ONLY! I do not own any copyright to the images used.

#1 – Asiaray Media Group (USD $115m market cap)

While Facebook and internet had disrupted traditional newspaper advertising business, out-of-home advertising is still effective because we are exposed to buildings every day.

It is unavoidable.

Similar to Australia’s APN Outdoor or oOh! Media, Asiaray is No.1 advertising company focusing on the out-of-home billboards or LED designs in Greater China. They have big clients such as Huawei, Vitasoy, AIA, UBS, McDonald’s, Emperor Cinemas and so on. They were the exclusive advertising agency for 2nd consecutive year for FIA Formula E Hong Kong E-Prix. Their presence is also found in airports and metro lines. For example, Xiamen Gaoqi International Airport, Zhengzhou Airport, Beijing Metro Lines, Wuxi Metro Lines, Tianjin, and Hangzhou.

The incredible thing is… they have exclusive concession rights for 28 airports in China!

The founder is Vincent Lam (Tak Hing) who owns 73% of the company. His proactive team looks into places where there will be growing human traffic so that they could obtain the first-mover advantage to secure advertising spaces for their business. For example, they have positioned themselves to secure Zhuhai airport’s rights as part of their airport business development. With the construction of Zhuhai-Macau bridge, Zhuhai will connect the major economic zones of Guangdong, Hong Kong and Macau within one hour of travelling time. With human flow, their advertisement placements would be effective and they would be able to deliver greater value to her customers.

L Catterton Asia also built a 3% stake in the company.

The business started doing railway advertising in 1993. However, Mr Lam shifted to airport advertising as his advertisers were targeting the wealthy Chinese. Back then, only wealthy Chinese get to travel.

Looking towards the future, there will be more Chinse mobility between parts of China. Expansion of existing airports, new airports and more metro lines bode well for the future of the company because more out-of-home advertising could be done. The company trades at Enterprise Value over Cash flow of 7.04x. Its Australia peers trade at much higher valuations. The company is in a net cash position and paid out $0.26 HKD dividends for FY2017. Measured against the latest share price of HKD $2.04, the dividend yield was 12.7%.

To read more about Asiaray Media, check out this article written by InTheBlack.

#2 – Dream International (USD $452m market cap)

Dream International is a manufacturer of plush toys, plastic figurines, and ride-on toys. One of their biggest customers is Disney. While the rise of mobile games is something undeniable, physical toys still play a big part in a child’s development. This company is founded in 1984 and it is listed on the Hong Kong Stock Market.

Their customers are Disney, Funko and Dreamworks. These customers assign character rights to Dream International to manufacture those toys. Some of the characters are from Zootopia, Frozen, Cars, Winnie the Pooh, Star Wars, Marvel Superheroes and others.

The founder is Kyoo Yoon Choi who owns 57% of the company. He is Korean. Previously, many manufacturers had their factories in China because of the cheap labour supply. However, he knew that this cheap labour is not going to last very long. Wages in China were rising double-digits every year. In 2008 / 2009, with the backdrop of the worst economic crisis, Mr Choi pressed ahead to spend money to build a new factory plant in Vietnam. I admire his determination because it is not easy to expand when the economy is contradicting. His calculated risk paid off and the company enjoyed better cost advantages. Mr Choi also opted not to take a salary during those years.

Dream International has a healthy cash conversion cycle of below 70 days, decent profit margins, and it is in a net cash position. It trades at Enterprise Value over Cash Flow of 11.5x with a Return on Equity of 25%. Their closest competitor should be Playmates Holdings (SEHK:635). Playmates has been purchasing their shares aggressively from the open market. Its revenue growth trend is not consistent.

#3 – Miricor Enterprises  (USD $98m market cap)

In Hong Kong, there are several companies focusing on medical aesthetics. There are Perfect Shape, Union Medical, Water Oasis and Miricor. When I was walking along the MTR stations, I noticed advertisements placed by some of these companies before. It got me interested in this industry.

Image belongs to Jdailyhk

Miricor is listed on GEM of Hong Kong Stock Exchange. It has three centres spread across Causeway Bay and Central Districts. Understanding there could be better synergies, the management decided to shift two units in Causeway Bay to a duplex unit in the same building. Perhaps, it may save some rental cost.

Image belongs to Miricor.

It provides non-surgical treatments to improve skin complexion and physical appearances. It earns revenue from 1) treatment services 2) medical consultation services 3) medical products and 4) skincare products. Their brands are “Cospeutic” and “CosMax“.

The company is run by Gigi Lai 黎姿 (75% ownership), a former Hong Kong actress and Cantopop singer. The company was founded by her brother, however, an unfortunate incident left him unable to operate the business. She took over the business because she felt it would be a big waste of her brother’s efforts especially when the business means so much to her brother. Not having sufficient business experience back then, Gigi took the challenge on. Through her hard work, the business grew rapidly. The listing of the company was inspired by her brother as well.

Image belongs to Gigi Lai.

Gigi is known to be a goddess of beauty with her age-defying skin. Her youthful appearances seem permanent despite the passage of time. She has charmed generations and the media.

As CEO of a fast-growing company, she is focused on building structure and creating efficiencies into the business through technology.  Personally, I admire her a lot! It is not easy for her to give up her lucrative entertainment career and devote her life into Miricor on top of her duties as a mother.

A few months ago. Miricor opened its fourth outlet at Harbour City (Tsim Sha Tsui) that has 17 treatment rooms. Adopting a hands-on approach, she visited the outlet to oversee the entire planning from the floor plan to the launch. This is a very refreshing approach as most CEOs do not like to get their hands dirty.

For the previous financial year, the revenue grew 27% while the profits grew 48% (excluding the one-off expense effect). Miricor launched 17 new products under Cospeutic as well.

Here is how they have been growing their new customers and referral rate:

The profitability and Return on Equity definitely meet my requirements. I do think there is room for growth as well. But I am assessing closely on a few metrics before initiating a small position. A risk which I see is whether the company is heavily dependent on their ambassador. For Miricor, it is Gigi Lai. For Perfect Shape, it is another popular celebrity called Charmaine Sheh.

Hope to have a good trip to rest up! Thanks everyone for your warm support, as always!