D2U - Cacola Furniture International Limited

Cacola Furniture International Limited1 is engaged in the design, manufacture and sale of a range of home and office furniture. Its products are primarily sold under two brand names, CACOLA and KELOG, through its distribution network.

The Company's products are categorized into three segments: panel furniture, sofas and mattresses. The Company manufactures fabric and leather sofas that come in full fabric, full and half leather types and usually comprise a set of a one-seater, a two-seater and a three-seater or a set of two one-seater and a three-seater, and produces spring mattress, coconut palm mattress, foam mattress, pocketed spring mattress and latex mattress.

As of March 31, 2007, Cacola had approximately 14 distributors located in 27 provinces, autonomous regions and municipalities in the People Republic of China. Its distributors cover 101 distribution points, all of which are specialty stores operating under the shop name CACOLA. It has a mega retail store cum showroom, CACOLA Furniture Superstore, at Changping Town, Dongguan City, Guangdong Province, People Republic of China to showcase its products. CACOLA Furniture Superstore functions not just as a retail outlet and showroom but also as a concept store where its prototype products are showcased. On September 14, 2007, the Company acquired Sincere Treasure Limited.

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SUMMARY

Founded 1999
IPO 2007
Employees 1,568
Profits (FY2007) RMB123.3m (Up 64.0%)
Issued Shares (3Q08) 345,000,000
NAV/share (3Q08) RMB 116.16
Address Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman, Cayman Islands
Website http://www.cacola.com

MANAGEMENT

  • Executive Chairman of the Board - Chau Yeung Chau
  • Chief Executive Officer - Lu Lingjia

RESEARCH NOTES

Cacola is included within Forbes Asia's 200 Best Under 1 Billion2 for 2008. For companies to be included, certain criterias are to be met, although it wasn't explained in the accompanying article.

Based on anecdotal reading on reflection of a Chinese consumer's blog3 (in Chinese), given her enthusiasm for showcasing Cacola's lineup of furniture, at least it appears that so far, Cacola has been perceived as an upmarket brand name in China.

The company is operating debt free, as stated in the most recent quarterly financial statement (12 Nov 2008)4, holding RMB241m in cash. From 13 Nov 2008's OCBC research report (see below), the company is trading below it's cash value of SGD$0.14, making it a good value buy. Blogger Sechai provides an impressively detailed breakdown of the numbers to justify the company as a value stock5.

A major risk involving the company includes the effects from the global economy downturn, which is affecting China's economy, especially in the property sector, thereby indirectly affecting furniture sales. The situation may persist for a year or two, given the economy crunch is likely to be prolonged and widespread. The economic situation in Dongguan, China do not seem to be positive from the spate of news headlines that indicate a worsening business conditions6.

Also, the recent divestment of a huge stake of 22.91% by the company's executive chairman Chau Yeung Chau7 is also a cause of concern. The notice of change of director's interest indicated that it's being sold to investors, although the identities of these group of investors are not disclosed. Furthermore, another substantial shareholder(s), Lim Youk Ching (directly held by Sunco Access Limited?), had trimmed their stake to an investor and/or into the open market. (It is confusing to figure out whether if the stakes are sold to the open market or to one investor, or whatever proportions are being sold to whom, given there are 4 separate Notices of Cessation Of Substantial Shareholding8 that is talking about the same stake). These concerns are also being actively discussed in ChannelNewsAsia's forum9.

Another risk factor involves the uncertainty of it's growth strategy, given the in opening its Chongqing Mega store has been delayed in opening, partially due to the Sichuan earthquake, but also due to approval problems resulting from construction previously undertaken by the landlord (See 30 Oct 2008 media report). The 13 Nov 08 OCBC Research reports that the store will be open roughly 2H09, due to legal disputes. On the contrary, the company's press release states that it has opened up opportunities for the company to potentially renegotiate lower rents for it's flagship store10. Question is, will the negotiations result in something fruitful if the landlord is considered to be adversarial given the legal disputes previously mentioned? Nevertheless, as of 3Q08, the company has opened 10 new stores and closed 13 existing stores, bringing the total number of stores to 149, compared to 101 in the previous year, which still represented roughly a 50% increase.

RESEARCH / MEDIA REPORTS

  • 27 May 2008 - Research Report (Reposted in a blog, unattributed.) - Neutral sentiment.

BLOGS / FORUMS

A listing of blogs and forums discussions that cover information pertaining to Cacola:

Forum Threads

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