1H17 Results In Line, Accumulate

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1 - Samsonite (01910 HK) Consumer Sector - Retailing Equity Research 股票研究 : Samsonite (01910 HK) 公司报告 : 新秀丽 (01910 HK) 1H17 Results In Line, Accumulate 2017 年上半年业绩符合预期, 收集 Terry Hong 洪学宇 (86755) hongxueyu@gtjas.com 公 司 报 告 证 券 研 究 报 告 消费行业 零售 Equity Research Report 1H17 results met expectations. Revenue increased by 31.1% YoY to US$1,586 million, mainly due to the inclusion of Tumi. Excluding the 18.7% revenue contribution from Tumi, constant currency revenue increased by 7.5% YoY. Net profit increased by 1.2% YoY to US$83.4 million in 1H17, which was mainly due to improved gross margin but partially offset by higher operating expenses and finance costs. Marketing expenses surged by 51.0% YoY due to the Company's focus on advertising and promotional campaigns, especially for the Tumi brand and e-commerce business. Revise EPS forecasts by -5.8%, -1.5% and 3.6% to US$0.182, US$0.226 and US$0.273, respectively. We expect improvements in overall GPM as a result of cost synergy with Tumi and increasing revenue contribution from direct-to-consumer channels. However, we expect A&P expenses, distribution expenses and financial costs to remain high during 2017 and 2018, which will partially offset the benefit from higher GPM. Raise TP to HK$34.50 but downgrade to Accumulate. Although net profit will be compromised by heavy operating expenses in the short term, we expect to see more long-term benefits from marketing campaigns and the expansion of direct-to-consumer channels. The new TP represents 24.4x, 19.5x and 16.2x 2017, 2018 and 2019 PER, respectively. The Company's stock price has already reflected part of the positive outlook, and therefore we downgrade to "Accumulate" 年上半年业绩符合预期 收入同比增长 31.1% 至 1,586 百万美元, 主要由于 Tumi 的加入而带动 剔除由 Tumi 带来的 18.7% 的收入贡献后, 固定汇率收入同比增长 7.5% 净利润同比上涨 1.2% 至 83.4 百万美元, 主要由于毛利率改善, 但被上涨的运营费用及财 务费用所部分抵消 市场推广费用同比大幅上涨 51.0%, 主要由于公司加强广告宣传活动, 尤其在 Tumi 品牌和电商业务方面 分别调整 年每股盈利预测 -5.8% -1.5% 和 3.6%, 至 美元 美元 和 美元 我们预期整体毛利率有所改善, 主要由于公司和 Tumi 的成本协同效应, 以及来自直接面向消费者渠道的收入占比增加 然而, 我们预期广告宣传费用 分销费用 和财务费用在 2017 年和 2018 年仍维持高位, 这将部分抵消更高的毛利率所带来的好处 提升目标价至 港元但下调至 收集 评级 尽管短期内净利润会被高昂的经营费用 所削弱, 但我们预期看到更多来自于市场推广活动和直接面向消费者渠道扩张所带来的长 期利益 新的目标价分别相当于 24.4 倍,19.5 倍和 16.2 倍 2017 年 2018 年和 2019 年 市盈率 公司的股价已经反映了一部分正面展望, 因此我们下调至 收集 评级 Rating: Accumulate Downgraded 评级 : 收集 ( 下调 ) 6-18m TP 目标价 : HK$34.50 Revised from 原目标价 : HK$33.50 Share price 股价 : Stock performance 股价表现 (10.0) (20.0) [Table_PriceChange] Change in Share Price 股价变动 % of return Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 3 M 3 个月 HK$ Oct-16 Dec-16 Feb-17 May-17 Jul-17 HSI Index Samsonite 1 Y 1 年 (5.9) 中新外秀运丽输 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (US$ m) (US$ m) (US$) ( %) (x) (US$) (x) (US$) (%) (%) 2015A 2, A 2, F 3, F 3, F 4, [Table_BaseData] Shares in issue (m) 总股数 (m) 1,420.2 Major shareholder 大股东 The Capital Group 11.0% Market cap. (HK$ m) 市值 (HK$ m) 46,014.5 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 3,748.6 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) 40.0 See the last page for disclaimer Page 1 of 7

2 1H17 results were in line with expectations. Samsonite s ( the Company ) 1H17 revenue increased by 31.1% YoY to US$1,586 million, which accounted for 46.1% of our full-year forecast and was driven largely by the inclusion of Tumi. The Tumi brand contributed revenue of US$297 million in 1H17, which accounted for 18.7% of total revenue. Excluding revenue contribution from Tumi, the Company s revenue increased by 7.5% YoY on a constant currency basis. Net sales of the American Tourister brand increased by 1.3% on a constant currency basis, which was mainly driven by an increase of 21.7% YoY in Europe but partially offset by decreased sales in Asia and Latin America. Net sales in Asia increased by 19.8% YoY on a constant currency basis. Excluding contribution from the Tumi brand, constant-currency net sales in Asia grew by only 3.8% YoY, which was partially offset by challenging conditions in South Korea and Hong Kong. Direct-to-consumer channels, including the direct-to-consumer e-commerce channel, contributed 30.2% of total revenue in 1H17, up from 21.0% in 1H16, mainly driven by growth in direct-to-consumer e-commerce and the acquisition of ebags in May Revenue contribution from e-commerce business increased by 2.2 ppt YoY to 10.5% in 1H17. Net sales through the ebags website amounted to US$21.3 million since the date of acquisition. Gross margin improved but operating margin worsened. Gross margin was up 3.0 ppt YoY to 55.3%, largely due to the inclusion of Tumi. The GPM of Tumi improved by 3.8 ppt YoY to 64.1% in 1H17. Excluding contribution from Tumi, gross margin was still up 1.1 ppt YoY to 53.4%, mainly driven by a higher proportion of net sales coming from direct-to-consumer channels. However, operating margin dropped by 1.4 ppt YoY to 10.2%, mainly due to increased operating expenses. Distribution expenses increased by 44.3% YoY, primarily due to the inclusion of Tumi, which has a higher mix of direct-to-consumer sales. Marketing expenses surged by 51.0% YoY due to the Company's focus on advertising and promotional campaigns, especially for the Tumi brand and e-commerce business. The management indicated that A&P expenses will remain high in 2H17 in order to enhance brand and product awareness. Net profit increased by 1.2% YoY to US$83.4 million in 1H17, which was slightly lower than expected. Net profit was adversely impacted by an increase of 186.1% YoY in net finance costs in 1H17, primarily associated with the senior credit facilities utilized to finance the Tumi acquisition. Effective tax rate in 1Q17 was down 3.0 ppt YoY to 24.3%, mainly due to tax benefits on share-based compensation. As a result, net margin dropped by 1.6 ppt YoY to 5.3%. EBITDA increased by 26.6% YoY to US$219 million in 1H17. Table-1: Samsonite's 1H17 Results Analysis US$ mn 1H16 1H17 YoY % of full-year forecasts Turnover 1,209 1, % 46.1% Cost of sales (577) (708) 22.8% 46.1% Gross profit % 46.2% Distribution expenses (343) (494) 44.3% 49.9% Marketing expenses (66) (100) 51.0% 55.8% Administrative expenses (72) (108) 49.6% 51.3% Other expenses (11) (14) 27.8% 62.7% Profit from operations % 32.4% Finance income (costs) (14) (40) 186.1% 41.7% Profit before taxation (3.7%) 30.2% Income tax (35) (30) (14.4%) 26.2% Non-controlling interests 10 9 (7.0%) 47.5% Net profit % 30.6% Adjusted net profit (0.1%) 33.6% EBITDA % 37.0% Basic EPS (US$) % 30.6% Gross margin 52.3% 55.3% 3.0 ppt Operating margin 11.7% 10.2% (1.4) ppt Net margin 6.8% 5.3% (1.6) ppt EBITDA margin 14.3% 13.8% (0.5) ppt Effective tax rate 27.3% 24.3% (3.0) ppt Seethe last page for disclaimer Page 2 of 7

3 Table-2: Samsonite's 1H17 Revenue Analysis US$ mn 1H16 1H17 YoY cc* YoY cc* YoY Ex. Tumi Asia % 19.8% 3.8% North America % 53.0% 7.4% Europe % 24.0% 11.5% Latin America % 19.4% 19.4% Corporate % 15.6% Total revenue 1,209 1, % 31.8% 7.5% * cc stands for constant currency. Figure-1: Samsonite s Revenue by Region in 1H17 Figure-2: Samsonite s Revenue by Brand in 1H17 0.3% 4.8% 20.5% 38.9% 35.5% Asia North America Europe Latin America Corporate 0.8% 1.7% Samsonite 2.8% 0.9% American 5.1% Tourister Tumi 3.4% Speck 16.6% 49.0% High Sierra Hartmann Gregory Lipault Others Figure-3: Samsonite s E-commerce Business Figure-4: Samsonite s Profitability US$ mn 8.5% 9.5% 10.5% 12% 10% 60% 50% 53.2% 53.3% 52.0% 52.3% 55.3% % 5.6% % A 2013A 2014A 2015A 2016A Revenue from e-commerce (L) 8% 6% 4% 167 2% 0% 1H17 % of total revenue (R) 40% 30% 20% 10% 0% 13.8% 13.8% 12.3% 11.7% 10.2% 8.7% 8.8% 7.9% 6.8% 5.3% 1H13 1H14 1H15 1H16 1H17 Gross margin Operating margin Net margin Working capital management remained healthy. Inventory surged by 25.5% YoY to US$485 million as at 30 June 2017, mainly due to the expansion of the Company s direct-to-consumer channels. As a result, inventory turnover days in 1H17 slightly increased by 1 day YoY to 117 days. Trade receivables turnover days decreased by 5 days YoY to 42 days, mainly due to a higher proportion of sales through direct-to-consumer channels and a higher proportion of retail in the Tumi business. Therefore, trade payable turnover days was down 2 days YoY to 113 days. As a result, the Company's overall turnover cycle improved by 2 days YoY to 46 days. The Company will continue to increase the proportion of sales from direct-to-consumer channels over the next few years, which we believe will benefit the Company's overall working capital management. We forecast the Company s overall turnover cycle during to be 45 days, 42 days and 43 days, respectively. Seethe last page for disclaimer Page 3 of 7

4 Figure-5: Samsonite s Working Capital Management - Interim H13 1H14 1H15 1H16 1H17 Inventory days A/C payable days A/C receivable days Overall turnover days Figure-6: Samsonite s Working Capital Management - Annual A 2015A 2016A 2017F 2018F 2019F Inventory days A/C receivable days A/C payable days Overall turnover days Revise EPS forecasts by -5.8%, -1.5% and 3.6% to US$0.182, US$0.226 and US$0.273, respectively. The Company has been investing heavily in A&P, which will undermine net profit growth in 2017 and 2018 but will accelerate top-line growth of the Company, especially of the Tumi brand. We expect more significant improvements in overall GPM as a result of cost synergy with Tumi and increasing revenue contribution from direct-to-consumer channels. Therefore we revise up GPM forecasts by 0.2 ppt, 0.5 ppt and 0.9 ppt to 55.5%, 56.3% and 57.0%, respectively. However, we expect A&P expenses, distribution expenses and financial costs to remain high during 2017 and 2018, which will partially offset the improvement in GPM. Effective tax rate in 2017 will be lower than expected due to tax benefits from some non-recurring items, and the normalized effective tax rate is expected to be 26%-29% over the next few years. As a result, we revise net margin forecasts by -0.4 ppt, -0.2 ppt and 0.2 ppt to 7.5%, 8.6% and 9.5%, respectively. Table-3: Key Assumptions and Adjustments US$ mn OLD NEW CHANGE 2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F Revenue 3,438 3,717 3,998 3,414 3,735 4,037 (0.7%) 0.5% 1.0% Gross profit 1,902 2,075 2,243 1,895 2,103 2,302 (0.3%) 1.4% 2.6% Operating profit (7.8%) (2.4%) 2.2% Net profit (5.8%) (1.5%) 3.6% EBITDA (6.0%) (1.4%) 2.5% Basic EPS (US$) (5.8%) (1.5%) 3.6% Gross margin 55.3% 55.8% 56.1% 55.5% 56.3% 57.0% 0.2 ppt 0.5 ppt 0.9 ppt % SG&A of turnover 40.1% 40.0% 40.0% 41.3% 40.9% 40.6% 1.2 ppt 0.9 ppt 0.7 ppt Operating margin 14.6% 15.2% 15.7% 13.5% 14.8% 15.9% (1.0) ppt (0.4) ppt 0.2 ppt Effective tax rate 28.0% 28.0% 28.0% 26.8% 27.5% 27.5% (1.2) ppt (0.5) ppt (0.5) ppt Net margin 7.9% 8.7% 9.3% 7.5% 8.6% 9.5% (0.4) ppt (0.2) ppt 0.2 ppt EBITDA margin 17.2% 17.9% 18.4% 16.3% 17.6% 18.6% (0.9) ppt (0.3) ppt 0.3 ppt Raise TP to HK$34.50 but downgrade to Accumulate. The Tumi brand maintained very strong growth momentum in 1H17, and we believe that Tumi will continue to enjoy fast growth in , driven by network expansion and intensive marketing campaigns. We expect the Company s business, excluding Tumi, to maintain stable growth over the next few years, driven by its multi-brand, multi-category and multi-channel strategy. Although net profit will be compromised by heavy operating expenses in the short term, we expect to see more long-term benefits from marketing campaigns and the expansion of direct-to-consumer channels. We raise the Company's TP from HK$33.50 to HK$34.50 to reflect a better outlook for Tumi. The new TP represents 24.4x, 19.5x and 16.2x 2017, 2018 and 2019 PER, respectively. The Company's stock price has already reflected part of the positive outlook, and our TP represents only 6.5% upside potential. Therefore we downgrade our investment rating from "Buy" to "Accumulate". Seethe last page for disclaimer Page 4 of 7

5 Risks: 1) unexpected appreciation of the U.S. dollar against other currencies, 2) liquidity and solvency risks triggered by heavy debt obligations related to the Tumi acquisition, and 3) a decline in the global tourism industry. Figure-7: Samsonite s PE Ratio (Next four Quarters) SD: 20.7x Average: 18.6x SD: 16.4x Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 PER Average 1SD -1SD Figure-8: Samsonite s PB Ratio (Current Annual) SD: 3.3x Average: 2.9x 2.4-1SD: 2.6x Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 PB Average 1SD -1SD Table-4: Peers Valuation Comparison Table Company Luggage & Luxury Stock Code Currency Last price Market Cap PE(x) PB(x) ROE(%) D/Y(%) EV/ EBITDA(x) Gross Margin(%) Operating Margin(%) HKD mn 16A 17F 18F 19F 16A 17F 18F 19F 17F 17F 17F 17F 17F SAMSONITE 1910 HK HKD , PRADA* 1913 HK HKD , LVMH MC FP EUR ,039, CHRISTIAN DIOR CDI FP EUR , KERING KER FP EUR , MICHAEL KORS* KORS US USD , BURBERRY BRBY LN GBP 1, , COACH* COH US USD , HUGO BOSS BOSS GY EUR , SALVATORE FERRAGAMO SFER IM EUR , TOD'S TOD IM EUR , Simple Average Weighted Average Sportswear NIKE* NKE US USD , ADIDAS ADS GR EUR , UNDER ARMOUR UA US USD ,658 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6.9 n.a. n.a. n.a. 4.7 Simple Average Weighted Average * Note: The financial year end date of these companies is not 31st December. For easier comparison with peers, 16A means FY17A and 17F means FY18F and so on. Seethe last page for disclaimer Page 5 of 7

6 Financial Statements and Ratios Income Statement Year end 31 Dec (US$ m) 2015A 2016A 2017F 2018F 2019F Total Revenue 2,432 2,810 3,414 3,735 4,037 Cost of Sales (1,154) (1,290) (1,519) (1,631) (1,735) Gross Profit 1,279 1,521 1,895 2,103 2,302 Distribution Costs (666) (818) (1,007) (1,097) (1,183) Marketing Expenses (132) (144) (183) (198) (212) Administrative & General Expenses (154) (178) (219) (232) (245) Other Expenses (18) (50) (25) (24) (22) Operating Profit Net Finance Income (costs) (18) (59) (84) (84) (80) Profit Before Tax Income Tax (74) 2 (101) (129) (154) Profit After Tax Non-controlling Interest (19) (19) (20) (20) (21) Shareholders' Profit / Loss Basic EPS YoY 6% 29.3% 0.3% 24.6% 20.6% Balance Sheet Year end 31 Dec (US$ m) 2015A 2016A 2017F 2018F 2019F Property, Plant and Equipment Goodwill 297 1,239 1,393 1,430 1,470 Other Intangible Assets 762 1,733 1,805 1,814 1,826 Others Total Non-current Assets 1,322 3,359 3,610 3,672 3,741 Inventory Trade and Bill Receivables Prepaid Expenses and Other Assets Cash & Cash Equivalents Total Current Assets 894 1,290 1,242 1,267 1,419 Total Assets 2,216 4,650 4,852 4,940 5,160 Trade and Bill Payables Bank Loans Current Tax Liabilities Employee Benefits Total Current Liabilities Cash Flow Statement Year end 31 Dec (US$ m) 2015A 2016A 2017F 2018F 2019F Profit Before Taxation D&A Other Adjustments Changes in Working Capital (20) (38) 44 (35) (18) Tax and Interest Paid (85) (111) (195) (211) (232) Cash from Operating Activities Capital Expenditure (68) (70) (85) (93) (101) Acquisition of Businesses (30) (1,685) (256) (75) (81) Others (5) (5) Cash from Investing Activities (104) (1,759) (340) (165) (179) Non-controlling Interest Put Options Employee Benefits Deferred Tax Liabilities & Other Liabilities 111 2,269 2,175 2,016 1,958 Total Non-current Liabilities 205 2,363 2,266 2,105 2,044 Total Liabilities 816 3,139 3,170 3,034 2,991 Share Capital Reserves 1,345 1,453 1,612 1,824 2,076 Total Shareholders' Equity 1,360 1,467 1,627 1,839 2,090 Minority Interest Total Equity 1,399 1,511 1,682 1,906 2,169 Dividends Paid (88) (93) (97) (108) (134) Proceeds from Senior Credit Facilities 0 1, Others (22) (134) (81) (167) (70) Cash from Financing Activities (110) 1,698 (178) (274) (205) Net Changes in Cash (125) (44) 104 Cash at Beg of Year Foreign Exchange Effect (4) (12) Cash at End of Year [Table_FinancialRatio] Financial Ratios 2015A 2016A 2017F 2018F 2019F Gross Margin (%) Operating Margin (%) Net Margin (%) ROE (%) ROA (%) ROCE (%) Inventory Days A/C Receivable Days A/C Payable Days Cash Conversion Cycle Payout Ratio (%) Net Gearing (%) Net Cash Current Ratio (x) Seethe last page for disclaimer Page 6 of 7

7 [Table_FinancialRatio] [Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. [Table_IndustryRatingDefinition] Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performanceis -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Orthefundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI HOLDINGS GROUP (00198 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),MR CSI300 ETF (03127 HK),GFI MSCI A I (03156 HK),CAM SCSMALLCAP (03157 HK),LINK HOLDINGS (08237 HK),MR CSI300 ETF-R (CNY) (83127 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: Seethe last page for disclaimer Page 7 of 7