Guosen s retail summary

Transcription

1 Sector Research HK & China Retail, Textile & Apparel, Consumer goods September 12, 2012 Guosen s retail summary 1 Department stores & Retail 1.1 Three industry trends The overall growth of the department store and retail sector has slowed down since 2H The same-store-sales growth fell to single digit in 1H 2012, and the main reasons were as follows: (1) Consumer spending plunged significantly, as the global economic growth eased. (2) The competition in the industry intensified, as the online shopping boom put relatively strong downside pressure on the department store and retail sector; (3) The CPI has continued to decline since July 2012, which to some extent has subdued the growth in same-store-sales in this sector. We believe: (1) the sector bottomed out in 1H 2012 and will rebound gradually in 2H; (2) the sector is expected to enter into its new round of boom cycle in the next few years, given the moderately loosening fiscal and monetary policies and continuously rising per capita disposable income in China. However, the golden period for the department store and retail sector is over, and its future development is supported by the inorganic expansion going forward, which is at the cost of the worsened profitability. 1.2 Our top coverage picks The top picks for you are Sun Art Retail (6808.HK) and Golden Eagle Retail (3308.HK). Sun Art Retail has overtaken Wal-Mart as the biggest hypermarket operator in China in We are bullish about the company s advantages in the scale effect, location & competitive differentiation and its good knowledge of Chinese customers demand. Golden Eagle Retail is one of the top department stores in China, and we believe the company is promising, given its experienced management team, leading position in Jiangsu province and its strong store networks. Analysts Franco Hong Hongsh@guosen.com.hk SFC CE. No.: AYC366 Stephy Wong stephy.wong@guosen.com.hk SFC CE. No.: AYC366 Dominique Li lijf@guosen.com.hk SFC CE No.:AXZ731 Sales Contact Dan Weil Global Head of Institutional Sales and Trading Managing Director dan.weil@guosen.com.hk Chris Berney Managing Director chris.berney@guosen.com.hk Roger Chiman Managing Director roger.chiman@guosen.com.hk Andrew Collier Director andrew.collier@guosen.com.hk Joe Chan Director joe.chan@guosen.com.hk Cancy Kong Vice President cancy.kong@guosen.com.hk Gary Wong Associate gary.wong@guosen.com.hk Ma Ning Associate ma.ning@guosen.com.hk For ratings definitions and other important disclosures, refer to the Information Disclosures at the end of this report. 1

2 1.3 Quick thoughts on other companies not yet under coverage We suggest investors to pay attention to Intime Department (1833.HK) and Wumart Stores (1025.HK). Intime is a leading department store in Zhejiang province with 29 stores nationwide, among which 18 is located in Zhejiang. Besides, Intime is one of the pioneers of commercial complex and e-commerce business, and the company is likely to stand out in the diversified retail solutions. Wumart is operating hypermarket, supermarket and convenience store in Beijing, Tianjin and Zhejiang, and it is sticking to region-focused business model. We recognise Wumart s region-focused strategy, and estimate its profitability will be further improved after its integration of Merry Mart. 2 Textile & Apparel 2.1 Three industry trends Textile and apparel companies posted slower y-o-y profit growth in their 2012 interim results, and their results slightly missed market expectations. Demand from end consumers remained tepid and inventories came under pressure. Both textile and apparel companies and distributors held a more cautious view toward store openings and products booking. Stocks prices fell considerably in recent days. As expectation for a market rebound and improvement in the economic condition intensifies, we believe valuations for textile and apparel companies could rebound. However, share prices won t enjoy explosive growth until demand from end-customers rebounded in around 2H In the long run, three factors will be crucial to the sustainable development of brand apparel companies: pricing strategy, competition situation and selling model. 2.2 Our top coverage picks Regarding women s shoe companies, Belle International (1880.HK) enjoys obvious competitive advantages given its tight control over sales channels and ability to sell products at higher premiums. On one hand, the company operates retail stores to eliminate dependence on distributors and simplify sales processes. On the other hand, its in-house production further helps reduce production costs. Belle International is a typical vertically integrated company adopting a multi-brands strategy. As an industry leader, it s well-positioned to go from strength to strength, in our view. We prefer Belle International as the company keeps outperforming its peers. Guosen Securities (HK) 2

3 Regarding men s clothing, the market is also in the process of destocking, but the market sentiment is better than that of the sportswear subsector. Customers of the adult men s clothing market are highly sensitive to brands and usually have a high degree of brand loyalty. China Lilang aims for the medium-end market, and doesn t face fierce competition from tier-one international brands as prices of the company s products are much lower than that of these international brands. Also, the adult men s clothing market is less susceptible to the quick expansion of the online shopping market. We suggest to pay close attention to China Lilang (1234.HK) and Trinity (891.HK), while Evergreen International (238.HK) faces mounting pressure from inventory. We prefer Trinity, as the counter is trading at reasonable valuation, and the sales income of the company enjoys steady growth. The company aims for the high-end market and basically won t be affected by the thriving online shopping market. Given sever inventory overhang, falling sales income, fierce competition and heavy discounts vendors offer, the sportswear market faces a high degree of uncertainty. We expect the downward trend won t be reversed in the short term, and the destocking process could extend into 2H We expect Li Ning (2331.HK) will record loss 2H 2012, and the counter will come under pressure. Anta (2020.HK) deserves attention as the NO.1 Chinese sportswear company so far. However, we are bearish about the prospect of the sportswear market in the short term, and don t suggest investors to buy any sportswear stock. 2.3 Quick thoughts on other companies not yet under coverage We pay attention to China Lilang (1234.HK) which ranks top three in China s medium-end business & casual menswear market, given the following four reasons: 1. Its 1H profit was better than market expectation; 2. Retail inventory for 2012 spring series products and summer series products was 30% and 40% respectively, which was controllable. 3. Vast developing space for Lilang in medium-end business & casual menswear market and its reasonable developing strategy of targeting at 2- and 3-tier cities guarantee its stable performance; 4. Surge in its gross profit margin. 3 Consumer & Retail 3.1 Cosmetics The cosmetics sales revenue increased by 16% y-o-y over Jan-July International cosmetics brands are expanding aggressively into the emerging markets with a focus on China and other Asian countries. Besides, we estimate the domestic facial mask market will experience explosive growth in the next 2-3 years. We suggest investors to accumulate positions on L'Occitane (0973.HK) and Magic Holdings (1633.HK). We estimate Sa Sa Int l (0178.HK) will benefit from rising volume of visitors, as China will further loosen the policies for individual Chinese travelers visiting Hong Kong. Guosen Securities (HK) 3

4 3.2 High-end luggage & bags Less affected by the sluggish global economy, international handbag brands plan to raise the prices in the European markets by up to 10% at most to reduce price spreads inside and outside China, aiming to further explore Chinese market. As the major income sources of those brands still come from European markets, price adjustment will not contribute to the companies profit in short term, however, it will increase their market shares in China in long term. We suggest buying Prada (0973.HK) and Samsonite (1910.HK). 3.3 Hard luxury goods (retail of gold, jewellery and watch) 1H sales of gold, jewellery and watch increased by 16% y-o-y, much slower than previous year s growth of 42%, mainly affected by the following factors: decline in property and stock prices leads to contraction of wealth of the Chinese rich; China government s increasing anti-corruption efforts greatly dragged down the sales growth as a large portion of luxury purchase before was used for gifts to officials. However, many Switzerland s watchmakers raised retail prices in the European market in June and July, among which the prices of Rolex and Omega watches post a price convergence in the European and HK markets, aiming to promote the sales in the HK market. We expect a sales rebound in 2H for the watchmakers, especially for those HK market-oriented. We suggest holding Hengdeli (3389.HK) and Emperor Watch & Jewellery (0887.HK) Exhibit 1: 1H12 sales growth, YoY (by sectors) 70% 60% 58.7% 50% 40% 30% 20% 13.1% 13.1% 12.9% 15.6% 10% 0% -10% -7.1% -20% F&B OTHER STAPLES AUTO & PARTS APPAREL & FOOTWEAR LUXURY OTHER DISCRETIONARY 1H12 sales growth, YoY Source: Bloomberg, Guosen Securities (HK) Guosen Securities (HK) 4

5 Exhibit 2: 1H12 sales growth, YoY (by stocks) PRADA S.P.A. (1913 HK) CHINA ZHENGTONG (1728 HK) SILVER BASE GROU (886 HK) CHOW TAI FOOK JE (1929 HK) BAOXIN AUTO GROU (1293 HK) LUK FOOK HLDGS I (590 HK) MAGIC HOLDINGS INTERNATION (1633 HK) CHINA MODERN DAI (1117 HK) I.T LTD (999 HK) LUXURY (AVERAGE) BIOSTIME INTERNA (1112 HK) TRINITY LTD (891 HK) SA SA INTL HLDGS (178 HK) VINDA INTL HLDGS (3331 HK) GREAT WALL MOT-H (2333 HK) TEXWINCA HLDG (321 HK) CHINA AGRI-INDUS (606 HK) CHINA LILANG LTD (1234 HK) UNI-PRESIDENT (220 HK) EMPEROR WATCH & (887 HK) CHINA RES ENTERP (291 HK) INTIME DEPARTMENT STORE (1833 HK) WANT WANT CHINA (151 HK) DAH CHONG HONG (1828 HK) XINYI GLASS HOLD (868 HK) SKYWORTH DIGITAL (751 HK) GOLDEN EAGLE RET (3308 HK) OTHER DISCRETIONARY (AVERAGE) CHINA FOODS LTD (506 HK) BELLE INTERNATIO (1880 HK) SHENGUAN HOLDING (829 HK) SUN ART RETAIL (6808 HK) SAMSONITE INTL (1910 HK) OTHER STAPLES (AVERAGE) F&B (AVERAGE) APPAREL & FOOTWEAR (AVERAGE) TSINGTAO BREW-H (168 HK) L'OCCITANE INTL (973 HK) HENGAN INTL (1044 HK) LIFESTYLE INTL (1212 HK) TINGYI HLDG CO (322 HK) YUE YUEN INDUS (551 HK) HAIER ELECTRONIC (1169 HK) SHANGRI-LA ASIA (69 HK) DONGFENG MOTOR-H (489 HK) WUMART STORES (1025 HK) PARKSON RETAIL (3368 HK) HENGDELI HOLDING (3389 HK) GEELY AUTOMOBILE (175 HK) PRINCE FROG INTL (1259 HK) LIANHUA SUPERM-H (980 HK) SHENZHOU INTL GP (2313 HK) GIORDANO INTL (709 HK) EVERGREEN INTERNATIONAL HO (238 HK) STELLA INTERNATI (1836 HK) BYD CO LTD-H (1211 HK) CHINA MENGNIU DA (2319 HK) NVC LIGHTING HOL (2222 HK) ESPRIT HLDGS (330 HK) AUTO & PARTS (AVERAGE) LI NING CO LTD (2331 HK) BRILLIANCE CHINA (1114 HK) ANTA SPORTS PROD (2020 HK) GOME ELECTRICAL (493 HK) CHINA YURUN FOOD (1068 HK) WEICHAI POWER-H (2338 HK) SINOTRUK HK LTD (3808 HK) BAWANG INTERNATI (1338 HK) GUANGZHOU AUTO-H (2238 HK) Source: Bloomberg, Guosen Securities (HK) -80.5% -0.4% -1.2% -4.1% -5.6% -7.1% -9.5% -11.3% -11.6% -22.4% -23.9% -26.1% -31.8% -34.4% N.A 32.7% 31.6% 28.9% 24.8% 24.0% 22.0% 21.0% 20.3% 20.2% 20.1% 19.4% 19.3% 18.3% 17.3% 15.7% 15.6% 15.5% 15.4% 14.6% 14.4% 13.8% 13.1% 13.1% 12.9% 11.3% 11.3% 10.4% 10.0% 9.5% 9.5% 8.9% 8.8% 6.8% 6.6% 6.4% 6.3% 6.1% 5.6% 4.0% 3.0% 1.8% 1.8% 1.6% 81.5% 79.3% 72.2% 68.8% 63.1% 60.9% 60.3% 58.7% 57.1% 56.9% 127.4% % -50.0% 0.0% 50.0% 100.0% 150.0% 1H12 sales growth, YoY Guosen Securities (HK) 5

6 Exhibit 3: Sectors overview Mkt Cap (HKD B) Last Px (HKD) 1D px chg 1M px chg 1H12 sales growth, YoY 1Y EPS growth P/E ROE Div yield F&B (AVERAGE) % 1.1% 13.1% 15.6% % 1.3% WANT WANT CHINA (151 HK) % 2.6% 19.4% 17.0% % 1.8% CHINA FOODS LTD (506 HK) % 4.0% 15.5% 51.0% % 1.4% TSINGTAO BREW-H (168 HK) % -5.3% 11.3% 14.3% N.A. 15.9% 0.7% TINGYI HLDG CO (322 HK) % 22.3% 9.5% -12.0% % 1.2% LIANHUA SUPERM-H (980 HK) % -19.5% 4.0% 0.8% % 4.0% CHINA MENGNIU DA (2319 HK) % 4.9% -1.2% 27.5% % 1.0% CHINA YURUN FOOD (1068 HK) % -2.7% -23.9% -36.8% % 0.0% UNI-PRESIDENT (220 HK) % 10.5% 21.0% -39.9% % 0.4% SHENGUAN HOLDING (829 HK) % -4.6% 14.6% 33.6% % 2.5% CHINA MODERN DAI (1117 HK) % -1.0% 60.9% 100.8% % 0.0% OTHER STAPLES (AVERAGE) % 0.8% 13.1% -27.7% % 1.7% HENGAN INTL (1044 HK) % 6.8% 10.4% 8.2% % 2.0% BAWANG INTERNATI (1338 HK) % 5.1% -34.4% % N.A % 0.0% PRINCE FROG INTL (1259 HK) % 4.1% 5.6% N.A % 1.8% BIOSTIME INTERNA (1112 HK) % 14.7% 57.1% 51.7% % 2.4% CHINA RES ENTERP (291 HK) % 5.4% 20.2% 5.4% % 1.9% NVC LIGHTING HOL (2222 HK) % -1.4% -4.1% 3.0% % 3.2% CHINA AGRI-INDUS (606 HK) % -5.3% 24.0% 35.7% % 1.7% SUN ART RETAIL (6808 HK) % 0.4% 14.4% 5.3% % 1.0% VINDA INTL HLDGS (3331 HK) % -8.0% 31.6% 7.2% % 1.1% WUMART STORES (1025 HK) % -13.9% 6.6% 9.5% % 1.9% AUTO & PARTS (AVERAGE) % -2.5% -7.1% -7.7% % 2.1% DONGFENG MOTOR-H (489 HK) % -11.6% 6.8% -4.6% % 2.2% GUANGZHOU AUTO-H (2238 HK) % -11.6% -80.5% -24.4% % 6.1% GREAT WALL MOT-H (2333 HK) % 3.5% 28.9% 23.7% % 2.0% XINYI GLASS HOLD (868 HK) % -14.5% 18.3% -20.9% % 3.2% SINOTRUK HK LTD (3808 HK) % 4.0% -31.8% -33.3% % 2.2% WEICHAI POWER-H (2338 HK) % 6.2% -26.1% -17.4% % 0.5% BYD CO LTD-H (1211 HK) % 2.9% -0.4% -46.0% % 0.0% DAH CHONG HONG (1828 HK) % -1.0% 19.3% -7.9% % 3.5% GEELY AUTOMOBILE (175 HK) % -1.6% 6.1% 11.5% % 1.1% BRILLIANCE CHINA (1114 HK) % -1.0% -11.3% 42.5% % 0.0% APPAREL & FOOTWEAR (AVERAGE) % -1.3% 12.9% 0.1% % 5.2% LI NING CO LTD (2331 HK) % -15.6% -9.5% -65.3% % 0.0% EVERGREEN INTERNATIONAL HO (238 HK) % -5.9% 1.8% -15.1% % 8.5% TRINITY LTD (891 HK) % -3.1% 56.9% 40.3% % 4.3% YUE YUEN INDUS (551 HK) % 7.0% 9.5% -6.2% % 3.6% GIORDANO INTL (709 HK) % 10.5% 1.8% 33.9% % 6.2% TEXWINCA HLDG (321 HK) % -24.8% 24.8% -19.0% % 9.3% ESPRIT HLDGS (330 HK) % 13.8% -5.6% -98.2% N.A. -8.7% 2.0% I.T LTD (999 HK) % 0.3% 60.3% 18.2% % 4.3% SHENZHOU INTL GP (2313 HK) % 0.9% 3.0% 34.3% % 3.7% STELLA INTERNATI (1836 HK) % -5.5% 1.6% 17.5% % 5.2% ANTA SPORTS PROD (2020 HK) % 9.1% -11.6% 11.5% % 9.5% CHINA LILANG LTD (1234 HK) % -2.4% 22.0% 48.8% % 6.1% LUXURY (AVERAGE) % 5.5% 58.7% 85.7% % 2.0% PRADA S.P.A. (1913 HK) % 15.7% N.A 69.5% % 0.8% HENGDELI HOLDING (3389 HK) % 0.9% 6.3% 39.1% % 3.5% LUK FOOK HLDGS I (590 HK) % 17.9% 68.8% 42.1% % 4.2% BAOXIN AUTO GROU (1293 HK) % 0.3% 72.2% N.A N.A. N.A. SILVER BASE GROU (886 HK) % -2.1% 81.5% 19.2% % 1.5% EMPEROR WATCH & (887 HK) % -3.9% 20.3% 304.2% % 3.5% CHOW TAI FOOK JE (1929 HK) % 0.5% 79.3% N.A % 1.0% SAMSONITE INTL (1910 HK) % 4.6% 13.8% N.A % 1.1% CHINA ZHENGTONG (1728 HK) % 15.9% 127.4% 40.0% % 0.0% OTHER DISCRETIONARY (AVERAGE) % 0.2% 15.6% 14.1% % 2.1% MAGIC HOLDINGS INTERNATION (1633 HK) % -4.9% 63.1% 4.7% % 1.1% INTIME DEPARTMENT STORE (1833 HK) % 3.3% 20.1% 10.3% % 2.5% BELLE INTERNATIO (1880 HK) % -1.2% 15.4% 24.2% % 1.3% HAIER ELECTRONIC (1169 HK) % 1.5% 8.9% 29.2% % 0.0% GOME ELECTRICAL (493 HK) % 1.3% -22.4% -14.2% % 3.3% SKYWORTH DIGITAL (751 HK) % -3.3% 17.3% 3.5% % 4.9% GOLDEN EAGLE RET (3308 HK) % 6.1% 15.7% 26.1% % 1.5% SA SA INTL HLDGS (178 HK) % 5.7% 32.7% 35.2% % 1.1% SHANGRI-LA ASIA (69 HK) % -1.8% 8.8% -17.5% % 1.4% L'OCCITANE INTL (973 HK) % 5.2% 11.3% 20.6% % 1.2% PARKSON RETAIL (3368 HK) % -10.7% 6.4% 13.3% % 3.5% LIFESTYLE INTL (1212 HK) % 1.6% 10.0% 33.9% % 2.8% Source: Bloomberg Guosen Securities (HK) 6

7 Information Disclosures Stock ratings, sector ratings and related definitions Stock Ratings: Buy: A return potential of 10 % or more relative to overall market within 6 12 months. Neutral: A return potential ranging from -10% to 10% relative to overall market within 6 12 months. Sell: A negative return of 10% or more relative to overall market within 6 12 months. Sector Ratings: Buy: The sector will outperform the overall market by 10% or higher within 6 12 months. Neutral: The sector performance will range from -10% to 10% relative to overall market within 6 12 months. Sell: The sector will underperform the overall market by 10% or lower within 6 12 months. Interest disclosure statement The analyst is licensed by the Hong Kong Securities and Futures Commission. Neither the analyst nor his/her associates serves as an officer of the listed companies covered in this report and has no financial interests in the companies. Guosen Securities (HK) Brokerage Co., Ltd. and its associated companies (collectively Guosen Securities (HK) ) has no disclosable financial interests (including securities holding) or make a market in the securities in respect of the listed companies. Guosen Securities (HK) has no investment banking relationship within the past 12 months, to the listed companies. Guosen Securities (HK) has no individual employed by the listed companies. Disclaimers The prices of securities may fluctuate up or down. It may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. The content of this report does not represent a recommendation of Guosen Securities (HK) and does not constitute any buying/selling or dealing agreement in relation to the securities mentioned. Guosen Securities (HK) may be seeking or will seek investment banking or other business (such as placing agent, lead manager, sponsor, underwriter or proprietary trading in such securities) with the listed companies. Individuals of Guosen Securities (HK) may have personal investment interests in the listed companies. This report is based on information available to the public that we consider reliable, however, the authenticity, accuracy or completeness of such information is not guaranteed by Guosen Securities (HK). This report does not take into account the particular investment objectives, financial situation or needs of individual clients and does not constitute a personal investment recommendation to anyone. Clients are wholly responsible for any investment decision based on this report. Clients are advised to consider whether any advice or recommendation contained in this report is suitable for their particular circumstances. This report is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. This report (including any information attached) is issued by Guosen Securities (HK) Brokerage Co., Ltd, a member of Guosen Securities Co., Ltd. Some parts of the report may have been originally published in Chinese, within the People s Republic of China, by Guosen Securities Co., Ltd. That material has been reviewed, translated and, where applicable, adapted by Guosen Securities (HK) Brokerage Co., Ltd. This report is for distribution only to clients of Guosen Securities (HK). Without Guosen Securities (HK) s written authorization, any form of quotation, reproduction or transmission to third parties is prohibited, or may be subject to legal action. Such information and opinions contained therein are subject to change and may be amended without any notification. Guosen Securities (HK) 7