SBB - Sunbridge Group

[galumay]

You guys are so harsh! The minor inconsistencies were obviously just an outcome of using google translate for the announcement, it could happen to anyone.

 

[skc]

SBB released an investor presentation after market close yesterday.

The most interesting news in there is that they are going to spend $4m acquiring company-owned stores (with aim to go to 70 stores by end of 2014) and then spend $9m renovating them.

$9m for 70 stores = $135k per store.
Last year average NPAT per store = $33k.

I hope this is not a page out of Eratat's renovation subsidy playbook.

 

[McLovin]

SBB released an investor presentation after market close yesterday.

The most interesting news in there is that they are going to spend $4m acquiring company-owned stores (with aim to go to 70 stores by end of 2014) and then spend $9m renovating them.

$9m for 70 stores = $135k per store.
Last year average NPAT per store = $33k.

I hope this is not a page out of Eratat's renovation subsidy playbook.

Err...you can apparently construct and fit out an 8 storey building from scratch for $2m but a store fitout costs $135k.

 

[VSntchr]

SBB released an investor presentation after market close yesterday.

The most interesting news in there is that they are going to spend $4m acquiring company-owned stores (with aim to go to 70 stores by end of 2014) and then spend $9m renovating them.

$9m for 70 stores = $135k per store.
Last year average NPAT per store = $33k.

I hope this is not a page out of Eratat's renovation subsidy playbook.

As soon as I saw the capex page my initial reaction was that this would be a good way for them to flush some imaginary cash.

 

[skc]

$9m for 70 stores = $135k per store.
Last year average NPAT per store = $33k.

It's all OK. There's an amendment. The $9m is earmarked to be invested in store renovations in general, not just company-owned stores. Oh wait... that's still no good. Those stores are franchise stores... why is SBB paying for their renovations? It is sounding even more like Eratat's renovation subsidy.

Err...you can apparently construct and fit out an 8 storey building from scratch for $2m but a store fitout costs $135k.

Yes. Even though the said building has been under construction some time before 2014, they made it sounds like it started in H1 2014. Apparently they also expensed all the warehouse upgrading.

As soon as I saw the capex page my initial reaction was that this would be a good way for them to flush some imaginary cash.

They are innocent until proven guilty so I can't conclude whether they are imginary or not. But the balance will be a lot lower after the capex plan, and it will be difficult to verify where it all went.

 

[KnowThePast]

It's all OK. There's an amendment. The $9m is earmarked to be invested in store renovations in general, not just company-owned stores. Oh wait... that's still no good. Those stores are franchise stores... why is SBB paying for their renovations? It is sounding even more like Eratat's renovation subsidy.

skc, I think the amendment was to say that $9m is to be spent on all their stores, not just ones they will acquire - no mention of franchise stores.

There, see, the company is totally legit.

Now, I still have my doubts and I think this story will not play out fully for another couple of years. I also agree that some things look suspicious, but I also think that you could find something at least as suspicious about any other listed company if you tried hard enough.

Anyone has an idea on how much a store fit out can cost in China? Renovations, lease payments, new inventories, etc? $130k is very cheap for Australia, but I have no idea what the expectation would be in China.

I also think comparing cost of a fit out with cost of construction is apples vs oranges. But even if we go along with it, assuming a comparable fit out in Australia costs $500k, an 8 storey building in Australia would then cost $7.4m. Is this totally unreasonable? I offer no opinion here, not my area of expertise, just asking about it.

I hold a little.

 

[skc]

skc, I think the amendment was to say that $9m is to be spent on all their stores, not just ones they will acquire - no mention of franchise stores.

When I say "franchise" stores (which is not a term they've used, but they do use the Chinese equivalent term according to Google Translate) I meant all the stores that are not owned stores. They said there are 420 stores selling their stuff, and they plan to acquire up to 70 by the end of the year. That leaves 350 "franchise" stores (or whatever is the right term).

These 350 stores are not owned by SBB. There's probably some contract for SBB to supply products and the store owner to sell them, and there is probably some lose guidelines on price, presentation, sell practice, promotions etc.

So what is your understanding of their announcement? Are they renovating 70 or 420 stores? My take was that the initial announcement meant 70, and the subscquent amendment meant 420.

Anyone has an idea on how much a store fit out can cost in China? Renovations, lease payments, new inventories, etc? $130k is very cheap for Australia, but I have no idea what the expectation would be in China.

They said renovation... so in store display, lighting, shelves and racks, flooring, signs etc. If you push it you can argue POS terminals and IT systems, but I wouldn't lump the cost of lease payment and inventories into the sum.

Just compare the sum to average sales and profit per store.

So... if $9m is to renovate own store (70) only, then the bill is way too high (compared to average store sales). And if $9m is to renovate all 420 stores, then the question is why they are paying for it.

And even all this spend is legit... what incremental sales and profit can you get by spending this money? They seem to have been travelling splendidly for some time with incredible ROE. Why this massive injection now?

 

[KnowThePast]

When I say "franchise" stores (which is not a term they've used, but they do use the Chinese equivalent term according to Google Translate) I meant all the stores that are not owned stores. They said there are 420 stores selling their stuff, and they plan to acquire up to 70 by the end of the year. That leaves 350 "franchise" stores (or whatever is the right term).

These 350 stores are not owned by SBB. There's probably some contract for SBB to supply products and the store owner to sell them, and there is probably some lose guidelines on price, presentation, sell practice, promotions etc.

So what is your understanding of their announcement? Are they renovating 70 or 420 stores? My take was that the initial announcement meant 70, and the subscquent amendment meant 420.



They said renovation... so in store display, lighting, shelves and racks, flooring, signs etc. If you push it you can argue POS terminals and IT systems, but I wouldn't lump the cost of lease payment and inventories into the sum.

Just compare the sum to average sales and profit per store.

So... if $9m is to renovate own store (70) only, then the bill is way too high (compared to average store sales). And if $9m is to renovate all 420 stores, then the question is why they are paying for it.

And even all this spend is legit... what incremental sales and profit can you get by spending this money? They seem to have been travelling splendidly for some time with incredible ROE. Why this massive injection now?

Hi skc,

The wording is:

4th bullet point 1st sub-bullet point should read as “$9.0 million to be invested in store renovations”, instead of
“$9.0 million to be invested in store renovations which will be acquired”

To me it sounds like the first one meant the 46 new stored that are planned to be acquired. The second one meant those 46 plus 24 they already own, for a total of 70.

I don't have enough experience here to judge costs, but taking a few years to return capital invested does not seem unreasonable. Has anyone done research on lines of KMD, ORL, etc. to offer an opinion on how much fitouts costs here?

 

[skc]

To me it sounds like the first one meant the 46 new stored that are planned to be acquired. The second one meant those 46 plus 24 they already own, for a total of 70.

Your interpretation is as good as mine. But if you are right than it's $130k per store renovating costs.

I don't have enough experience here to judge costs, but taking a few years to return capital invested does not seem unreasonable. Has anyone done research on lines of KMD, ORL, etc. to offer an opinion on how much fitouts costs here?

What you are interested in is incremental return, not total return. So it's not like they are investing $130k to earn $35k (average NPAT per store) per year. They are earning that already. What they are doing is spending $4m+$9m to acquire then renovate ~70 stores in hope that this will earn higher returns. There aren't enough details available to assess whether it is worthwhile.

Without knowing the size and location of the stores being acquired, you cannot judge whether fitout costs are high or low. Costs by KMD/ORL are not based in China so are not terribly comparable.

 

[McLovin]

I don't have enough experience here to judge costs, but taking a few years to return capital invested does not seem unreasonable.

A store fit-out lasts anywhere from 2-10 years. The average is probably around 5 years unless you've invested a lot in the design phase for something that will last longer but even then high traffic areas won't usually last that long without looking tatty.

 

[KnowThePast]

Your interpretation is as good as mine. But if you are right than it's $130k per store renovating costs.



What you are interested in is incremental return, not total return. So it's not like they are investing $130k to earn $35k (average NPAT per store) per year. They are earning that already. What they are doing is spending $4m+$9m to acquire then renovate ~70 stores in hope that this will earn higher returns. There aren't enough details available to assess whether it is worthwhile.

Without knowing the size and location of the stores being acquired, you cannot judge whether fitout costs are high or low. Costs by KMD/ORL are not based in China so are not terribly comparable.

That's an excellent point and you are right, we certainly don't have enough information to judge whether it is a good decision.

A store fit-out lasts anywhere from 2-10 years. The average is probably around 5 years unless you've invested a lot in the design phase for something that will last longer but even then high traffic areas won't usually last that long without looking tatty.

Thanks McLovin. And how does $130k/store sound to you compared to Australia?

 

[McLovin]

Thanks McLovin. And how does $130k/store sound to you compared to Australia?

It depends on store size. Cost is usually somewhere between $1,000-$2,000/sqm.

But I think skc is on the money, where is the value in doing these renovations? If they said we're going to give the stores a lick of paint and get the floorboards redone you could understand, but spending $135k on what are already highly profitable stores does seem to raise a few questions.

 

[KnowThePast]

It depends on store size. Cost is usually somewhere between $1,000-$2,000/sqm.

But I think skc is on the money, where is the value in doing these renovations? If they said we're going to give the stores a lick of paint and get the floorboards redone you could understand, but spending $135k on what are already highly profitable stores does seem to raise a few questions.

I agree with you guys, there's certainly not enough information to make sense of this.

Could the stores be run down, and the time has come for a major refurbishment? Perhaps that was part of the reason behind the listing?

All questions and no answers.

 

[McLovin]

Could the stores be run down, and the time has come for a major refurbishment? Perhaps that was part of the reason behind the listing?

These guys have more cash than they know what to do with, even without the IPO (which was only 20m shares).

 

[ghotib]

Anyone still in this? What do you make of the resignation today, effective today, of director Andrew Plympton? The holiday market obviously didn't like it but I'm wondering if that's reflex or if someone knows what's behind it.

I've dipped a toe into trading with this stock but I don't hold it at the moment.

 

[craft]

Anyone still in this? What do you make of the resignation today, effective today, of director Andrew Plympton? The holiday market obviously didn't like it but I'm wondering if that's reflex or if someone knows what's behind it.

I've dipped a toe into trading with this stock but I don't hold it at the moment.

Picked a few up a while ago for a feel but have since put them back down. Just way too hard for me get a handle on and I'm not into holding small parcels for a long time.

Its probably going to end in tears. (but maybe, just maybe it might not). Trade it Technically or Position size it appropriately for the risk in a diversified portfolio and ignore the noise, would be about the best ways to play it if you were so inclined.

 

[Ves]

Outside of the obvious company announcements and speculation over fraud there are a few other interesting notes I have come across on this company (I follow it mainly to observe the investor psychology of others on another forum - mainly entertainment purposes).

The capex disclosure going forward is pretty hazy... and it's hard to forecast how much cash will be left, especially if earnings don't hold up. Moving from franchising to store ownership would come with additional working capital costs I believe and a delay in the cash flow cycle... and if the current stores are in need of renovations (on top of expansion) there would be a decent cash burn. There are a few listed peers on the US stock exchanges from memory and their profitability has been in a bit of a tail-spin (holders would probably need to investigate this).

There is a bit more outside of the corporate governance and fraud speculation to this one IMO.

 

[shouldaindex]

There's a few stocks over there that seem to have their holders in Stockholm Syndrome, so to speak.

It's an absolutely fascinating study of the human mind.

I'm beginning to work on a philosophy to incorporate into my investing that can take advantage of the extremes.

 

[Ves]

Could you imagine a SBB exclusive version of Gogglebox for the crowd over at Hotcopper?

 

[McLovin]

Pierpont did a column on SBB on Friday.

PIERPONT
Thanks to the boom in Chinese trade, Australia now bristles with China experts. But don't include Pierpont in that number, because your doddering correspondent doesn't even understand how Chinese companies do business.

They seem to have their own quaint ways, which are as mystical to Pierpont as Zen Buddhism. Take, as an example, Sunbridge Group (SBB), which listed on the ASX in November, 2013.

Sunbridge says it is a leading retailer of menswear in the People's Republic of China. It owns and operates the Pandist and Agueseadan brands of menswear, which are targeted at different age groups of well-groomed upper-middle-class men and are sold in more than 400 retail outlets across China.

Pierpont applauds this welcome entry of capitalism into the fashion business of China. For decades, everyone in China seemed to wear only those dreadful boiler suits made compulsory by Mao Tse-tung (or Zedong or whatever his name was).

The business was founded in Hong Kong in 1996 under the appealing name of Mega Rich International Creation Ltd by a chap called Jiayin Xu. To float Mega Rich publicly, Sunbridge was formed as a parent company to take over Mega Rich. Sunbridge was then floated in Australia.

So the structure of the group is that Sunbridge sits at the top as parent and owns 100 per cent of Mega Rich, which in turn has two wholly owned subsidiaries called Bangdisidun (Fujian) Dress Development Co Ltd and Hengjiasi Dress Development Co Ltd.

Pierpont's confusion began with the prospectus illustrations. Sunbridge's operations are entirely in China and its Australian head office is in Melbourne. But the group's logo is the Sydney Harbour Bridge. Your correspondent was further confused by the fact that although the menswear is entirely produced and sold in China to Chinese customers, the male and female models in the prospectus photos look – to Pierpont's rheumy, old eyes anyway – like Westerners.

Full article here...

http://www.afr.com/p/business/companies/sunbridge_group_investors_are_owed_GSwn9lyw0gUXWrh6dE7kZI