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SBB 1.0¢

Blue sky through the clouds

  1. vafooli

    1,311 Posts.
    13
    I think the update provided some needed clarity on the spending outlined in the 4c.
    It looks like the market reacted badly to the 4c due to the decrease in cash held, decreased sales, and potentially lack of understanding as to how and where exactly these large expenses were being spent.
    The update today really helped to explain the large amount of money spent on IP. I feel that this could be very positive, as it means that not only do we have 71 of our own stores generating additional income, but we have also renovated many other "franchise" stores, which too will bring increased income hopefully. Additionally, as these stores were likely closed for renovations, I think we did fairly good to have sales remain fairly strong through this process. Although, the effect of closed stores on sales in the 4c may not be apparent until the next quarter. But hopefully these may be offset somewhat by improved sales from the newly renovated and self owned stores.
    As mentioned on another thread, it is rather unusual that SBB should pay for renovation of "franchise stores". Normally these expenses should be paid by the owner of the "franchise" store, and not the parent company. So I feel that these arrangements should be made known to shareholders, as this is a source of confusion. It is very possible this is the arrangement they have with department stores to maintain the fit outs, and in return receive a percentage of sales.
    Looking at gross numbers, net operating cash flow was very good. nearly double last year, primarily through an increase in sales. Looks like they have a fairly stable operating cost structure, and increases in sales did not result in significant increases in cost, and therefore translates to significant profits. Down side to this is that if sales drop below the profitable level (about a 20% drop in sales), then cost may not come down as quickly, and it could result in losses.
    But overall, the 4c really was very positive from sales and operating cash flows. The business is making some bold moves, and the more I think about it and look into the numbers, it makes more sense.
    I think Mr Xu knows what he is doing. As I begin to understand this expansion better, I have more trust in their strategy.
    I believe as long as financials continue to remain strong, market sentiment will soon improve. A divvie is also a vital component in boosting the SP, and based on review of the numbers, 0.5-0.7cps is very possible. (calculation based on expansion being expensed over a 3 year period)

    Based on the above, I have given SBB a buy sentiment.

    IMO and DYOR.

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