Chow Tai Fook (1929 HK)

Transcription

1 Equity Research Consumer Discretionary Chow Tai Fook (1929 HK) Accumulate Target price: HK$ QFY15 sales disappoint SSS plunge 21% YoY in HK and Macau The sluggish sales was attributable to protest activities and weak sales of luxury items (ASP > HK$100,000). Mass market gem-set products saw volume growth of 4- on a SSS basis, outperforming luxury items. Gemset ASP unexpectedly fell 2 YoY in 3QFY15 (vs. a 4% YoY decline in 1HFY15) to HK$10,000-11,000. The sequential ASP decrease from HK$12,000 in 1HFY15 was at odds with the historical pattern of a HoH ASP increase in 2H. SSS in Dec was worse than Nov, which we think might be mainly due to the later CNY holiday in 2015 and the increase in local and mainland Chinese shoppers traveling to overseas regions. 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 Macau jewelry sales might rebound in 2H15 Macau jewelry retail sales growth underperformed that in HK in 3Q14 (Jul to Sep), reversing its outperformance in 2013 and 1H14 (see Figure 3). According to company management, the decline in its Macau SSS was greater than that in HK in 3QFY15. Macau gaming revenue declined at an accelerated pace in 2H14 driven by the decline in VIP gaming revenue. We believe this could explain the slump in gem-set ASP, and we see a low base for Macau jewelry retail sales in 2H15. Coupled with continued growth in mainland Chinese tourist arrivals (see Figure 4), we think Macau jewelry retail sales growth might rebound in 2H15. China SSS down 1 YoY Management attributes the decline to the high base for gold product volume growth (>6 growth) and expects the high base to continue into Feb Gem-set SSS performance in China was better than HK and Macau, supported by 4- YoY ASP growth. Gold product sales mix increased in 3QFY15 The sales mix of gold products rose to 56% of RSV from 49% in 1HFY15, while that of gem-set products decreased from 28% to 27%. That said, management expects gold product sales mix to remain stable in 4QFY15, suggesting a YoY GM improvement in 2HFY15 (gold product sales mix was 59% in 2HFY14). FY15 guidance lowered Management has revised down its revenue guidance from a single-digit decline to a double-digit decline due to the unexpected sales weakness in Dec. That said, the SSS decline is expected to narrow to a single-digit figure in 4QFY15 on the later CNY holiday in Stock performance - - Accumulate rating maintained, net profit estimates lowered We lower our FY15/16/17 net profit forecasts by 7%/1%/1% to reflect the lower revenue estimates. We believe the sales weakness in 3QFY15 was mainly attributable to one-off events such as the protests in HK, the later CNY holiday and more shoppers traveling to overseas regions. We have fine-tuned our target price to HK$11.60 from HK$11.70 to keep it at 15.6x FY16E P/E. We expect Luk Fook s (590 HK, Buy) SSS to outperform in 3QFY15 given its focus on mass market gem-set products (its ASP is lower than CTF s). -3 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 HSI CTF Source: Bloomberg Key data Jan 8 close Shares in issue (m) 10,000 Major shareholder Cheng Yu Tung Family (89.3%) Market cap (HK$ bn) 110 3M avg. vol. (m) W high/low 14.48/9.50 Source: Bloomberg Stock valuation Year ended Mar Turnover (HK$ m) Net profit (HK$ m) EPS EPS YoY P/E Yield BPS ,434 5, ,407 7, E 68,317 6, E 76,996 7, E 84,339 8, P/B ROE

2 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Figure 1: Quarterly SSS trend Figure 2: SSS growth China HK & Macau 67% 26% 13% 14% 4% 31% -6% 11% 7% -12% -1-11% - -9% -28% -29% -21% -5 3QFY13 4QFY13 1QFY14 2QFY14 3QFY13 4QFY14 1QFY15 2QFY15 3QFY % 3 16% 32% 32% 8% 7% 1-3% 17% 8% -13% -4% -23% FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E China HK & Macau Figure 3: HK and Macau jewelry retail sales growth comparison YoY Q14 2Q14 3Q14 9M14 HK 23% 1% -32% - -1 Macau % -1-8% Sources: HK Census and Statistic Department, Macau DSEC Figure 4: Mainland Chinese tourist arrivals in Macau (mn) % 17% -1% No. of Mainland tourist arrivals (LHS) 17% 14% 1 3% 8% 1 14% 24% YoY growth (RHS) 14% 14% 9% 13% 13% 6% 21% 28% Sources: Macau Tourism Industry Net Page 2

3 Figure 5: Key assumptions (HK$ m) FY13 FY14 FY15E FY16E FY17E Total revenue 57,434 77,407 68,317 76,996 84,339 growth % % -11.7% 12.7% 9. - HK, Macau and other Asian markets 27,126 35,259 29,104 33,122 35,415 growth % % 6.9% store growth % 7.1% 0.8% 0.8% SSS -3.7% 20.1% China jewelry 29,099 40,516 37,147 41,708 46,548 growth % -9.1% 39.2% -8.3% 12.3% 11.6% store growth 13.3% % 9.2% 8.2% SSS % China watches 1,210 1,632 2,065 2,165 2,376 growth % na 34.9% % 9.7% store growth 8.3% % 8.2% 7.6% Gross profit 16,283 21,152 20,698 23,213 25,562 Gross margin 28.4% 27.3% 30.3% 30.1% 30.3% Sales mix gold 57.4% 61.2% gem-set 22.9% 21.1% 27.9% platinum and karat gold % 14.6% watches 5.2% 4.3% SG&A expense ratio % 18.7% % Operating profit 7,317 9,255 8,076 9,602 10,778 growth % -13.3% % 18.9% 12.2% OP margin 12.7% % % Net profit 5,505 7,272 6,186 7,444 8,309 growth % -13.2% 32.1% -14.9% 20.3% 11.6% Net profit margin 9.6% 9.4% 9.1% 9.7% 9.9% Payout ratio estimates Figure 6: P/E band x 23x 19x 15x 11x 6 4 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Sources: Bloomberg, GF Securities (HK) Research estimates Page 3

4 Figure 7: Financial statements Profit & loss (HK$ m) Balance sheet (HK$ m) Year ended 31 Mar FY13 FY14 FY15E FY16E FY17E Year ended 31 Mar FY13 FY14 FY15E FY16E FY17E Revenue 57,434 77,407 68,317 76,996 84,339 Fixed assets Cost of sales (41,151) (56,255) (47,619) (53,783) (58,776) PPE 2,155 3,054 6,160 7,251 7,291 Gross profit 16,283 21,152 20,698 23,213 25,562 Prepaid lease payments Deposit paid for acquisition of PPE Other income Investment in a JV SG&A expenses (9,181) (12,207) (12,785) (13,865) (15,078) Loan receivables Other gains and losses Goodwill Other expenses (1) (38) (91) (38) (38) Deferred tax assets Operating profit 7,317 9,255 8,076 9,602 10,778 3,442 4,263 7,949 9,023 9,048 Net finance cost (222) (89) (161) (80) (132) Current assets Share of profit/(loss) of JV 0 (3) (5) (3) 0 Inventories 27,315 42,544 32,411 38,803 44,526 Profit before tax 7,095 9,163 7,910 9,520 10,646 A/C receivables 3,048 3,146 2,777 3,129 3,428 Income tax expense (1,417) (1,714) (1,635) (1,992) (2,248) Deposits and prepayments 924 1,727 1,524 1,717 1,881 Non-controlling interests (173) (177) (89) (84) (88) Loan receivables Net profit 5,505 7,272 6,186 7,444 8,309 Others EPS Pledged deposit Term deposit Growth rates Cash and cash equivalents 8,305 9,467 11,703 12,093 12,476 Revenue 2 35 (12) ,777 57,554 49,650 56,978 63,547 Net profit (13) 32 (15) EPS (20) 32 (15) Total assets 43,219 61,817 57,598 66,001 72,595 Margin & ratios Current liabilities Gross profit margin A/C payables 249 1, ,062 1,160 OP margin Other payables 1,504 2,894 2,657 2,849 3,162 Net profit margin Amount due to non-controlling shareholders of subsidiaries Effective tax rate Tax liabilities 472 1, Payout ratio Bank borrowing 1,000 6,300 2,000 4,000 4,000 Gold loans 4,836 10,787 8,225 9,322 10,117 Cash flow statement 8,413 22,507 14,705 18,257 19,566 Year ended 31 Mar FY13 FY14 FY15E FY16E FY17E Profit before tax 7,095 9,163 7,910 9,520 10,646 Non-current liabilities Net finance cost Deferred tax liabilities Share of (profit)/loss of JV Retirement benefit obligations Others (123) (450) (17) Depreciation and amortization ,123 1,174 Share option expenses Equity Change of working capital 3,794 (13,610) 10,173 (6,625) (5,773) Shareholders' equity 32,926 37,173 40,657 45,411 50,595 Tax paid (1,464) (1,278) (1,674) (1,813) (2,120) Non-controlling interests 935 1,279 1,368 1,452 1,540 Operating cash flow 10,030 (5,420) 17,366 2,299 4,071 33,861 38,452 42,025 46,863 52,135 Capex (1,174) (1,368) (3,900) (2,200) (1,200) Total liabilities & equity 43,219 61,817 57,598 66,001 72,595 Interest received Disposals Financial ratios (HK$ m) Acquisitions (27) 0 (1,170) 0 0 Year ended 31 Mar FY13 FY14 FY15E FY16E FY17E Change in term deposits 0 (500) Current ratio Change in pledged deposits (9) Quick ratio Others 15 (23) Investing cash flow (1,113) (1,727) (4,875) (1,984) (978) A/C receivable turnover days A/C payable turnover days Change of bank borrowings (8,017) 5,297 (4,300) 2,000 0 Inventory turnover days Change of gold loans (706) 6,376 (2,561) 1, Dividend paid (1,710) (3,350) (3,037) (2,726) (3,151) Asset turnover Interest paid (330) (175) (356) (295) (354) Total assets/total equity Others Net gearing net cash 19 (5) 2 2 Financing cash flow (10,623) 8,221 (10,254) 75 (2,710) ROE Net change of cash flow (1,705) 1,074 2, ROA Forex changes Sources: Company data, GF Securities (HK) estimates Page 4

5 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 1 Accumulate Stock expected to outperform benchmark by more than but not more than 1 Hold Expected stock relative performance ranges between - and Underperform Stock expected to underperform benchmark by more than Sector ratings Positive Sector expected to outperform benchmark by more than Neutral Expected sector relative performance ranges between - and Cautious Sector expected to underperform benchmark by more than 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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