As head of the world’s largest jewelry group, billionaire entrepreneur Henry Cheng Kar-shun displays his love for Chinese jewelry and antiques in his spacious executive office.

Keeping it in the family
Imogene Wong
Monday, February 24, 2014
As head of the world’s largest jewelry group, billionaire entrepreneur Henry Cheng Kar-shun displays his love for Chinese jewelry and antiques in his spacious executive office.

His office is adorned with delicate antiques, ranging from a white jade lion and porcelain from the Ming Dynasty and the earlier Northern Song Dynasty of 1,000 years ago, to various Chinese ink paintings, along with a large aquarium.

Looking around his corporate headquarters in the New World Tower in Central, it’s easy to see he is greatly inspired by traditional Chinese culture, which is also reflected in his philosophy of doing business.

Cheng became chairman of three listed companies in the family’s conglomerate – including the core business Chow Tai Fook Jewellery Group (1929), New World Development (0017), and NWS Holdings (0659) – after his father, Cheng Yu-tung, stepped down a few years ago.

With businesses covering everything from jewelry, property investment and development, hotels, transportation services and telecommunications, to infrastructure, ports and logistics facilities, Cheng’s family wealth is estimated at US$20.4 billion (HK$159 billion), according to the latest Bloomberg Billionaire Index.

The tycoon told Sing Tao Daily, sister paper of The Standard, that he takes the approach of the “doctrine of the mean” from the teachings of Confucius.

“I take it because of my experience and my character … I think I am more of a modest person, so this suits me a lot,” said C
image001-7He listed the three most important things in doing business as mutual benefit, honesty and integrity.heng, who is in his late 60s.

“I hope to do business in such a way that everyone will profit. If only one side earns, but not the other side, I might not work with them again,” he said.

However, he stressed the importance of not making extreme profits. “Do not push people too hard, as they might rise up again. There is no need to be too aggressive,” Cheng said.

Integrity is also vital. “Do not cheat others and be honest … Also a promise is a promise, it is very important for one to be credible.”

But being moderate doesn’t mean one remains complacent. Cheng proved himself by seizing new opportunities when he sees them, as demonstrated by the ambitious goal he set for Chow Tai Fook, which celebrates its 85th anniversary this year.

As early as the jewelry group’s listing on the local bourse in December 2011, Cheng endeavored to “double revenues every three years” – and he is well on track.

“Our target will stay unchanged. Chow Tai Fook expanded rapidly in 2011, and then slowed down in the second year, but it will rebound in 2013,” he said.

The company now owns more than 2,000 stores in the Greater China region, with Cheng expecting same-store sales growth to reach 10 percent each year.

The enviable expansion has been driven by strong mainland business growth. Last year, China overtook India to become the world’s largest consumer of gold, after Chinese, especially those known as the “Chinese Dama” – described as “bargain-hunting, middle- aged Chinese women who keep an eagle eye on gold prices” – snapped up hundreds of tonnes of the precious metal when prices tumbled.

Cheng said more than 70 percent of Chow Tai Fook customers are from the mainland, with individual visitors accounting for about one quarter of sales in Hong Kong.

The jewelry giant plans to open 200 new stores per year, doubling the number of outlets to 4,000 in a decade.

“Rent is not the biggest problem. The key is finding places that are bustling with large people flows.”

Cheng said the new shops opened in Hong Kong and Macau were profitable within their first year of operations. “If the earnings are insufficient, or [the stores] have a long return period, or suffer losses, we would just close them when the lease expires.”

Cheng’s moderate character can also be seen in his lowering of hedging ratio on gold contracts from 100 percent to 70 percent, starting in 2012. The current proportion allows the jeweler to remain largely unaffected by gold price fluctuations – but at the same time being able to capture price rises.

Cheng grew up in Hong Kong after coming from the mainland at age seven. He later studied in Canada, but whenever he returned for summer holidays, he would go to Chow Tai Fook to learn about sales and diamond appraisal techniques.

He now insists on visiting all the local stores, mainly in Tsim Sha Tsui, Causeway Bay, Mong Kok or even the New Territories, every month. “I can know more about how each shop operates, and thus how to improve their businesses.”

The Cheng family also has a much lower profile private investment arm – Chow Tai Fook Enterprises Ltd – which can make speedier and more accurate investment decisions.

Cheng said there is a great advantage to investing privately. “The golden time for investments will have passed if we need to hold shareholder meetings beforehand as with public companies.”

In contrast, he can make decisions within a day under a private vehicle.

Cheng said he holds a special concern when he considers investing in property projects in London through the private entity. “I don’t want people to think that it is a withdrawal of capital from Hong Kong.”

He stressed the group will still invest in the SAR, although it has become tougher to do business here because of the many political constraints.

Being a supporter of Chief Executive Leung Chun-ying, Cheng commented on his performance – “[Leung] does want to do something for Hong Kong, but there are too many restrictions.”

Cheng observed that society is heavily divided, with each side fighting for its own interests. For example, the hedging mechanism for mandatory provident funds has induced heated debate between the labor and commercial sector.

A member of the government’s Commission on Poverty, Cheng said tackling poverty is like an investment process.

Luckily, he said the SAR government’s greatest advantage is having large fiscal reserves.

“It is hard to solve the problem of social differentiation if the government does not [put money back into the economy],” Cheng said, adding that the government, commercial sector, and workers should also give in a bit.

Looking at his wide-ranging businesses, Cheng said his time depends on the needs of each firm. He can get a lot of help from his colleagues, and of course, his family.

Three of his children now play key roles in separate entities under the Cheng family business umbrella.

Adrian Cheng Chi-kong is co- general manager of New World Development, while Brian Cheng Chi-ming an executive director of NWS. His daughter, Sonia Cheng Chi-man, is an executive director of New World, taking responsibility for the group’s hotel business.

As for the future front-runner to eventually take over the helm of the flagship, Chow Tai Fook – “I still haven’t made up my mind,” the patriarch laughed.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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