3 Reasons Why Investors Should Buy Fairwood Stock Now


Fairwood Holdings Limited (SEHK: 52) is a fast-food chain with 140 outlets in Hong Kong and mainland China.

In the last five years, its share price has declined by about 50% from its high of about HK$39 owing to several reasons that include the ongoing anti-government protests and the Covid-19 outbreak.

Despite these challenges, there are good reasons to like the company as an investment. Let’s explore three of those.

1. Solid long-term track record

To start with, Fairwood has delivered a set of strong performances over the last decade. Here are some numbers.

From 2010-2019, the food chain operator grew its revenue from HK$ 1.6 billion to HK$ 3.0 billion. Similarly, net profit increased from HK$ 92.5 million to HK$ 179.9 million. The former was up by 88% while the latter improved by 94% during that period. So far so good.

Despite its strong track record, Fairwood will likely face some challenges in the near term stemming from the ongoing protests and virus outbreak.

Still, I believe the company should be able to revert to its historical performance after these challenges subside.

2. Owner-operator

The second reason to like about Fairwood is its owner-operator structure. For those who are new to this term, an owner-operator refers to significant shareholders who are actively involved in the management of the company.

In the case of Fairwood, the senior management team owns about 46% of the company’s existing shares (see below).

Fairwood owners

Source: Fairwood’s 2018-19 annual report

From the table above, we can see that Dennis Lo Hoi Yeung (founder and chairman) owns 43.17% of Fairwood’s shares.

He’s followed by three other executive directors (Chan Chee Shing, Mak Yee Mei, Peggy Lee) who as a group owns 2.64% of the company’s stock.

With significant financial stakes in Fairwood, the management team is incentivised to maximise the long-term value of the company, which aligns its interests to those of the minority shareholders.

3. Strong balance sheet

Last but not least, Fairwood operates its business with a very conservative capital structure. As of September 30, 2019, it had HK$636 million in cash and cash equivalents and zero debt (excluding lease liabilities).

Having a strong balance sheet is important for several reasons. Firstly, it would be able to withstand the near-term challenges with low risk of bankruptcy.

Moreover, it could further leverage its balance sheet (if needed) to invest and grow its business, such as opening new restaurants.

Foolish takeaway

Overall, I think Fairwood makes a good investment thanks to its solid track record, owner-operator structure, and conservative capital structure.

Moreover, it’s currently trading close to its five-year low, making it a solid company for investors to research further.