HKTVMall - 1137.HK

Summary

• HKTVMall is an “online shopping mall” largely selling grocery, beauty and health, along with electronics product.
• Inflection point 1: include expanding collaboration with more third parties to expand delivery networks and pickup points.
• Inflection point 2: organic growth of customer base; there will be a wider adoption of online shopping as technological savvy young adults go into the workforce.

Company Description

HKTVMall is an “online shopping mall” largely selling grocery, beauty and health, along with electronics products in Hong Kong. The company is founded by Ricky Wong, then founder for CTI along with Hong Kong Broadband, along with his cousin Paul Cheung.

See Appendix for additional company demographics and business break down.

Qualitative Analysis

• Macroeconomy: With COVID-19 affecting most of the world, where Hong Kong was hit hardest in February - April 2020, HKTVMall positively benefited from the virus as more people stayed home and ordered goods to their home. HKTVMall’s customer base is based in Hong Kong, hence the political unrest in Hong Kong along with its economy will affect consumer sentiment and spending habits especially on discretionary products such as beauty and health, along with electronics.

• Industry: Close to 40% of HKTVMall’s sales come from grocery. As it is non-discretionary, a necessity in daily lives no matter the economic condition, we see it as a company that can relatively perform well when the economy is suffering.

• Competitors: There are many small fragmented online grocery retailers in Hong Kong, however none of them are similar to the size of HKTVMall. Many of these retailers also sell on HKTVMall to attract new user base, so we don’t see them as a near term threat given the large difference in size. Rather, large grocery retailers like ParknShop and Wellcome also offer online sales, along with their brick and motor stores, so we see them as direct competitors to HKTVMall’s grocery business. Similarly, Mannings, Watsons, and SaSa are seen as direct competitors for their health and beauty business. Nevertheless, it appears that HKTVMall offers lots of “buy more save more” sales, so many of their consumers appear to buy more in bulk (>3 items) as compared to more traditional retailers where consumers buy one to two items.

• Inflection (Past and future):

  • (Past) As of 2020, Ricky Wong has become CEO of the firm instead of Chairman. He has a historical track record of making companies grow and become sustainable, such as CTI along with Hong Kong Broadband. We believe with his guidance, HKTVMall will become another successful company.

  • (Past) Automation and robotic system has been completed for the Tsing Yi and Tseung Kwan O headquarters, this will greatly improve the packing efficiency of the company.

  • (Upcoming) Continue to expand collaboration more with third parties to expand delivery networks and pickup points, with a total of 115 pick up points. Some third parties includes stores like Baleno, CATALO, Foodwise, GIORDANO, and Hung Fook Tong.

  • (Upcoming) With COVID-19, many consumers have attempted to shop online and some of them have continued their habit as online consumers. We believe this will not change, and similar to North America, there will be a wider adoption of online shopping as technological savvy young adults go into the workforce.

Historical Order Intake 

Thousand (HKD)	2016	2017	2018	2019	2020E
GMV	336,260	1,070,359	1,891,256	2,779,070	3,400,000
Average Daily Order	1,700	5,900	10,300	15,100	18,700
Average Order Value	542	496	504	504	N/A
Average Daily GMV	921	2,926	5,191	7,610	N/A

2020 Monthly Order Intake

Thousand (HKD)	Feb 2020	March 2020	April 2020	May 2020
Monthly GMV	482,400	531,000	492,000	472,000
Average Daily Order	32,600	31,800	31,600	30,400
Average Order Value	N/A	538	519	500
Average Daily GMV	16,600	17,100	16,400	15,200

Valuation and when to buy

Based on the DCF and Book Value Multiples method, one should purchase HKTVMall based on available data as of June 30, 2020 at HKD 3.70/share or less.

DCF:

WACC	4.76%
Terminal Growth Rate	2%
Concessionaire vs. Direct Merchandise long term breakdown	80% Concessionaire vs. 20% DM
GMV Growth Rate	15-20% in coming 5 years
Per Share Price	0.905-1.152

Based on the DCF model of a fairly optimistic growth rate of 15-20% for HKTVMall’s gross merchandise value (GMV) in the coming five years along with their mentioned target plan to increase concessionaire sales and decrease direct merchandise sale, we came to a value of HKD 0.905 to 1.152 per share.

Book Value Multiples Method:

	2016	2017	2018	2019
HKTVMall Price to Book Value	0.57x	1.54x	1.41x	3.33x
Amazon Price to Book Value	18.55x	20.43x	16.93x	14.83x
Alibaba Price to Book Value	5.92x	9.14x	5.79x	6.86x

We then used the price to book value methodology to see how the company compares to other similar businesses. As both Alibaba and Amazon are well known and much larger conglomerates, along with both generating positive EBITDA (while HKTVMall’s EBITDA is negative), we can see Alibaba’s price to book value is only roughly double that of HKTVMall. Institutional value investors like to find companies with a price to book value of under 3.0x. Based upon this, we can reconsider HKTVMall as a good purchase when the stock reaches the price HKD 3.70 per share (price-to-book-value is 3.0x).

When to Sell

1. We believe the largest short-term adoption of new users comes from the new users from the COVID-19. The next organic growth will come from the organic growth of more users as more variety of products are being sold given the expansion of concessionaire sales. When there are absence of new factors to attract new user base to the site, it is when one should consider to sell the stock.

2. When no new additional continued collaboration with additional third parties to expand delivery networks and pickup points.

Appendix

Ownership

HKTVMall is approximately 49.7% owned by Ricky Wong, the CEO and Paul Cheung the Chairman largely through Top Group, an entity owned by both of them and their family.

Company Demographics

Breakdown of GMV

Source: HKTVMall 2019 Annual Report