Crazy buyback of over 1.3 billion Hong Kong dollars in 5 months, will SAMSONITE (01910) speed up valuation restructuring?

After a crazy buyback, stabilizing and rising for three consecutive months, SAMSONITE (01910) has bounced back by more than 20%. The company is on a steady path to repairing its valuation, has this company found investment opportunities? It is understood that SAMSONITE announced a buyback plan in June 2024 and started buying back in mid-August. By January 10, 2025, it had bought back 74 times, with a total amount of 1.317 billion Hong Kong dollars, averaging nearly 20 million Hong Kong dollars per buyback. As a global leader in the travel luggage industry, as of September 2024, it had cash and cash equivalents of $682 million USD, approximately 5.313 billion Hong Kong dollars. During the buyback period, SAMSONITE attracted the attention of many investment banks. According to data from Oriental Choice, since August last year, 16 investment bank research reports have been posted on the platform, most of which are positive, such as Minsheng Securities, Southwest, and Haitong. In addition, some institutions have shown a positive attitude by continuously increasing their holdings, such as Principal Global Investors, LLC and Norges Bank, which increased their holdings by 441.774 million Hong Kong dollars in November last year. Of course, there are also bearish sell-offs, such as JP Morgan and Fidelity International, but overall, whether it is investment bank research reports or institutional holdings, the bulls outnumber the bears. After rising for three consecutive months, can SAMSONITE's fundamentals support its continued upward trend? Recovering lost ground in performance, but high debt SAMSONITE is a global leader in travel luggage, mainly engaged in the design, manufacturing, procurement, and distribution of luggage, business bags and computer bags, outdoor bags, casual bags, and travel accessories. Its core brands include SAMSONITE, Tumi, and American Tourister, covering markets worldwide, including Asia, North America, Europe, and Latin America. Looking back at history, in May 2018, SAMSONITE was shorted by the Blue Orca short-selling institution, which pointed out that the company used financial means to embellish its performance, and based on a relative valuation method gave a halved valuation of 17.59 Hong Kong dollars per share. In the two years after that, the company's performance valuation plummeted, starting to recover in 2021, and by 2023, revenue had basically recovered lost ground, but valuation still contracted by over 30%. From a performance perspective, the company mainly sells luggage products, so it is closely related to the development of the tourism industry. Following the recovery cycle of the tourism industry, the company recorded a 35% compound annual growth rate in revenue from 2021 to 2023, bringing revenue back to pre-short-selling levels, with a net profit margin restored to 11.33%. Global tourism and consumption growth slowed in 2024, with revenue down 3.21% in the first three quarters of 2024, but profitability remained stable. From a market perspective, Asia and North America are core market regions, contributing over 70% of revenue, with the Asia market seeing rapid growth over the past three years and becoming the top revenue source in 2023. However, core regions experienced varying degrees of decline in 2024, especially in the third quarter, with Asian revenue declining by 12%. From a brand perspective, the main brand SAMSONITE has a certain resilience, but TUMI was affected by weak high-end consumption, with a 17% decline in Q3. However, the decline in revenue is mainly due to the high base effect brought about by high growth in the past three years. Despite being affected by short-selling and industry factors, SAMSONITE has effectively restored steady revenue growth through efficient business strategies, while improving profitability by controlling costs. The company's gross profit margin continued to rise, reaching 60% in the first half of 2024, the highest in history, with a slight decline in the third quarter, but overall rebounding to a high level. During this period, expenses including sales, management, and financial expenses remained stable after 2022, and the net profit margin followed the gross profit margin gains, standing at 8.9% for the first three quarters of 2024, a slight decrease from the first half of the year but an increase of 3.81 percentage points from the same period in 2018. It is worth noting that the company also significantly reduced goodwill in 2020, leading to huge losses and a large amount of long-term loans, resulting in a very high asset-liability ratio of 87% and a leap in equity leverage to 7.7 times. In 2022, benefiting from high leverage, the company's ROE reached a historical high of 29%, but gradually decreased in the following years, averaging 20.3% in 2024. However, the high debt ratio remains, reaching 69.7% as of September 2024. By September 2024, SAMSONITE had cash and cash equivalents of 662 million US dollars, with operating cash flow contributing 50%, benefiting from a low inventory strategy with good results. The company has maintained a consistent net operating cash flow every year, and its short-term debt is only 67 million US dollars, enough to meet short-term debt and operational needs. At the same time, the sustainability of profits and cash inflows significantly reduces the company's long-term debt risk. The industry has prospects but also faces challenges, driving valuation return through "dividends + buybacks" Looking at the tourism industry, according to data from the International Air Transport Association (IATA), global RPK (revenue passenger kilometers) and ASK (available seat kilometers) indices both returned to normal levels in 2024, with global international civil aviation passenger flight recovery rates all exceeding 92%, with China being the most obvious. China's RPK index doubled in 2023 and surpassed the pre-epidemic level, continuing to grow in 2024. The continuous recovery of the tourism industry has driven synchronized growth in the travel luggage market. The global luggage market is growing steadily, according to Statista data, the industry market size is growing at a high single-digit compound annual growth rate, with online consumption growing rapidly, increasing from 12.5% in 2017 to 27%, and expected to reach 33% by 2029. The industry landscape competition is relatively dispersed, with SAMSONITE leading the market share by a wide margin with an 18.1% market share, 10.5 percentage points higher than the second place. In terms of single brands, SAMSONITE and American TouristThe ER brand's market share is among the top in the industry, with a market share of 4.5% and 2.6% respectively, ranking second and third.In the Chinese market, the luggage industry is more fragmented, but there is an upward trend. By 2023, the market share of the top five participants will increase to 17.6%, with SAMSONITE also being in the top tier of the industry. China is SAMSONITE's second largest core market (after the United States), and in recent years, the company has been increasing its presence in the Chinese market. In 2024, as other markets decline, the Chinese market is experiencing growth. Additionally, China is the world's largest tourism consumption market with huge potential, and as the company expands its strategic presence in the Chinese market, its revenue share in China will also see significant growth. Despite having a solid industry position, SAMSONITE's performance still faces significant industry challenges: political situations and trade protectionism will continue to restrict global economic recovery, and demand in major markets across continents will slow down under weak consumer spending. Apart from the Chinese market, in 2024, core markets have all experienced varying degrees of decline, and with a high base level, performance expectations for 2025 are not very high; marketing costs will increase under competitive pressure, weakening profitability. From the perspective of investment banks, most of them are optimistic about the company's performance outlook. Minsheng Securities issued a research report, stating that SAMSONITE is one of the leading luggage companies globally, and is expected to return to positive growth in 2025 with the full recovery of the tourism industry, macroeconomic improvement, and the steady expansion of the company's products and channels. It is expected that SAMSONITE's adjusted net profit attributable to shareholders for 2024-2026 will be 372 million / 407 million / 428 million US dollars. In 2024, SAMSONITE paid dividends for the first time in four years, started a buyback program in the second half of 2024, and began to push forward with its listing plan in the United States, indicating that the company will focus more on the capital market and reward shareholders. The company is expected to continue its dividend policy in 2024. Market value management is the current policy requirement, and the company actively responds to regulatory policies through dividend payouts and buybacks, promoting steady improvement in performance and valuation. Overall, SAMSONITE's fundamentals are relatively robust. In 2024, there is pressure on performance due to industry factors and a high base level. However, the industry trends are optimistic, and the company actively responds to the regulatory trend of market value management, focusing more on secondary investment and financing markets and shareholder feedback. The company's stock price has been steadily rising since 2021, with a 16% pullback last year but an overall increase of 57%. This year, the trend is upward, supported by fundamentals, with a bullish outlook in the medium to long term, still needing to monitor the recovery of the tourism consumption industry and its impact on performance.