Best Mart 360: A Deep Dive for Dividend and Value Investors on the HKSE

In a prior post, HKSE Watchlist, I listed Best Mart 360, as a stock of interest. In this article, I discuss the company in more detail and layout the many reasons why Best Mart 360 is a compelling candidate for addition to a dividend portfolio focused on the HKSE.

Introduction to Best Mart 360

For investors on the Hong Kong Stock Exchange (HKSE) seeking opportunities in dividend-paying value stocks, Best Mart 360 Holdings Limited (2360.HK) presents an intriguing case. This stock research report leverages the company’s latest annual report and financial results to provide an objective assessment for those interested in sustainable dividend income and intrinsic value.

Closing price as of June 20, 2025:

• Share Price: HK$ 1.66
• Market Cap: HK$ 1.66 billion

Company Overview

Best Mart 360 Holdings Limited, incorporated in the Cayman Islands with limited liability, is a leading leisure food retailer in Hong Kong. The company primarily focuses on the retail of imported pre-packaged leisure foods and other grocery products, aiming to offer “Best Quality” and “Best Price” options to its consumers.

Business Nature: The Group’s core business involves operating a chain of retail stores offering a wide variety of imported products. This includes candies, chocolates, packed snacks, nuts, dried fruits, biscuits, beverages, instant foods, and other grocery items sourced globally. A significant and growing part of their strategy is the development of private label products, which enhance brand loyalty and improve profit margins. The company has also initiated Business-to-Business (B2B) operations to diversify its revenue streams.

Geographical Operations & Store Network: Best Mart 360’s primary operations are concentrated in Hong Kong and Macau. As of December 31, 2024, the Group operated a total of 176 retail stores, consisting of 164 stores in Hong Kong and 12 stores in Macau. This represents a net increase of 9 stores during the financial year. The store network comprises various formats, including street-level shops, outlets within shopping malls, and stores in traffic hubs.
Notably, the Group has strategically closed all its retail stores in Mainland China, recognizing the fierce competition in that market. This decision allows Best Mart 360 to concentrate its resources on the more promising Hong Kong and Macau markets, particularly focusing on expanding its presence in Hong Kong with an annual target of a net increase of 10 stores. Macau has been highlighted as a region demonstrating significant revenue growth for the Group.

Management Discussion and Business Performance

The financial year ended December 31, 2024, saw Best Mart 360 navigating a challenging retail landscape. Management’s discussion provides valuable insights into the company’s performance and strategic direction.

Industry Trends and Business Environment: The Hong Kong retail market faced headwinds in 2024, characterized by subdued local consumption sentiment, changing consumption patterns, and increased outbound travel by Hong Kong residents. Cross-border shopping trends also influenced local retail demand. Despite these challenges, Best Mart 360 demonstrated resilience.

Performance in Different Business Regions:

• Hong Kong: Remained the core market and primary revenue driver. The strategy to expand the store network, optimize product mix, and introduce trendy brands supported sales growth.
• Macau: Showcased robust growth, with a notable increase in revenue, contributing positively to the Group’s overall performance.

Management Strategies and Future Prospects: The management’s forward-looking strategy is focused on enhancing profitability and ensuring sustainable growth:

• Store Network Expansion: A key priority is the stable expansion of the retail network in Hong Kong and Macau, targeting a net increase of approximately 10 stores annually. This selective expansion aims to deepen market penetration.
• Product Optimization and Global Procurement: Continuing to source diversified high-quality products globally and adapting the product mix to meet evolving consumer preferences (e.g., increased supply of basic foodstuffs, introduction of trending foreign brands).
• Private Label Development: Accelerating the development and promotion of private label products is a strategic focus, given their higher profit margins and ability to build brand loyalty. Private label sales recorded an 18.1% increase in FY2024, accounting for 17.0% of total revenue.
• Expansion of B2B Operations: Leveraging existing resources and supply chain capabilities to grow the Business-to-Business segment, diversifying revenue streams beyond traditional retail.
• Supply Chain and Logistics Enhancement: Strengthening relationships with supply chain partners, particularly agreements with China Merchants Bonded Logistics and China Merchants Qian Hai Wan. These partnerships facilitate more efficient customs clearance, warehousing, and logistics, alleviating pressure on Hong Kong warehouses and reducing costs.
• Cost Control and Operational Efficiency: Implementing refined measures for cost control across operations to enhance overall profitability in a competitive environment.

Financial Review: Stability and Strength

Best Mart 360 changed its financial year-end from March 31 to December 31, effective from FY2023. This means that while the current report covers the 12 months ended December 31, 2024, the comparative period for 2023 generally covers only nine months (April 1 to December 31, 2023). Where possible, management provided unaudited 12-month comparable figures for FY2023, which are used for clearer year-on-year analysis.

Income Statement Analysis

Balance Sheet Analysis: Liquidity and Financial Strength

Liquidity Situation:

• Cash and Bank Balances: Increased from HK$130,712,000 (2023) to HK$159,510,000 (2024). This notable increase, primarily from operating activities, signals strong cash generation and enhanced short-term liquidity, providing flexibility for operations and shareholder returns.
• Net Current Assets (Current Assets – Current Liabilities): Grew from HK$79,212,000 (2023) to HK$148,631,000 (2024). This substantial improvement indicates a robust ability to cover short-term obligations and strengthens the company’s immediate financial health.
• Current Ratio (Current Assets / Current Liabilities): Improved from 1.19x (2023) to 1.35x (2024). A ratio greater than 1.0 is generally considered healthy, indicating sufficient current assets to meet current liabilities. Best Mart 360’s increasing ratio signifies good short-term solvency.
• Quick Ratio (Acid-Test Ratio) ((Current Assets – Inventories) / Current Liabilities): Remained relatively stable at 0.55x (2024) vs. 0.53x (2023). While lower than 1.0 (common for retailers with significant inventory), the overall healthy current ratio and strong cash flows provide comfort regarding immediate liquidity.

Financial Strength:

• Debt to Equity Ratio (Total Interest-Bearing Borrowings / Total Equity): Decreased from 0.17x (2023) to 0.14x (2024). This exceptionally low ratio indicates minimal reliance on debt financing compared to equity, signaling strong financial leverage and a very low-risk profile from a debt perspective. This is highly favorable for shareholders.
• Debt to Asset Ratio (Total Interest-Bearing Borrowings / Total Assets): Decreased from 0.08x (2023) to 0.07x (2024). A low ratio reinforces that a small portion of the company’s assets are funded by debt, highlighting its robust financial position.
• Interest Coverage Ratio (Operating Profit / Finance Costs): Stood at 17.45x (2024). This extremely high ratio demonstrates the company’s exceptional ability to cover its interest obligations from its operating profits, underscoring its financial stability and capacity to manage debt comfortably.

Significance to a Potential Shareholder:

These financial metrics paint a picture of a financially sound company. The strong liquidity, particularly the growing cash balance and healthy current ratio, combined with exceptionally low debt levels and robust interest coverage, suggests that Best Mart 360 is well-managed and carries minimal financial risk. This financial strength provides a solid foundation for sustainable operations, future growth initiatives, and consistent shareholder returns through dividends.

Earnings Sustainability and Dividend Prospects

Earnings Sustainability:

Best Mart 360’s earnings sustainability is well-supported by its strategic initiatives and financial performance:

• Consistent Growth: Continued revenue and profit growth, despite market challenges, demonstrates operational resilience.
• Profitability Management: Improving gross margins and strategic cost control measures indicate effective management of profitability.
• Strategic Focus: The emphasis on store network expansion in core markets, private label development (higher margins), B2B operations diversification, and supply chain optimization are key drivers for future earnings growth and stability.

Implication on Future Dividend Payouts:

The company’s dividend policy is flexible, without a fixed payout ratio, depending on operating results, cash flows, and financial condition.

• Profit attributable to owners (FY2024): HK$247,522,000
• Total Shares in Issue: 1,000,000,000 shares
• Earnings Per Share (EPS) (FY2024): HK24.8 cents
• Total Proposed Dividend for FY2024: HK21.0 cents per share (HK11.0 cents interim + HK10.0 cents final)
• Total Dividend Amount for FY2024: HK$210,000,000
• Dividend Payout Ratio (FY2024): (HK$210,000,000 / HK$247,522,000) = 84.84%

Free Cash Flow (FCF) Generation (FY2024):

• Net cash generated from operating activities: HK$416,743,000
• Purchase of property, plant and equipment (Capital Expenditure): HK$15,422,000
• Free Cash Flow (FCF): HK$416,743,000 – HK$15,422,000 = HK$401,321,000

The company’s FCF of HK$401.3 million significantly surpasses the total dividend payment of HK$210 million. This demonstrates robust cash generation capable of comfortably covering dividend obligations, even after accounting for capital expenditures necessary to maintain and grow the business. The healthy cash balance of HK$159.5 million further reinforces its capacity to sustain future dividend payouts.

Educated Guess on Next Year’s Dividends (FY2025):

Given the strong FCF generation, healthy cash balance, and management’s commitment to “stable and sustainable returns for shareholders,” Best Mart 360 is well-positioned to maintain a substantial dividend payout. Based on current market price and an investor’s target yield:

• Current Stock Price: HK$1.66
• Investor’s Target Yield: 8% or more
• Dividend Yield Based on FY2024 Dividend: (HK$0.21 / HK$1.66) = 12.65%

The current yield of 12.65% is significantly above the 8% target. This robust yield, underpinned by strong fundamentals, suggests a high likelihood of continued attractive dividends. Considering the company’s financial health and growth prospects, Best Mart 360 is likely to maintain a dividend per share in the range of HK18.0 cents to HK22.0 cents for FY2025. Even at the lower end of this estimate, the yield remains highly attractive (HK$0.18 / HK$1.66 = 10.84%).

Valuation Metrics: Benjamin Graham and Warren Buffett

Assessing Best Mart 360 against the tenets of value investing as espoused by Benjamin Graham and Warren Buffett provides a holistic perspective on its investment merit.

Benjamin Graham’s Criteria (The Intelligent Investor)

Graham emphasized quantitative safeguards for value investors:

1. Adequate Size of the Enterprise: With a market capitalization of HK$1.66 billion and a significant store presence (176 stores), Best Mart 360 is a well-established mid-sized company in its market. This generally aligns with Graham’s preference for companies of sufficient prominence and stability.
2. Strong Financial Condition:
   • Current Ratio (1.35x): While below Graham’s ideal 2.0, it shows improvement and is acceptable for a retail business with high inventory turnover, especially given strong cash generation.
   • Debt-to-Equity Ratio (0.14x): Exceptionally low and well below Graham’s 1.0 criterion, signifying superior financial health and minimal leverage.
3. Earnings Stability: The company has demonstrated consistent positive and growing earnings over the past several years, indicating a stable operational history.
4. Dividend Record: Though listed recently in 2019, Best Mart 360 has maintained an uninterrupted dividend payment history since its IPO, which is a positive indicator, albeit not meeting Graham’s strict 20-year benchmark due to its age.
5. Earnings Growth: The company has shown robust earnings per share growth, significantly increasing from HK8.1 cents in FY2021 to HK24.8 cents in FY2024, demonstrating a strong growth trajectory.
6. Moderate P/E Ratio: At a current P/E of 6.7x (HK$1.66 / HK$0.248 EPS), the stock is trading well below Graham’s 15x threshold, indicating a substantial discount relative to its earnings.
7. Moderate Price-to-Book (P/B) Ratio: The P/B ratio is 3.11x (HK$1.66 price / HK$0.53456 book value per share), which is above Graham’s ideal 1.5x. However, the combined P/E * P/B ratio of 20.84 (6.7 * 3.11) remains below Graham’s upper limit of 22.5, suggesting it is still within an acceptable valuation range for a growing company in the retail sector.

Graham Conclusion: Best Mart 360 substantially meets many of Graham’s core quantitative criteria, particularly regarding financial strength, earnings performance, and an attractive P/E multiple.

Warren Buffett’s Philosophy (Qualitative Factors)

Buffett broadened Graham’s framework by emphasizing qualitative aspects and durable competitive advantages (“economic moats”):

1. Business Understandability (“Circle of Competence”): The retail of pre-packaged foods is a straightforward business model, easily comprehensible to investors. Best Mart 360 fits squarely within this principle.
2. Consistent Operating History: The company has a track record of consistent revenue and profit growth since its listing, demonstrating resilience and adaptability in a dynamic market environment.
3. Favorable Long-Term Prospects (“Economic Moat”):
   • Brand Recognition: “Best Mart 360º” has established brand recognition and customer loyalty in Hong Kong.
   • Proprietary Sourcing & Product Mix: Its global procurement capabilities and emphasis on unique, often exclusive, imported products, along with growing private label offerings, create differentiation.
   • Efficient Supply Chain: Strategic partnerships with major logistics providers enhance cost efficiency and operational effectiveness.
   • Dual-Brand Strategy: The introduction of “FoodVille” caters to a higher-end segment, broadening its market appeal. While the retail sector is competitive, Best Mart 360’s specialized product focus, private label success, and supply chain efficiencies provide elements of a defensible position, albeit perhaps not a wide, unassailable moat.
4. Rational Management: The management’s strategic decision to exit Mainland China to focus on more profitable markets, along with their consistent dividend policy and emphasis on cost control, indicates a rational and shareholder-oriented approach to capital allocation and business management.

Buffett Conclusion: Best Mart 360 aligns well with Buffett’s qualitative emphasis on understandable businesses, consistent performance, and rational management. Its emerging competitive advantages suggest potential for sustained profitability.

Estimated Intrinsic Value using Owner’s Earnings Method

Warren Buffett champions “owner’s earnings” as the true measure of a company’s economic profitability, representing the cash flow available to shareholders after all necessary capital expenditures to maintain and grow the business. Free Cash Flow (FCF) is often used as a practical proxy for owner’s earnings.

Calculation of Free Cash Flow (FCF) for FY2024:

• Net Cash Generated from Operating Activities: HK$416,743,000
• Less: Purchase of Property, Plant and Equipment (Capital Expenditure): HK$15,422,000
• Free Cash Flow (FCF): HK$401,321,000

FCF per Share:

• Shares Outstanding: 1,000,000,000
• FCF per Share: HK$401,321,000 / 1,000,000,000 = HK$0.4013

Estimating Intrinsic Value:
Using a conservative multiple of FCF per share, common for stable, cash-generative businesses:

• Conservative Intrinsic Value (8x FCF): HK$0.4013 * 8 = HK$3.21 per share
• Moderate Intrinsic Value (10x FCF): HK$0.4013 * 10 = HK$4.01 per share
• Higher Intrinsic Value (12x FCF): HK$0.4013 * 12 = HK$4.82 per share

Comparison to Current Stock Price:
The estimated intrinsic value range of HK$3.21 to HK$4.82 per share is significantly higher than the current market price of HK$1.66 per share. This suggests that Best Mart 360 is substantially undervalued by the market based on its underlying cash-generating capability (owner’s earnings). This considerable disparity indicates a compelling margin of safety for potential investors.

Estimated Intrinsic Value of Best Mart 360 using the Gordon Growth Method (GGM)

The Gordon Growth Method or GGM is a conservative way to estimate the intrinsic value of a stock from the cash flow that accrues to the investor. For a dividend investor, the appropriate cash flow to be considered is the annual dividends that the company is expected to payout.

For this method, the following parameters are assumed:

• D₁ = the expected dividends to be paid in the next financial period = HK$0.20
• K_e = the expected return on investment for equity investors = 12%
• g = the sustainable growth rate in dividends = 3%

Plugging the above values into the GGM equation will yield the following: Intrinsic Value of Best Mart 360 = 0.20/(0.12 – 0.09) = HK$2.20

This implies a 32.5% upside to the current stock price of HK$1.66. The disparity between the current stock price and the intrinsic value also represents a comfortable margin of safety.

Conclusion

Best Mart 360 Holdings Limited presents a compelling investment opportunity for dividend and value investors on the HKSE. The company demonstrates a robust financial position characterized by strong liquidity, exceptionally low debt, and impressive cash flow generation. Its strategic focus on core markets, product optimization, and efficient supply chain management has driven consistent earnings growth.

Currently trading at HK$1.66 per share, Best Mart 360 offers an attractive dividend yield of 12.65%, comfortably exceeding the 8% target sought by many income-focused investors. This high yield is well-supported by sustainable earnings and a healthy free cash flow. Furthermore, the stock appears significantly undervalued when assessed through the lens of Benjamin Graham’s quantitative metrics and Warren Buffett’s owner’s earnings philosophy, suggesting a considerable margin of safety.

For investors seeking a dividend-paying value stock with strong fundamentals and a potential for capital appreciation, Best Mart 360 deserves serious consideration.

Disclaimer:

This article is a record of the thinking behind a personal investment decision. It does not represent any recommendation to purchase any stock mentioned in the article. As always, readers are strongly advised to do their own due diligence before making any investment decisions.