A-Share Retail Weekly (Jul 20-24)

Transcription

1 Equity Research A-share retail A-Share Retail Weekly (Jul 20-24) Summary of key reports issued last week: Jumei International (JMEI US): US$250m BabyTree investment a win-win Albert Yip, CFA SFC CE No. ADT599 albertyip@gfgroup.com.hk GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong BabyTree a leading maternity & baby social networking platform: BabyTree is now a leading maternity & baby social networking platform in China. According to officially disclosed data, BabyTree has a subscriber base of 80m and daily active user number of more than 10m, covering 80% of the families in China that have a pregnant mother or a child aged 0-6 years old. Maternity & baby goods market demonstrating great potential: According to iresearch, the size of the domestic maternity & baby goods market is likely to grow to above Rmb3trn by 2018 (vs. Rmb1.65trn in 2014). B2C e-commerce only had a 5.6% market share in Also, no competitive vertical e-commerce players have emerged so far. Business integration a win-win: We see the deal as an ideal integration between maternity & baby goods e-commerce and relevant online communities. Jumei is strong in cross-border procurement and supply chain management, while BabyTree is strong in developing and maintaining its users. Earnings turning around, strategy leading peers: We believe Jumei is in possession of the most crucial competitiveness for cross-border e-commerce development and is set to become one of the leaders in this business relying on its strong merchandiser team, new product development capabilities and stable supply chain. Recap of last week The SW Retail Index jumped 6.5% last week, outperforming the CSI 300 which edged up 0.6%. Retail stocks rebounded last week mainly as they had been oversold. Central Emporium ( CH), Better Life ( CH), Baida Group ( CH) and Gansu Gangtai ( CH) surged 46.5%, 37.4%, 31.7% and 23.1% respectively. As of Jul 24, the retail sector was trading at 55.3x P/E (TTM), representing a 124.7% premium over the 24.6x P/E for the overall A-share market. This premium was larger than its historical average of 78%. Stock picks We are positive on the following companies this week: Better Life ( CH): Share price has dropped significantly from the peak and is below the price of the company s placement and that used in its stock pledge financing. Business transformation is progressing well with all indicators of business transformation in line with expectation. Sector performance 250% 200% 150% 100% 50% Source: Wind Key data 0% Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Source: Wind SW Retail Index CSI 300 SW Retail Index (July 24 close) SW Retail Index P/E (TTM) A-Share market P/E (TTM) Premium/(discount) 125% SW Retail Index historical P/B 4.32 A-Share market historical P/B 2.86 Premium/(discount) 51% SW Retail Index 52W high/low / Lao Feng Xiang ( CH): At 22.5x FY15E P/E and >20% ROE, we believe the company is a typical growth stock with cheap valuation and high ROE given its 3-year net profit CAGR of 20%+. Yonghui Superstores ( CH): We believe the company is a quality name and expect it to maintain net profit growth above 15% going forward given its strong fresh food business management capabilities and its partnership scheme which serves to incentivize its frontline staff. 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, judging from the cases of Wuhan Dept Store ( CH), Bailian ( CH) and Silver Plaza ( CH). The company is the most open-minded towards Internet+ business transformation among its stateowned 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): The company is making steady progress in the development of P2P finance and cross-border e-commerce businesses. Valuation appears undemanding as current share price is below the company s placement price of Rmb Rainbow Dept Store ( CH): Management has spent more than Rmb1m to increase their stakes in the company and is expected to invest another Rmb4m in the future. Rmb5m worth of stock purchases would be equivalent to implementing a share incentive scheme. The company is actively developing its Red Scarf, social commerce and cross-border e-commerce businesses, and is leading other state-owned retail companies in various business fields. Downside risks: Systematic risk of the stock market, and slow progress in business transformation.

2 Sector report Summary of key reports issued last week Jumei International (JMEI US): US$250m BabyTree investment a win-win BabyTree a leading maternity & baby social networking platform As a lead investor, Jumei will invest US$250m in BabyTree, with co-investors to follow with US$50m. Co-founded in 2007 by former Google Asia Pacific Marketing Director Wang Huainan and Eachnet founder Shao Yibo, Babytree has conducted four rounds of financing supported by investors such as Matrix Partners China, TAL Education and Qianhe Capital. In addition, it has launched various mobile apps including one for childcare Q&A, Baobaoshu (for children reading), Babytree pregnancy (No. 1 maternity & baby app in China), and Babytree times (for documenting childhood life). BabyTree is now a leading maternity & baby social networking platform in China. According to officially disclosed data, BabyTree has a subscriber base of 80m and daily active user number of more than 10m, covering 80% of the families in China that have a pregnant mother or a child aged 0-6 years old. Maternity & baby goods market demonstrating great potential According to iresearch, the size of the domestic maternity & baby goods market reached Rmb1.65trn in 2014 and is likely to grow further to above Rmb3trn by Online B2C maternity & baby product transactions totaled Rmb91.84bn in 2014 (+109.7% YoY), representing an e-commerce penetration rate of just 5.6%. Tmall and JD.Com (JD US) accounted for a combined market share of more than 70% in 1Q15, with any competitive vertical e-commerce players focusing on this type of products yet to emerge. Business integration a win-win We see the deal between Jumei and BabyTree as an ideal integration between maternity & baby goods e-commerce and relevant online communities, something which might help make the online maternity & baby goods market more orderly, as: 1) frequent communications between new mothers can increase user stickiness; 2) the social networking platform can facilitate the e-commerce business by increasing customer positioning accuracy, attracting user traffic, enhancing operating efficiency and capturing user shopping habits; and 3) the two platforms slightly different but related user groups (Jumei: unmarried women; BabyTree: new mothers) and the complementary nature of their respective resources (Jumei is strong in cross-border procurement and supply chain management but lacks maternity & baby goods user traffic; BabyTree is strong in developing and maintaining these users but is weak in monetizing its user traffic) mean that both companies can benefit from their business integration by accumulating user traffic through social networking, monetizing this user traffic through e-commerce, and further boosting user communications through product reviews. Earnings turning around, strategy leading peers We have remained positive on the company since the release of its 4Q14 earnings as: 1) it has resumed high operating data growth, 2) it is set to benefit from cross-border e-commerce development, and 3) it has refocused on driving business volume growth. In addition to cosmetics and maternity & baby goods, Jumei is also expanding its cross-border e-commerce to cover food products, healthcare products and affordable luxury goods. We believe the company is in possession of the most crucial competitiveness for cross-border e- commerce development and is set to become one of the leaders in this business relying on its strong merchandiser team, new product development capabilities and stable supply chain. Key risks include intensifying competition in the cross-border and cosmetics online shopping space, disappointments from the cooperation with BabyTree, and loss of core user group amid consumption upgrade. Page 2

3 Information technology Apparel & textiles Light industry Media Agriculture Power equipment Military equipment Electronics Conglomerates Leisure services Pharmaceutical Telecommunications Machinery Retail Home appliances Transportation Chemical Auto Steel Property Construction & decoration Public utilities Food & beverage Non-ferrous Building materials Mining Banking Non-bank financials Military equipment Agriculture Apparel & textiles Telecommunications Information technology Leisure services Transportation Electronics Media Property Power equipment Light industry Retail Building materials Non-ferrous Machinery Conglomerates Mining Public utilities Pharmaceutical Construction & decoration Chemical Auto Steel Home appliances Food & beverage Non-bank financials Banking Sector report Figure 1: Sector valuations P/E (TTM) Week ended Jul 24 Week ended Jul 17 Month ended Jun 26 Historical average SW Retail Index A-share market Premium 125% 118% 133% 78% P/B Week ended Jul 24 Week ended Jul 17 Month ended Jun 26 Historical average SW Retail Index A-share market Premium 51% 47% 59% 27% P/S Week ended Jul 24 Week ended Jul 17 Month ended Jun 26 Historical average SW Retail Index A-share market Premium -28% -30% -24% -41% Figure 2: Share price performance by sector (week ended Jul 24) % Figure 3: YTD share price performance by sector (as of Jul 24) % Page 3

4 NANJING CENTRA BETTER LIFE CHINA NATL COMPLETE PLANT IMPORT&EXPORT CORP SHANG MATERIAL BAIDA GROUP JILIN CHENG INNER MONGOLIA SHANZHEN HUAQIANG MINMETALS DEVELOPMENT LIANYUNGANG ID XIAMEN INTL TRADE RAINBOW DEPARTMENT STORE BEIJING WANGFUJING SHANG BAILIAN BEIJING CUIWEI LIAONING SHIDA CHANGCHUN EURA ZHEJIANG GUYU WUHAN DEPARTMENT STORE SHENZHEN AGRICUTURAL PRODUCTS Sector report Figure 4: Top ten outperformers and bottom ten underperformers (week ended Jul 24) 50% 46.5% 40% 30% 20% 37.4% 33.8% 33.7% 31.7% 27.6% 22.9% 21.2% 21.1% 21.1% 10% 0% 2.1% 1.9% 1.8% 1.7% 1.2% 0.3% -10% -1.1% -1.3% -2.5% -3.2% Figure 5: Retail sector share price performance (as of Jul 24) 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 24) 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) Chengdu Hongqi Regional department stores Better Life 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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