A-Share Retail Weekly (Jun 29 Jul 3)

Transcription

1 Equity Research A-share retail A-Share Retail Weekly (Jun 29 Jul 3) Summary of key reports issued last week: Retail: 2H15 sector outlook Albert Yip, CFA SFC CE No. ADT GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong We highlight supply chain finance, consumer finance, cross-border e-commerce and social e- commerce as four key trends to watch in 2H15. Supply chain finance: The nature of gold products as consumer goods and the fact that the gold supply chain typically involves large-amount borrowings with short durations make the gold industry the most suitable candidate for supply chain finance development. Consumer finance: The development of the domestic consumer loans market has been thwarted by limited banking service coverage. We believe the industry is likely to take off soon on the issuance of licenses for the personal credit reporting business and the maturity of third-party payment services. Cross-border e-commerce: Policy support and domestic consumption upgrade are driving the development of the industry Social e-commerce: Social e-commerce has become an additional e-commerce business channel as the cost of boosting visitor traffic to e-commerce platforms continues to rise. Investment highlights: Pace of SOE reform exceeding expectations: Substantial progress has been seen in the reform of companies affiliated with COFCO Group and the SDIC. Also, both Guangdong and Shanghai have unveiled their overall SOE reform plans, and we expect other provinces to follow suit shortly. Underperformance offering MLT opportunity: Stocks related to the SOE reform theme rose by just 47.5% during 1H15, significantly underperforming other investment themes such as family inheritance, property revaluation and cross-border e-commerce. Recap of last week The SW Retail Index dropped 21.91% last week, underperforming the CSI 300 which fell 10.38%. Zhongxing Shenyang ( CH) surged 22% driven by a share transfer agreement, while New Huadu Supercenter ( CH) jumped 20% on its asset restructuring plan. As of Jul 3, the retail sector was trading at 49.6x P/E (TTM), representing a 119% premium over the 22.7x P/E for the overall A-share market. This premium was larger than its historical average of 78%. Sector performance 250% 200% 150% 100% 50% 0% -50% Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Source: Wind Key data Source: Wind SW Retail Index CSI 300 SW Retail Index (July 3 close) SW Retail Index P/E (TTM) A-Share market P/E (TTM) Premium/(discount) 119% SW Retail Index historical P/B 3.86 A-Share market historical P/B 2.58 Premium/(discount) 50% SW Retail Index 52W high/low / Stock picks We are positive on the following companies this week: Lao Feng Xiang ( CH): 1) With solid demand in the Chinese jewelry market, the company, a long-standing national brand with a strong market position, is set to see its market share increase substantially amid gold price fluctuations; 2) GM is likely to rise further on an improving sales mix of non-gold jewelry and price hikes on distributors; 3) the company has strong asset backing from its inventory of gold, diamonds, jade and gem-stones among others, most of which were purchased at low prices years ago; 4) there are strong expectation for the company to carry out SOE reform. Silver Plaza ( CH): Major shareholder purchased more of the company s shares from the secondary market on Jul 3, which is a vote of confidence in the company s future business development. In addition, an employee incentive scheme is expected to improve operating efficiency. Beijing Wangfujing ( CH): While the company is yet to launch an SOE reform, we believe various reform measures such as the potential injection of PCD department stores, an employee incentive scheme and the introduction of strategic shareholders will likely materialize. The company is the most open-minded towards Internet+ business transformation among its state-owned peers. Furthermore, smooth progress has been seen in its cooperation with Tencent (700 HK, NR) in payment, membership management and marketing, and we expect to see further cooperation going forward. Haining China Leather ( CH): 1) We believe the recent share price correction is overdone; 2) we are positive on the company s continued new business development. Downside risks: Systematic risk of the stock market, and slow progress in business transformation.

2 Sector report Summary of key reports issued last week Retail: 2H15 sector outlook We highlight supply chain finance, consumer finance, cross-border e-commerce and social e- commerce as four key trends to watch in 2H15. Supply chain finance Based on experience from Europe and the US, high turnover industries such as retail and FMCG tend to benefit the most as companies seek to integrate industrial activities and finance business development. In China, the nature of gold products as consumer goods and the fact that the gold supply chain typically involves large-amount borrowings with short durations make the gold industry the most suitable candidate for supply chain finance development. We suggest watching leading branded jewelry companies as they are an ideal starting point for such development. Consumer finance The outstanding balance of domestic consumer loans is still small, with shortterm consumer loans showing particularly great potential for growth. The development of the domestic consumer loans market has been thwarted by limited banking service coverage, and a large number of small retail customers are yet to be tapped as potential consumer loan takers with the development of inclusive finance. Meanwhile, we believe the domestic consumer finance industry is likely to take off soon on the issuance of licenses for the personal credit reporting business and the maturity of third-party payment services. Retail companies have an advantage for consumer finance development as they have access to various consumer spending scenarios and as they can achieve full coverage of the entire consumer spending cycle by owning third-party payment companies. Cross-border e-commerce Policy support and domestic consumption upgrade are driving the development of cross-border e-commerce. Going forward, cross-border e-commerce is likely to become more vertically structured, while companies will focus more on developing communities of consumers with the same interests. Social e-commerce Social e-commerce has become an additional e-commerce business channel as the cost of boosting visitor traffic to e-commerce platforms continues to rise. When based upon weaker social relations, a social e-commerce business is more likely to achieve success by organizing the business in the form of communities of people with the same interests. When closer social relations are at play, the conversion rate might be low as participants focus more on social networking; however this could also facilitate gradual brand building. Investment highlights: Pace of SOE reform exceeding expectations Ever since the initiative was proposed at the third plenum of the 18th CPC central committee in 2013, SOE reform has been one of the top priorities of the current administration. In addition, the velocity and strength of reform implementation has also exceeded expectations since this year s NPC& CPPCC sessions. In terms of central SOE reform, substantial progress has been seen in the reform of companies affiliated with COFCO Group and the SDIC since the pilot for Four Reforms at six selected central SOEs were put forward last Jul. At the local level, both Guangdong and Shanghai have unveiled their overall SOE reform plans, and we expect other provinces to follow suit shortly, making SOE reform a nationwide theme in 2H15. Underperformance offering MLT opportunity Within the retail sector, stocks related to the SOE reform theme rose by just 47.5% during 1H15, significantly underperforming other investment themes such as family inheritance, property revaluation and cross-border e-commerce. In addition to management incentive plans, employee share schemes and refinancing, rising traditional business NPM and high-quality asset injections are also catalysts that are likely to be seen as central and local SOE reforms continue to proceed at a pace exceeding expectations. Page 2

3 Information technology Light industry Media Apparel & textiles Conglomerates Leisure services Power equipment Electronics Home appliances Pharmaceutical Machinery Retail Agriculture Telecommunications Transportation Steel Chemical Auto Military equipment Property Public utilities Food & beverage Non-ferrous Building materials Construction & decoration Mining Banking Non-bank financials % Banking Mining Non-bank financials Food & beverage Leisure services Home appliances Pharmaceutical Media Auto Chemical Steel Light industry Electronics Information technology Conglomerates Transportation Property Apparel & textiles Telecommunications Power equipment Machinery Construction & decoration Public utilities Building materials Agriculture Non-ferrous Retail Military equipment % Sector report Figure 1: Sector valuations P/E (TTM) Week ended Jul 3 Week ended Jun 26 Month ended May 29 Historical average SW Retail Index A-share market Premium 119% 132% 129% 78% P/B Week ended Jul 3 Week ended Jun 26 Month ended May 29 Historical average SW Retail Index A-share market Premium 50% 59% 58% 27% P/S Week ended Jul 3 Week ended Jun 26 Month ended May 29 Historical average SW Retail Index A-share market Premium -29% -25% -26% -41% Figure 2: Share price performance by sector (week ended Jul 3) Figure 3: YTD share price performance by sector (as of Jul 3) Page 3

4 ZHONGXING SHENYANG NEW HUADU SUPER NANJING XINJIE JIANGSU HONGTU YINCHUAN XINHU XIAN INTERNA SHANDONG HIKIN ZHONGBAI HOLDING BEIJING CAPTL SHANG BAILIAN NANNING DEPT TELLING TELECOM TIANJIN QUANYE SHANG LANSHENG FUJIAN DONGBAI HIT SHOUCHUANG SHENZHEN SEG JINGUYUAN HOLDING FUJIAN GUANFU JIANGSU HIGH HOPE Sector report Figure 4: Top ten outperformers and bottom ten underperformers (week ended Jul 3) 30% 20% 22.1% 19.9% 10% 0% -10% -20% -1.0% -1.9% -5.3% -6.2% -10.0% -12.5%-13.7%-15.6% -30% -40% -50% -32.1%-32.3%-32.9%-33.2%-33.5% -35.0%-37.2%-37.4% -40.9%-40.9% Figure 5: Retail sector share price performance (as of Jul 3) 9,000 SW Retail Index Volume (m shares) 70,000 8,000 60,000 7,000 6,000 50,000 5,000 40,000 4,000 30,000 3,000 2,000 20,000 1,000 10, Page 4

5 Sector report Figure 6: A-share consumer stock valuations (as of Jul 3) Stock code Company Price EPS (RMB) P/E P/B P/S P/E TTM E 2016E 2017E E 2017E Latest TTM National department stores Beijing Wangfujing Dashang Group Rainbow Dept Store Supermarkets Yonghui Superstores Zhongbai Holdings Renrenle Commercial na (1.15) na Chengdu Hongqi Regional department stores Better Life Guangzhou Friendship Yinchuan Xinhua Chengshang Group Xinjiang Youhao Central Emporium Chongqing Dept Store Wuhan Dept Store Silver Plaza Beijing Capital Retailing Wenfeng Great World Hefei Dept Store Hunan Friendship Changchun Eurasia Guangzhou Grandbuy Beijing Urban & Rural Asset restructuring theme Guangdong Highsun Beijing Hualian Haining China Leather Specialized chain retailers Light & Textile Industrial City Shanghai Jahwa Lao Feng Xiang Page 5

6 Sector report Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 10% Neutral Expected sector relative performance ranges between -10% and 10% Cautious Sector expected to underperform benchmark by more than 10% Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. 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