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Steven Chen
Steven Chen
Articles (205)  | Author's Website |

A First Look at 2 High-Quality Retailers From the Far East

Although retail is a tough business, we feel these companies may have differentiated leverages that can build an appealing investment case

Periodically, we run a primary search over the computer in the hopes of discovering something new, interesting and quality out of the global stock market. Our screener mainly covers return on capital, profitability, cash flow, capital expenditure, growth and financial strength. Last month, two names came onto our radar. Interestingly, both of these companies happen to mainly operate brick-and-mortar retail businesses with a market-leading position in respective domains in the Far East. The shares of both hit all-time highs this year despite the ongoing global Covid-19 pandemic. Moreover, both names appear to be lesser-known, especially to the Western audience. Although retail is a tough business, we feel these two companies may have differentiated leverages that can build an appealing investment case (at the right price, of course), and hence, are worth an in-depth look.

Poya International (ROCO:5904)

Poya International Co. Ltd. operates specialty stores offering personal beauty and daily merchandise. It mainly targets young and middle-aged females in Taiwan. Household, skincare and cosmetics are the top three revenue-contributing categories, representing 18%, 14% and 14% of total sales. Convenience, comprehensive selection and shopping experience are the key focuses of the company, which, we think, would defend the business against competitive threats.

According to management, Poya has a 90% market share with more than 240 stores - the total number far exceeds that of the next four competitors combined. This vast scale advantage benefits the company in terms of building a one-stop shopping experience as well as enhancing customer value through favorable prices. Meanwhile, management says the total number of stores should surpass 350 by 2025, along with another 220 stores of Poya Home, a hardware store chain concept developed recently.

The company's financials echo the high quality of the business - the return on invested capital stayed consistently above 15% for the last decade, while the top line and bottom line grew 11% and 25% annually.

The founder, Chien Tsao Chen, remains chairman of the board. His son-in-law, Tsung Cheng Chen, manages the day-to-day operations of the business and owns a 7.27% equity stake.

Nick Scali (ASX:NCK)

Nick Scali Ltd. is one of Australia's largest retailers and importers of quality furniture. The business imports over 5,000 containers of leather and fabric lounges as well as dining room and occasional furniture every year from some of the largest and most respected manufacturers globally. It has earned a reputation for high quality at low prices. The company's founder, Nick D. Scali, is considered a pioneer and innovator in the import and retail of furniture in the country. His son, Anthony J. Scali, took on the CEO role in 2011 and currently owns nearly 14% of total shares outstanding.

Nick Scali primarily specializes in lounges, dining tables, coffee tables, chairs and entertainment units - all bulky items that are, as you can imagine, typically a bit difficult for e-tailers to capitalize on, although the company launched its own online sales channel (to sell products that customers are comfortable purchasing without physically viewing) amid the Covid-19 pandemic this year. The lockdown may have helped Nick Scali since stuck-at-home consumers tend to take the opportunity to refresh their residences. As of June 2020, the company operated 58 stores, including three in New Zealand.

For the past decade, Nick Scali has delivered a return on invested capital above 20% every year. On an average annual basis over the 10-year period, the business increased its sales and earnings by 11% and 14%, respectively. In comparison, major competitor Harvey Norman (ASX:HVN) earned a lower return on capital and grew only modestly.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We do not own any securities mentioned in the article.

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About the author:

Steven Chen
Steven CHEN is a quality-focused, business-perspective investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected] or through LinkedIn.

Visit Steven Chen's Website

Rating: 4.8/5 (4 votes)



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Performances of the stocks mentioned by Steven Chen

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pascal.van.garsseHigh FCF-M2
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