SOKO Fitness and Spa has disclosed a substantial amount of information through its financial statements, earnings calls, presentations, and investor's website. Based on this information, a number of excellent articles have been written about SOKO recently, e.g. here, here, and here. All available information, however, has been provided directly by SOKO and tailored to western investors. With SOKO being a Chinese microcap, this is obviously a concern and a downward pressure on SOKO's multiples.
This concern with quality, independent information (or lack thereof) was evidenced by SOKO's recent price action. On April 23, 2010, the S&P reached its high of the year. Shortly thereafter, on April 29, 2010, SOKO announced a 10million USD financing via issuance of 3,125,000 shares to IDG Capital Partners and Guerilla Capital. The recent market correction should have been the perfect catalyst for SOKO's price to pullback and fully reflect the dilutive effects of the financing. Based on the dilutive effects alone, SOKO shares should have fallen from $4.65 to $3.80. Considering the recent market trend, the shares should have fallen even more. Yet SOKO sits at $4.30 today, and its low over the past couple weeks was only $4. Why such strength? I believe the dillutive effects of the offering was offset by the reassurance that large institutional investors, with access to more complete, independent information was willing to put 10million USD into SOKO.
As more information gets out, I believe SOKO will attain the higher multiples it deserves. Its current P/E ratio is under 8.
Many investors are aware of the website http://www.sokofitness.com. It is disclosed in many SOKO documents and may be found through search engines. This website, however, is solely an investor relations website. It is presented entirely in English by an investor relations firm and is clearly not directed to SOKO's Chinese speaking customers. I determined that SOKO has an additional website while looking through its February 2, 2010 SEC filing entitled, "SOKO FITNESS & SPA GROUP, INC. - FORM S-1/A." The filing stated: "We have developed a website for the members of our fitness centers that allows them to, among other things: consult with our team of professional service providers, make appointments, hold on-line discussions with our staff and other clients and review educational materials."
I reached out to my resources in China and determined that one of SOKO's customer facing websites is http://www.yogawave.com.cn/home.asp. Google translate works fairly well, showing full class schedules, additional instructor biographies, a robust online appointment system, and some impressive pictures. The website also states that SOKO plans to expand at "a very fast pace... expecting 40 national fitness centers and 30 million goal customers by 2012." This, of course, is entirely new information. In SOKO's most recent earnings call, management would only reiterate guidance for this calendar year (7-9 new fitness centers and spas), and declined to comment on 2011 and 2012 expansion plans. SOKO clearly intends to further accelerate its plans, and its recent financing should help.
This second website, however, seems to only cover the Harbin and Shengyang fitness centers. I am trying to determine if other websites cover other SOKO facilities (e.g. spas). At the moment, SOKO does not seem to have a consistent branding strategy, with few of its facilities sharing a common brand name. Going forward, this is something they should work on, in the physical world and on the web.
SOKO's newly acquired Beijing fitness centers seem to be covered by only a simple website: http://shang.hlgnet.com/charmshaper. Because the Beijing facilities have existed for some time prior to their acquisition, however, there are Yelp-type customer reviews, e.g. http://www.dianping.com/shop/1904935 (Google translate). Most reviews are quite enthusiastic. Customers say the facilities are nice and high-end, and the Yoga classes are full. A few people comment on the high prices, but that's what makes for SOKO's high margins and is fine as long as people still pay. By the way, the addresses provided on SOKO's investor relations website are useless if you want to prepare for an on-site visit because they are incomprehensible English translations. I obtained the Beijing addresses by calling the phone numbers provided on the website. You can also get them by contacting SOKO's investor relations firm. The Beijing addresses are: 1. ???????????; and 2. ?????????????????. I mapped out these locations in Google Maps, and they are consistent with management's disclosed strategy - out in the suburbs where there is less competition, about 1 hour away from Beijing's center.
In sum, I am happy to report that SOKO's management has, as far as I can tell, been honest with us. I identified no nasty surprises and the Chinese websites actually lead me to have more faith in the company and its business strategy. Although we still do not have complete, independent information about the company, the information I found has been corroborative and, if nothing else, assures me that SOKO exists. As more information becomes available, SOKO's multiple should reflect the fact that it is a promising growth company. I am long and buying more.
Disclosure: Long SOKF.OB - 10% of my portfolio, going to 20%. Themes: China Stocks: SOKF
News 
Market Data 
Discover 
