BEST SMALL CAP COMPANY
Tao Heung Holdings
Tao Heung Holdings, a family restaurant operator, has thrived in the past 12 months in an amply competitive environment, staying true to keeping costs low and focusing on its client base.
“Tao Heung is restaurant operator that focuses on very straight, Chinese and Cantonese cuisine that is low in cost and neighbourhood-focused,” says a Hong Kong analyst. “It has consistently focused on delivering meals that are about HKD70 per head – it’s not a glamorous business but the company’s managers have been clever to keep the price point and margins quite low and keep quality consistent. It’s cut through some pretty tough competition.”
The company has built up a portfolio of 120 restaurants in Hong Kong and Southern China since 1991, spanning 14 restaurant chains serving Cantonese, hak kah, Shanghainese cuisine, baked goods, cha chan and hotpot meals. And through the years it has still been keen to expand, acquiring additional stakes in existing and new restaurants, most recently becoming the sole shareholder of Tai Cheong Bakery and becoming the largest shareholder of Bakerz 180 in January 2013.
“The company’s communication with investors has improved over the past year to build on some of its innovative ideas, and it’s been able to exploit the fact that the local economy has done quite well,” said an equities analyst. “It’s been able to maintain margins despite the rising costs of rentals and supplies.”
Tao Heung’s innovation has included creating an environment that promotes its cuisine through food preparation by designing some of its venues around an open-kitchen concept. This also helps to ensure food quality as customers can see what is being done. Plus its headquarters uses software systems to monitor each stage of food preparation and gauge supply chain inefficiencies and safety problems, as well as a food testing laboratory to analyse food samples for consistency and quality.
Confidence in Tao Heung’s business model helped its shares rise from HKD3.93 on August 17, 2012, to HKD5.79 on August 12, 2013. This marks a consistently upward improvement from the HKD1 it was trading at nearly five years ago on October 31, 2008.
BEST MEDIUM CAP COMPANY
Techtronics Industries
An improving global economy helped Techtronics Industries cleaned up in the 2012/2013 business cycle, as improving demand drove up sales for its vacuum and home-improvement products.
Techtronics designs, manufactures home improvement parts for global brands, including power tools, outdoor products and floor care parts for Bissel, Bosche and Siemens, Dirt Devil and Sears. It also owns independent vacuum brand Vax, power tool brands Ryobi and Milwaukee, and lawn care brand Homelite.
Analysts explain that Techtronics survived the housing crisis in the US – the country from where it derives more than 70% of its sales – by keeping its gearing and production costs from its China plant low in anticipation that home purchasing, and thus hardware purchasing, would improve.
“You could understand why the company would have struggled during those years when people weren’t buying homes, and why its business model is doing well now that the US market is improving,” says a Hong Kong equity analyst. “The company works closely with major DIY (do it yourself) shops like Home Depot, and by managing its cash position and taking on a conservative outlook, it’s shares have gone from a low of less than HKD1.50 five years ago to more than HKD20 this year.”
But in the past year alone Techtronics has expanded its business distribution to encourage even greater growth, improving technology in its cordless power tools and vacuum cleaners to win more US market share.
Its stock price moved from HKD10.36 on August 14, 2012, to HKD19.6 on August 5, marking a nearly 90% climb.
BEST LARGE CAP COMPANY
Cheung Kong Infrastructure Holdings
Despite consistently being one of Hong Kong’s strongest businesses, some analysts continue to refer to Cheung Kong Infrastructure (CKI) as a rising star. The reason is simple: the company still finds the bandwidth to innovate, crack into new markets and make inroads to improve its business and stock performance.
“Many Hong Kong companies have performed well but Cheung Kong Infrastructure for the past few years is a real rising star,” said a Hong Kong-based equity researcher. “It has been more active in buying overseas assets and has focused on a diversified expansion. It has businesses globally…and it has been very straight in giving investors information on its business. It has done a good job, and investors have rewarded its candidness with good stock performance.”
In addition to maintaining a clear investor relations strategy, CKI has been among the savviest mergers and acquisition (M&A) players in Hong Kong and continued to grow its business globally. Most recently, it acquired New Zealand's EnviroWaste Services for NZD490 million (US$392.93 million) in January and led a consortium to buy Dutch waste management company AVR for €943.7 million (US$1.25 billion) in June.
CKI now owns electricity and natural gas plants, utilities and infrastructure assets and waste management companies in Australia, Canada, China, Hong Kong, New Zealand, the UK and continental Europe.
And some of these recent investments abroad have also begun showing returns, giving investors the benefits of solid income while CKI continues to expand into new areas.
“Cheung Kong Infrastructure is growing its business with new acquisitions across the world, but it’s also reaping the fruit of previous ones, like its UK gas network – there are a few previous acquisitions that are now generating revenue,” says an equity analyst. “It has managed its balance sheet well, and considering the new contributions from the old acquisitions that are now coming in, it has a low gearing and its balance sheet has room for more growth to continue improving its revenue stream.”
This activity caused its stocks to rise more than 13% from July 31, 2012 to July 29, 2013, from HKD46.90 to HKD53.15, outperforming the Hang Seng Index.
BEST EXECUTIVE
Lam Wing Tak, chief executive of Pacific Textiles
Lam Wing Tak has helped Pacific Textiles to take a long term view on a niche textile sector, becoming a leading provider of knitwear for lingerie pieces.
Pacific Textiles has a top reputation within its business sector made possible by its strong management including Lam and his team. These executives have helped to keep the company’s focus on select sectors rather than over-extend into other textile opportunities. It’s known for providing fabrics to global brands such as Calvin Klein, Maidenform and Victoria's Secret, but selectively supplies textiles for men’s, women’s and children’ clothing, sportswear and swimwear.
The decision has consistently proven correct, with the company garnering HKD6.65 billion of revenue by the financial year ending on March 31, 2013, up from HKD6.42 billion a year earlier.
“The business is just that straight forward, and Wing Tak has managed to steer that business,” says a Hong Kong-based analyst. “It has been able to maintain good margins against adverse environment and Pacific Textiles has created economist of scale…The company has taken a long-term view on a profitable, niche business in a commodity that is as big as an ocean: Wing Tak has created his own little blue pool in what is one of the largest commodities segments.”
Lam has driven the company’s relationship with global brands including Calvin Klein, Maidenform, Triumph, UNIQLO, VF Intimates and Victoria's Secret.