Perfect Timing

Sincere Watch (Hong Kong) Ltd (HKG:0444) ("Sincere HK") was first featured on Margin of Safety about two weeks ago on 7 November. This HKEx listed counter has since surged 21% from HKD 0.57 to HKD 0.69. The CFA Institute does not permit annualizing of performance numbers if the review period is less than a year. Given this sharp pop in a fortnight, we can understand why. For those who are curious, such a movement would actually be equivalent to an annualized rate of return in excess of 10,000%.

Don’t we deserve a pat for our immaculate timing? Sincere HK has since reported its 2Q07 earnings. As expected, its EPS showed a marked improvement compared to the 1Q07 numbers. Its EPS for the quarter was HKD0.032 vs. HKD0.0028 earlier.

Management has reported that consumer sentiment continue to be strong in Hong Kong and other North Asian economies. In this light, Sincere HK intends to step up its brand management activities for all its luxury brands, namely Franck MULLER, de Grisogono, European Watch Company, Pierre Kunz and Cvstos. Sincere HK will also be enlarging its flagship Franck MULLER boutique in Hong Kong island and a new one will be opened in Ocean Terminal Mall in Kowloon before year end. In addition, a Franck MULLER boutique has been established at the Landmark Hotel Macau to tap on the booming gaming and hospitality sector in Macau.

Looking further north, Sincere HK is stepping up its market presence in the PRC by relocating its Franck MULLER boutique in Shanghai and seeking new locations in Beijing.

Traditionally, Sincere HK's earnings exhibit a seasonality pattern. Hence, we expect its 3Q07 earnings to be even stronger, barring unrealized exchange rate losses. Earnings should also be given a shot in the arm when the expansion and market plans outlined above bear fruit. In view of the foregoing, our full year EPS target of HKD 0.10 remains on track.