Goldlion Holdings Limited

Goldion (‘group’) is a Hong Kong-listed enterprise owned 68.17% by the Tsang family. It is engaged in the manufacture and sale of apparel, leather goods, and accessories in China, Hong Kong, Singapore, and Malaysia. It also has a substantial investment property portfolio and develops residential properties for sale.

The group distributes its apparel through 880 retail outlets in China of which 100 were self-operated. It also earns licensing fees for use of its brand. Further, it sells via e-commerce, which contributed to 35% of China apparel sales. In addition, it had 17 outlets in Singapore and 7 in Malaysia.

Its apparel business was badly hit by the pandemic with 28% decrease in China revenues (largest contributor) in the last six months and 40% decrease in apparel profits excluding inventory impairment, which was substantial at $45m as near-term prospects were gloomy.

It owns investment properties worth $2.9b in China ($1.7b), Hong Kong ($1.1b) and Singapore. The key property is the Goldlion digital network centre in Guangzhou. It earns rental income as well as building management fees.

The group had to provide concessions on rents and fees during the pandemic, and reported a 7% decline in income in the last six months. Occupancy levels fell from 90% to 83%.

Overall, the group reported TTM sales of $1.4b (2019: $1.6b), ebitda of $278m (2019: $336m) and net profits of $198m (2019: $306m). However, it generated average earnings of $330m and average free cash flows of over $200m since 2015.

The group had a substantial net cash balance of $1.1b. It has committed $634m in developing its property for sale in Meixian district, China ($309m incurred already); and $189m to purchase additional investment properties.

The net current assets were just over $1b. Adding in the fair value of investment properties results in $3.9b of realizable asset value excluding apparel assets.

The common stock is currently selling for $1.5b, which is under 40% of realizable asset value, 7x depressed earnings, and 4.5x average earnings.

Further, management has been generous with dividend payouts – consistently paying out over $180m in the past, though this was reduced by 1/3^rd to $120m for the final and interim dividend. Still, it yields over 8% at market.

Though the near-term prospects for apparel sales, and commercial leasing appears cloudy, the current stock price appears to be substantially out of line with the value of the group’s assets.