Description

Another quick idea. Ming Fai (3828 HK) - Long 

 Unless otherwise stated, financials/numbers in HKD

Summary: 

Bet on a travel recovery with a  ~4-5x PE, dividend paying stock still trading below pre-covid levels. Downside protected by a balance sheet that would make “Ft. Knox guy” blush.  

Description:

Ming Fai (3828 HK) is an owner-operated Hk listed manufacturer and distributor which produces travel amenities. Think body wash, travel pillows, even those towels with the little logos embossed in the corner. Ming Fai produces ~150 million bars/bottles of soap, 55 million toothbrushes, and millions of other table/dining ware a year for a wide variety of different hotel/hospitality groups, including the Marriott, Shangri-la and Wyndham groups.

Catalyst/Earnings:

This matters because travel, particularly international travel, is beginning  to recover. International travel was estimated at around ~900m last year/2022, at ~63% of 2019 levels. Current data suggests a ~30% increase, with international travel currently at ~80% of Mar 2023 levels compared to 2019. Most of the lag is still in Asia, where Ming Fai has a proportionally larger presence. Additional production lines set up in SEA and South Asia in Cambodia and India alsos suggest that Ming Fai should be able to product more volume over the next few years. 

Last Year, Ming Fai earned around ~ 70m. Given the travel recovery, even if we assume a run-rate of ~20% higher travel (i.e. 80% of 2019) vs 2022, we still end up with around ~84m of NI. (~5x PE). if we assume a recovery to 2019 levels, then we get ~4.3x PE(at ~96m) . If we add in some additional inflation benefits + incremental margin recovery, then Ming Fai should be able to produce ~110m HKD of NI this year, at a ~420m HKD mkt cap. 

 Valuation, Ownership

Yet, Ming Fai is still priced below pre-covid levels. The historical payout ratio is around 30-40%. With the family owning ~30% of the company, and famed activist HK investor David Webb (The 20 per cent-a-year stock picker who wishes his edge would disappear (afr.com)) owning ~15%, it is likely that the dividend payout should continue to be north of 30% this year. At an estimated earnings of 84m, Ming Fai trades at a ~5 PE, 6-8% dividend yield.

A true “Ft. Knox” balance sheet. (Putting this here to make "someone" happy) 

Ming Fai has ~600m of total liabilities(little debt) , 1.2b HKD of current assets, incl. 300m of cash. If we assume that the current working cap assets (most ~500m of receivables from high quality customers and ~200m of inventory) can cover all of the liabilities, Then ming Fai’s net current assets / liquidation value is already worth at least ~600m, vs the ~420m of current Mkt Cap. In other words, there is de minimis downside risk. Furthermore, Ming Fai was profitable for the 16 years prior to COVID, with relatively stable PnL through the GFC. 

Catalyst

Travel recovery

Increased dividend payout ratio

Further pressure from Activist who owns ~15% of the company