Last year was not an uneventful year for Ming Fai. The company sold its investment property and subsequently attracted some attention from David Webb, an activist investor who pressured the company to pay out the proceeds of the sale as a large dividend. Ming Fai listened just a little bit, and paid a special dividend of HK$0.20/share during the year in addition to its regular dividend payments. While this was a nice development the company continues to hold a net cash balance of HK$0.68/share while shares trade at HK$1.06.
The results of Ming Fai itself during the year were not spectacular. The main amenity segment continued to perform well with revenue increasing 0.25% while earnings before tax increased by 16.1%. Unfortunately the solid performance of the main business continues to be obscured by the loss making retail segment that saw losses grow from HK$27.1 million to HK$37.5 million (a part of these losses are shared with outside minority shareholders). While this is not a great result, I think Ming Fai continues to do the right things to address the problem. The number of stores they operate dropped once again, from 543 to 387, and the company is also cutting overhead and other expenses in the retail segment.
While Ming Fai is cheap no matter how you slice it, my thesis hings for a part on the company being rational and not keeping a loss making segment around forever. They either turn it around, or liquidate it completely. If you ignore the loss making retail segment for a second, and only value the amenity business and the excess cash you can see how much upside potential there still is:
Author is long Ming Fai
Although I don’t expect to much operational performance fireworks from amenities in the next 12 months in particular. Margins might have peeked due to use of 2015 bought inventory (at lower prices), but well see. Also some risk on the downside due to USA trade-relations, some accounts receivables that are probably going to get impaired/written down (but mostly reserved). Not sure what caused the increased losses in the retail segment, but if it is severance/restructuring type costs, some upside could come from lower losses in that part of the business.
Longer term I can’t see how you can do much wrong for holding here, if you, like I am, assume that they will cut their losses on the retail business. At the current price and profit it still is a decent compounder despite the excess cash and loss making business segment.
How did you arrive at net cash? Looks a bit high to me. Did you substract the dividend payable?
No, it’s not trading ex-dividend.
I’m not talking about the year-end dividend. The dividend payable on the balance sheet is 144.7m or 20ct / share. AFAIK that is the special dividend paid out in January. I think you should substract it from cash.
Whoop, you are totally right!
A lot has happened since your last post, when it comes to Ming Fai.
Would you like to share what’s your current take on it?