2678.HK - Texhong Textile

[lathinker]

I own some Texhong with a cost basis of around 5 HKD. Few thoughts (probably not too surprising):

 

They are in a tough and cyclical industry but have a decent track record of profitability. Over the last ten years, they were always profitable (even though their margins have varied), with ROEs >10% in 7 out of 10 years and five out of the last six, assuming 2020 will be  < 10. During that time, they have grown revenues 4x.

The business was severely impacted by Covid since their revenue declined in H1 and margins collapsed (operating leverage). I am confident they will come back stronger than before since they have more scale following the expansion over the last few years.

While tariffs / trade issues, are a concern, they have diversified a lot geographically with activities in Vietnam, Turkey and Latam and widened their product range.

To a large extent, this is a bet on the founder/CEO, Hong Tianzhou. He navigated the firm skillfully in a volatile and difficult industry with a focus on efficiency / cost advantages and has found clever ways to expand and grow. He is still the majority shareholder and - in my view demonstrated strong skills in terms as both an operator and capital allocator. I like the fact that his salary is less than the dividend he is paid - the place seems to be run for shareholders in my view.

 

https://valueinvestorsclub.com/idea/Texhong_Textile/6872850370 is a decent read for the bull case.

[Laxputs]

I appreciate that. Thanks.