Be it the tropical beaches of Hainan Island, the ancient villages in the mountainous province of Yunnan or the world-famous Terracotta Army of Xian - many Chinese tourist attractions were bustling with activity in January. The Middle Kingdom experienced a large wave of travelers for the traditional New Year holiday. According to state media, 226 million domestic travelers were on the road during the week-long vacation. Compared with the level of 2022, this represents an increase of almost three quarters. The new bustle was made possible by a political change of course: Shortly before this year's New Year's holiday, Beijing put an end to its strict zero-covid policy and lifted all travel restrictions. Many Western companies have high hopes for the reopenings in China. Swatch is one of them. In its just published outlook for 2023, the watch group explicitly and extensively addresses the situation in the Far East.
"Following the end of the Covid measures, consumption has recovered quickly not only in China, but also in the surrounding markets of Hong Kong SAR and Macau," management writes. The end of travel restrictions is also expected to revive business in tourist destinations. "The sales increases in China in January further strengthen the group's expectation that 2023 can become a record year," Swatch says, summing up the optimism emanating from the Middle Kingdom. For 2022, the company had reported a 4.6% growth in net sales at constant exchange rates to CHF 7.5 billion. Swatch was able to improve its operating margin by 140 basis points to 15.4%. Excluding the China business, which was battered by Covid, the group posted 25% growth in local currencies in all sales regions. "The MoonSwatch is a best-seller with over 1 000 000 units sold," Swatch announced. In the 180 stores through which the company exclusively distributes this watch model, demand remained high in January, it said.
Shareholders are to get something out of the success or the increased profit. For 2022, the Board of Directors of the Swatch Group proposes a dividend of CHF 6.00 per bearer share and CHF 1.20 per registered share. If the Annual General Meeting scheduled for May 10 approves this agenda item, the payout would increase by a good 9% compared to the previous year. The recent recovery in Swatch's share price is already having a positive impact on shareholders' portfolios. Within three months, the mid cap has risen in price by almost a third. It has thus succeeded in overcoming the downward trend already launched in June 2021. Not only Swatch, but the entire luxury goods sector has made an impressive comeback.
For its domestic rival Richemont, the share price rose 35% in the past three months. At the same time, the manufacturer of Cartier jewelry and A. Lange & Söhne and IWC watches missed expectations with its latest figures. In the third quarter of the 2022 fiscal period (ending March 31, 2023), Richemont increased sales at constant exchange rates by 5% to EUR 5.4 billion. Analysts had expected an average of EUR 5.7 billion. By its own account, Richemont once again felt the full force of the Covid restrictions in China. However, retail sales in the Middle Kingdom would have recovered strongly in the run-up to the New Year after the reopenings.
Even if the sector's high hopes are not fulfilled or the equity rally loses momentum, attractive returns would be possible with two new barrier reverse convertibles from Leonteq. One product on Swatch comes with a guaranteed quarterly coupon payment of 8% p.a.. This opportunity is partially protected by a risk buffer of 41%. In another new issue, Leonteq packs the two domestic luxury stocks together. The BRC on Swatch and Richemont, also denominated in CHF, offers a coupon payment of 11% p.a., while the barriers here are also 59% of the respective initial fixing. Both variants have a maximum maturity of 18 months. Due to the soft callable feature, both versions may be subject to early termination and redemption. Please also note: As soon as a share uses up the risk buffer, the partial protection expires. The investment would then be exposed to the full price risk of Swatch respectively the weaker share of the duo.
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