New World Department Store [0825.HK]

Transcription

1 September 26, 213 New World Department Store [825.HK] FY213 Results: Stable with Prudent Cost Control FY213 (ended June 213) net profit up 5.6% YoY to HK$641.5m. Top-line performance was strong, with same store sales growth (SSSG) of 11.4%. Gross sales proceeds (GSP) recorded 14.5% YoY growth to HK$16,248.1m, and revenue was up 14.9% YoY to HK$4,11.5m. Despite the tough retail environment and continued rebranding programme last year, core earnings rose 12.4%, excluding other losses/gains. The company announced a stable 5.6% year-on-year (YoY) increase in EPS and a final/total DPS of HK$.92/ HK$.19. China Department Stores BUY Close: HK$4.2 (Sep 25, 213) Target Price: HK$6.5 (+62%) Price Performance Merchandising margin weaker than expected. Concessionaire rate was 17.7% (below our estimate of 18%), down.8ppt YoY due to the gold-rush and increased promotional activities, and direct sales gross margin was 14.4%, down 1.1ppts due to increased supermarket contribution. Operating expenses under tight control. Rental and labour costs were down.1ppt and.5ppt to 6.% and 3.5% of GSP in FY213. Other key items also recorded declines as % of GSP except promotional expenses (up.4ppt to 1.8%). We expect even better cost control in FY214E: 1) gradual improvement in retail sentiment should ease pressure on promotional expenses, 2) 9% of stores are paying fixed rent, leaving more room for operating leverage when sales improve. Maintain BUY with TP of HK$6.5. We fine-tuned our FY214E earnings forecasts up by 4.6% due mainly to the improvement in operating margin. NWDS is trading at 8.9x FY214E PER with 5.6% yield. It is still at a big discount to Golden Eagle s 13.6x 214E PER. With limited downside risk given its valuation at the low end of the historical range, we believe NWDS is a good choice, with outperforming SSSG and gradual margin improvement. FY211 FY212 FY213 FY214E FY215E Turnover (HK$m) 2,736 3,49 4,12 4,79 5,45 Net profit (HK$m) Core net margin (%) Net margin (%) Basic EPS (HK$) Change (%) 48.1 (29.) PER (x) Market Cap US$873m Shares Outstanding 1,686m Auditor PWC Free Float 22.6% 52W range 3M average daily T/O Major Shareholding Source: Company, Bloomberg Angela Han Lee (852) angelahanlee@chinastock.com.hk John Mulcahy (852) johnmul@chinastock.com.hk HK$ US$.1m Cheng Yu Tung Family (72%) Yield (%) PBR (x)

2 Result Updates For the fiscal year ending: 12/31/211 6/3/212 12/31/212 6/3/213 1H FY212 2H FY212 1H FY213 2H FY213 2H FY213 2H FY213 Filing Currency HK$m HK$m HK$m HK$m YoY HoH Revenues 1, ,795. 2,28.6 1, % -2.3% Commissions from concessionaire sales 1,195. 1,21.5 1, , % -1.7% GSP from concessionaire sales 6, , , , % -1.1% Concessionaire rate 18.4% 18.6% 17.8% 17.7% Direct sales % -14.4% % of direct sales as of total GSP 4.6% 5.2% 5.5% 4.8% Management fees % 173.5% Rental income % 6.6% Cost of goods sold (263.9) (37.3) (368.4) (324.7) 5.7% -11.9% % of direct sales -83.5% -85.3% -84.4% -87.% Gross profit 1, , ,66.2 1, % -.1% Other Income % -29.9% Operating expenses Staff cost (263.9) (277.7) (282.8) (289.5) 4.3% 2.4% Rental expenses (415.1) (448.) (493.1) (487.3) 8.8% -1.2% Depreciation and Amortization (141.1) (152.7) (154.7) (165.6) 8.4% 7.% Other Operating Expenses (282.6) (39.9) (399.5) (368.2) 18.8% -7.8% Operating profit % -2.4% Non-operating items Finance Income % 2.4% Finance Costs (6.6) (28.5) (28.4) (2.8) -27.1% -26.8% Share of Profit/Loss of Associate.... EBT % 1.4% Taxes and Other Expenses Income Tax (124.5) (8.3) (13.1) (13.7) 62.8% 26.8% Effective tax rate -27.4% -22.4% -23.7% -29.7% Minority Interest (After Tax).... Net Income (Loss) % -6.6% Core Net Income % -.9% Per share Basic EPS (HK$) % -6.6% Diluted EPS (HK$) % -6.6% DPS (HK$) % -6.1% Payout Ratio 5.1% 49.8% 49.8% 5.1% Profitability Concessionaire rate (% of concessionaire sales) 18.4% 18.6% 17.8% 17.7% Gross margin (% of deirect sales) 16.5% 14.7% 15.6% 13.% Operating margin 25.8% 19.5% 2.8% 2.8% Net margin 19.5% 15.5% 16.3% 15.6% Core net margin 2

3 Other Briefing Takeaways FY213 revenue breakdown. Management income grew 172.6% growth to HK$52.3m with increased managed stores, and rental income was up 31.2% to HK$51.7m, offsetting relatively slow 9.7% growth in concessionaire commission of HK$2,638.9m. Direct sales rose 19.7% YoY to HK$89.6m. Concessionaire commission growth was slower, due to low commission rate (gold, jewellery and watch category s commission is c.12% vs. 17.7% overall rate). FY213 SSSG breakdown. The 11.4% SSSG was composed of 4-5% increase in traffic flow and 5% increase in ticket size. This highlights its increasing competency over peers, which are mainly relying on the hike in ticket size. We believe the increase in customer flow is evidence of the successful rebranding programme, despite its relatively high store age. Prepaid card sales up 11% in FY213 and enlarging customer base. 1.5m VIP members contributed 61% of total sales turnover in FY213, up 8ppts YoY. During FY213, VIP membership was up 27% and VIP sales increased 26% YoY. We believe marketing campaigns to attract more customer flow are working. Moreover, much faster growth in the VIP client base than network expansion implies further penetration in existing market, and NWDS would gain further bargaining power against suppliers to achieve economies of scale. Updated pipeline projects. NWDS closed its Shenyang Nanjing Street store in February 213, and its acquisition of Hongxin Trendy Plaza in Shanghai was completed in July 213. NWDS currently has 37 self-operated stores and five managed stores. It is planning to open a self-operated store in Yantai, complete the expansion of Yancheng store, and begin operation of two managed stores in FY214E. It is expected to be funded by internal cashflow, and NWDS is in a healthy financial position with HK$1,814.7m net cash. NWDS is budgeting for a new store loss of HK$8m in FY214E, compared with HK$85m in FY213. Major FY214E Assumptions FY214E top-line. We expect GSP from concessionaire sales to increase 13.4% YoY, while direct sales will grow at 16.8% YoY. Overall, we expect the retail environment to improve, while low-margin gold sales will outperform and decent -margin international brands will remain under pressure. As a result, we expect the concessionaire rate to stay at a relatively low level at 17.8%, similar to the level in FY213. Management fee income and rental income should grow by >3% in FY214E, with opening of two new managed stores and increasing contribution from the hybrid model implying stronger growth in rental income. Overall, we expect SSSG to stay at 11.8%, slightly higher than 11.4% in FY213. Operating expenses. We expect labour expenses to be sustainable at 3.5% of GSP, same as in FY213. We believe rental cost will decline further as a % of GSP, to 5.9% in FY214E from 6% in FY213: with most of the rental fixed. Further ramp-up of existing stores should provide more operating leverage for NWDS in future. 3

4 Key Financials Profit & loss (HK$m) FY211 FY212 FY213 FY214E FY215E Cash flow (HK$m) FY211 FY212 FY213E FY214E FY215E Revenue 2,736 3,49 4,12 4,79 5,45 Profit before tax 1, ,33 1,186 COGS (449) (571) (693) (813) (924) Depreciation and amortisation Gross profit 2,287 2,919 3,318 3,896 4,526 Change in w orking capital Other Income Other operating cash flow (314) (231) (275) (35) (342) Depreciation and amortisation (282) (294) (32) (394) (557) Operating cash flow 1,846 1,463 1,588 1,68 2,73 Staff cost (411) (542) (572) (646) (723) CAPEX (1,26) (2,662) (2,18) (1,48) (1,352) Rental cost (74) (863) (98) (1,11) (1,243) Proceeds from disposals Other operating expenses (391) (593) (768) (877) (988) Other investing cash flow (697) 576 (1,72) (75) (13) Operating profit 1, ,152 Investing cash flow (1,718) (2,42) (3,485) (1,555) (1,455) Finance income Proceeds from borrow ings (5) (157) Financial costs (35) (49) (32) (24) Share issue Other non-operating expenses Dividends paid (261) (292) (34) (384) (416) Profit before tax 1, ,33 1,186 Other financing cash flow 756 1,166 1,432 (25) (27) Tax expenses (258) (25) (234) (269) (38) Financing cash flow ,129 (459) (6) Profit after tax Minority interests Net change in cash (769) (47) 18 Net profit Free cash flow 616 (1,24) (419) Basic EPS (HK$) Diluted EPS (HK$) Total DPS (HK$) Key ratios FY211 FY212 FY213 FY214E FY215E Revenue grow th (%) Operating profit grow th (%) 36.5 (25.5) Balance sheet (HK$m) FY211 FY212 FY213 FY214E FY215E Net profit grow th (%) 48.1 (29.) Cash and cash equivalents 2,948 3,243 2,474 2,67 2,85 Core net profit grow th (%) Inventories Concessionaire rate (%) Account receivables Direct sales gross margin (%) Other current assets 1, Operating margin (%) Total current assets 4,99 4,394 3,816 3,642 3,93 Net margin (%) Property, plant and equipment 2,83 2,267 2,36 2,942 3,556 Core net margin (%) Investment properties 274 1,997 2,432 2,632 2,832 ROA (%) Lease prepayments ROE (%) Other non-current assets 2,162 2,85 4,62 4,43 4,24 Net debt to equity (%) Net Cash Net Cash Net Cash Net Cash Net Cash Total assets 9,674 11,81 12,834 13,86 14,934 Quick ratio (x) ST borrow ings Current ratio (x) Other current liabilities 3,353 3,714 4,456 5,97 5,92 Interest coverage ratio (x) n.a Total current liabilities 3,353 3,723 4,56 5,254 6,78 LT borrow ings Other non-current liabilities 748 1,17 1,94 1,94 1,94 Total liabilities 4,11 5,828 6,29 6,8 7,466 Key assumptions FY211 FY212 FY213 FY214E FY215E Share capital and reserves 5,572 5,973 6,626 7,6 7,468 Gross sales proceeds (HK$m) 11,183 14,27 16,268 18,594 21,51 Shareholders' equity 5,572 5,973 6,626 7,6 7,468 No. of self-operated stores Minority interests Total self-operated GFA (sqm) 1,88,42 1,279,97 1,34,24 1,448,58 1,578,78 Total equity & liabilities 9,674 11,81 12,834 13,86 14,934 Ow ned GFA/total GFA (%) Basic BPS (HK$)

5 Comparable Valuation Table Company Ticker Price 52-Wk Mkt 3m Avg PER Dividends Yield Low/High Cap Turnover E 214E E 214E (HK$) (HK$) (US$m) (US$m) (x) (x) (x) (%) (%) (%) GOLDEN EAGLE 338 HK / 2.4 2, PARKSON RETAIL 3368 HK / , INTIME DEPT 1833 HK / , NEW WORLD DEPT* 825 HK / MAOYE INTL 848 HK / SPRINGLAND INTL 17 HK / , LIFESTYLE INTL 1212 HK / , Simple Avg Mkt Cap Avg Company Ticker 213 PEG PBR ROE Net Debt/Equity ( CAGR) E 214E E 214E E 214E (x) (x) (x) (x) (%) (%) (%) (%) (%) (%) GOLDEN EAGLE 338 HK PARKSON RETAIL 3368 HK Net Cash Net Cash Net Cash INTIME DEPT 1833 HK NEW WORLD DEPT* 825 HK Net Cash Net Cash Net Cash MAOYE INTL 848 HK SPRINGLAND INTL 17 HK Net Cash Net Cash Net Cash LIFESTYLE INTL 1212 HK Net Cash.35 Net Cash Simple Avg Mkt Cap Avg Source: Company, Bloomberg, CGIHK Research Updated as of September 25, 213 * Latest financial year end in June 213. Presented figures are after adjusting year end as of calendar year 5

6 Store List Opening time GFA (sqm) No. Province City Region Store Name Format Self-operated stores 1 Hubei Wuhan CW Wuhan Store Nov-94 42, Own 2 Heilongjiang Harbin N Harbin Store Nov-96 5, Lease 3 Tianjin Tianjin N Tianjin Store Oct-97 57, Lease 4 Zhejiang Ningbo SE Ningbo Store Apr-98 1, Lease 5 Beijing Beijing N Beijing Store Jul-98 95, Lease 6 Shanghai Shanghai SE Shanghai Huaihai Branch Store Dec-1 22,5 Lease 7 Hubei Wuhan CW Wuhan Trendy Plaza Dec-1 23, Lease 8 Shanghai Shanghai SE Shanghai Xinning Branch Store Jan-2 21, Lease 9 Shanghai Shanghai SE Shanghai Hongkou Branch Store Oct-3 19,6 Lease 1 Yunnan Kunming CW Kunming Store Jun-4 12,6 Lease 11 Shanghai Shanghai SE Shanghai Changning Branch Store Sep-4 6,68 Lease 12 zhejiang Ningbo SE Ningbo Trendy Store Nov-4 11,5 Lease 13 Gansu Lanzhou N Lanzhou Store Sep-5 27,2 Lease 14 Hubei Wuhan CW Wuhan Wuchang Branch Store Oct-5 24, Lease 15 Shanghai Shanghai SE Shanghai Qibao Branch Store Dec-5 36,55 Lease 16 Liaoning Shenyang N Shenyang Zhonghua Road Branch Store Dec-5 44, Lease 17 Hubei Wuhan CW Wuhan Qiaokou Branch Store Sep-6 42, Lease 18 Hunan Changsha CW Changsha Trendy Plaza Sep-6 35, Lease 19 Chongqing Chongqing CW Chongqing Store Sep-6 42, Lease 2 Sichuan Chengdu CW Chengdu Store Dec-6 29,5 Lease 21 Beijing Beijing N Beijing Trendy Store Mar-7 31,2 Lease 22 Shanghai Shanghai SE Shanghai Pujian Branch Store Sep-7 46, Lease 23 Liaoning Anshan N Anshan Store Oct-7 37,25 Lease 24 Guangxi Nanning SE Nanning Store Nov-7 3, Lease 25 Beijing Beijing N Beijing Liying Store Sep-8 52, Lease 26 Hubei Wuhan CW Wuhan Hanyang Branch Store Nov-8 53, Lease 27 Shanghai Shanghai SE Shanghai Baoshan Branch Store Jan-1 39, Lease 28 Shanghai Shanghai SE Shanghai Chengshan Branch Store Apr-1 38, Lease 29 Beijing Beijing N Beijing Shishang Store May-1 4, Lease 3 Beijing Beijing N Beijing Qianzi Store Sep-1 4, Lease 31 Henan Zhengzhou CW Zhengzhou Store Apr-11 35,5 Own 32 Liaoning Shenyang N Shenyang Jianqiao Road Branch Store May-11 68, Own 33 Shanghai Shanghai SE Shanghai Shaanxi Road Branch Store Nov-11 42, Own 34 Sichuan Mianyang CW Mianyang Store Dec-11 35, Lease 35 Jiangsu Yancheng SE Yancheng Store Dec-12 43,16 Lease 36 Shaanxi Xi'an CW Xi'an Store Dec-12 58,5 Lease 37 Shanghai Shanghai SE Hongxin Trendy Plaza project Jul-13 43, Own Jiangsu Yancheng SE Expansion of Yancheng Store Jun-14 1,84 Lease 38 Shandong Yantai N Yantai project Jun-14 55, Lease Liaoning Shenyang N Expansion of Shenyang Nanjing Street Store Phse 2 Jun-15 25,4 Own 39 Hunan Hengyang CW Hengyang project Jun-15 42,2 Lease 4 Shanghai Shanghai SE Shanghai 118 project Jun-15 62,6 Lease 41 Liaoning Shenyang N Shenyang Nanjing Street Branch Store Phase 1 (opened in Nov 1995) Jun-17 26,3 Own Closed in Feb 213 on redevelopment. Managed stores Expected to reopen in FY217 1 Liaoning Dalian N Dalian Store Nov-2 32, 2 Shanghai Shanghai SE Shanghai Wujiaochang Branch Store Dec-6 44, 3 Hubei Wuhan CW Wuhan Xudong Branch Store Jan-8 31,7 4 Zhejiang Ningbo SE Ningbo Beilun Store Sep-12 41,5 5 Hebei Sanhe N Yanjiao Store Apr-13 32, Zhejiang Ningbo SE Ningbo Beilun Store expansion Jun-14 18,5 6 Shandong Yantai N Managed portion of Yantai project Jun-14 46, 7 Zhejiang Shaoxing SE Shaoxing project Jun-14 42,3 8 Heilingjiang Jiamusi N Jiamusi Jun-16 4, 6

7 % % HK$m Key Valuation Metrics Figure 1: Revenue/Operating profit/net profit 6, 5, 4, 3, 2, 1, Figure 3: Margins FY211 FY212 FY213 FY214E FY215E Concessionaire rate (%) Direct sales gross margin (%) Operating margin (%) Net margin (%) Figure 5: PER band 12 FY211 FY212 FY213 FY214E FY215E Revenue Operating profit Net profit Figure 2: Operating Expenses Breakdown 1% 9% % 7% 6% % % 3% 2% % % FY211 FY212 FY213 FY214E FY215E Depreciation and amortisation Staff cost Rental cost Other operating expenses Figure 4: ROE/ROA FY211 FY212 FY213 FY214E FY215E ROA ROE Figure 6: PBR band Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Share price 7.x 12.x 17.x 22.x Source: Company, Bloomberg, CGIHK Research Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Share price 1.x 1.5x 2.x 2.5x Source: Company, Bloomberg, CGIHK Research 7

8 Analyst Certification The research analyst who is primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject, securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by the analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 3 calendar days prior to the date of issue of this report; (2) will deal in or trade in the stock(s) covered in this research report three business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report. Explanation on Equity Ratings BUY: We expect the total return on the stock to exceed 2% over a 12 to 18 month horizon. HOLD: We expect the total return on the stock will be between % to 2% over a 12 to 18 month horizon. SELL: We expect the total return on the stock will be less than % over a 12 to 18 month horizon. DISCLAIMER For private perusal only. This report (including any information attached) is issued by China Galaxy International Securities (Hong Kong) Co., Limited, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to individual addressee whether they are professional investor, institutional client or otherwise, in good faith from sources believed to be reliable but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analyst who prepared this report, such views and opinions may not correspond to the published view of China Galaxy International Financial Holdings Limited and any of its subsidiaries. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company or companies referred to herein. All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. Please take note that member companies of China Galaxy International Financial Holdings Limited (including but not limited to China Galaxy International Securities (Hong Kong) Co., Ltd) and/or their directors, officers, agents and employees ( the Relevant Parties ) may have an interest in securities of the company or companies referred to in this report. The Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment(s) and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. COPYRIGHT RESERVED China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459, Room , 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: