mjohn707 Posted January 10, 2015 Share Posted January 10, 2015 Merchant House International is a Hong Kong based company that is organized in Bermuda, listed on the Australian Stock Exchange, has significant assets in Mainland China, and principally markets it products in the United States. CEO Loretta Lee founded the company in 1978 to import Chinese textiles. The company has since expanded to manufacture footwear and textiles as well. Lee controls the company with a greater than 50% interest in the common stock. Over recent years the company has faced secular headwinds as competitors have moved their production out of China to lower cost areas. To meet this changing competitive situation the company has organized a new subsidiary and opened a footwear manufacturing facility in Tennessee. They plan to manufacture a new line of shoes with Sears as their primary customer. Additionally, during the last fiscal year the company posted the weakest results in 8 years due to management problems and out-of-control costs in their unprofitable textile manufacturing division. In spite of these negatives, I believe that at the current price of 0.21 AUD the company offers a good value. Excluding the poor results of 2014, the 7-year average EPS of 0.038 AUD offers an 18% earnings yield. In addition, the company had 0.131 AUD per share in cash as of the half-year ended September 30, 2014, trades at less than 50% of book value and a bit below conservatively calculated liquidating value. Excluding the startup losses for the new Tennessee factory (which hasn’t produced any revenue yet), first half 2015 results look much improved over last year. The company has trimmed losses from the problematic textile manufacturing division, which has more than compensated for declines in the textile and footwear trading divisions. Management seems to be shareholder friendly as the company has paid regular and occasional special dividends. Shares outstanding have been more or less flat over the 8-year period I reviewed, and compensation seems reasonable. I’m attaching a copy of my worksheet that includes an 8-year earnings summary and my calculation of liquidating value.merchant_house_international.xlsx Link to comment Share on other sites More sharing options...
paperwerks Posted January 11, 2015 Share Posted January 11, 2015 The NAV is .47 and the stock trades for .21 but the huge facory/campus in China has a very tsmall valuation compared to its true market value, so it is a great value stock and very shareholder friendly imo. Loretta Lee is an amazing businesswoman http://www.bloomberg.com/video/loretta-lee-why-a-hong-kong-shoemaker-moved-to-the-u-s-YRv0prkRSQOIx77q_tAPoA.html?cmpid=yhoo It is posible to acccumulate stock over time. I think the low valuation is due to it being listed and forgotten in australia. Very strong balance sheet and pays a dividend as well! I wish I could find more stocks like this one. I own some. Lots of useful information on the hot copper message board Link to comment Share on other sites More sharing options...
mjohn707 Posted January 11, 2015 Author Share Posted January 11, 2015 There was an article in the WSJ too about the opening of the TN factory which I remember reading. I remember having a favorable impression of Lee based on the press reports at the time. Link to comment Share on other sites More sharing options...
rijk Posted August 7 Share Posted August 7 looks like, after a decade being down double digits, we finally might get our money back...... https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02835804-6A1219439&v=fc9bdb61fe50ea61f8225e24ce041a0e155a9400 Link to comment Share on other sites More sharing options...
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