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No. of Recommendations: 2
Hi GG folks,

Of all the heavily China-oriented small caps that have been discussed in GG land, I only own one: Natural Beauty. My reasoning when I bought it was that:

1. It was actually based in Hong Kong and started out in Taiwan, though now the majority of its sales come from sites in China. It has a long track record as a public company, seemingly avoiding a lot of the shenanigans with China-based small cap scams.

2. My impression is that its a high-quality franchise, particularly the new look stores that were supposed to jump start growth.

3. It has gone through some rough times, but the basic value of the franchise remains.

4. Even a little bit of a turn around (closing under performing and out of compliance franchises while recruiting new ones and making conversions to the new look) would lead to big gains, given the lack of capital needed for the business.

5. The company had a big cash cushion and paid a very large dividend that appeared to be sustainable, if they could make just a few improvements to their situation. And given the founding family's big ownership stake, the dividend policy wasn't likely to change.

I actually think the company is more solid and has a better business than a number of China small caps that have gotten formal recs (CCSC for instance).

Since I invested, the stock has gone down some. I bought a little more when it was really getting pummeled last year. But in terms of operations, the company seems to be executing really, really well.

New format stores are showing big time same store sales gains. And with the power of NBBTF's franchising model, a % of additional sales basically turn directly into cash in NBBTF's coffers. Bottom line, as the turn around continues the dividend may have an opportunity to rise, and it could rise pretty significantly. Haven't calculated recently, but I suspect it's well over 6% now.

OK, so it's not the easiest company to follow. But the basic story should remain the same for the next few years. It will take it that long to convert all stores to the new format. And even with shaky economic conditions of China, there seems to be a reasonable chance the stock could do very well, given where it is right now. And even if the stock doesn't, chances are good that the dividend a) will certainly be maintained, and b) will probably grow.

So here's my question: Will you GG'ers include NBBTF in your final recommendations for the GG universe? (Even though it was only part of the China consumer basket.) It would be very helpful to me... and I'm hoping to a few other people out there. It's the one China oriented small cap that you've followed that seems to have good governance and some major opportunities for growth from a) continued turnaround, b) a good concept that produces gobs of cash. (In other words this ain't no CCSC, CMM or anything similar.)

I'm still debating to myself how well I can follow the stock on my own. But it's hard to give up on one that feels like it's in the 2nd or 3rd inning of a 9 inning turnaround, where the turn around seems to be kicking butt (even if the stock price doesn't show it yet). With the Chinese economy slowing down, it's certainly possible NBBTF could get hurt, but at these prices, with this turnaround record, a big cash cushion and a very large dividend, seems like you're getting paid a lot to wait it out.

Thoughts would be much appreciated. Inclusion in the report would be appreciated too. (Honestly, I've always wondered why this company never became a formal GG rec. The only reason i can think of is that it's too illiquid and hard to trade, as it's no smaller cap than a bunch of the much scarier Chinese small caps that have gotten the full GG treatment.)

Sorry for prattling, but hopefully the signal to noise ratio in this post is high enough to make it worth your time.

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