Find the best China retail player during eco China retail – Department Stores September - October 2012 Sarah Xing – NIHK +852 2252 1565 [email protected]See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts. Any authors named on this report are research analysts unless otherwise indicated. Equity Research onomic downturn s & Brand Retailers
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China retail – Department Store s & Brand Retailers
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See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Any authors named on this report are research analysts unless
otherwise indicated.
Equity Researchonomic downturn
s & Brand Retailers
Source: Bloomberg, Nomura estimates, closing price here and throughout this presentation as at Sep 21 2012, unless
Valuation table for China retail companies
Name Bloomberg ticker
Nomura rating
Market cap
(US$mn)Closing price CY12F
Brands:SportswearAnta Sports Products 2020 HK N.R. 1,763.1 5.48 8.0China Dongxiang Group 3818 HK N.R. 628.5 0.88 14.6Li Ning 2331 HK N.R. 553 4.06 naPeak Sport Products 1968 HK N.R. 349 1.29 4.7XTEP International Holdings 1368 HK N.R. 724 2.58 5.1361 Degrees International 1361 HK N.R. 517 1.94 3.6 Mcap Weighted Average 7.7
Brands:FootwearBelle International Holdings 1880 HK Buy 15,427 14.18 21.6 Daphne International Holdings 210 HK Buy 1,672 7.87 13.8 Le Saunda Holdings 738 HK N.R. 174.0 2.11 8.2C.banner International 1028 HK N.R. 691.4 2.68 13.6Mcap Weighted Average 20.4
Brands: ApparelBosideng International Holdings 3998 HK N.R. 2,262 2.19 9.8 Trinity 891 HK Buy 1,185 5.35 16.6 China Lilang 1234 HK Reduce 678.4 4.38 6.4Boshiwa International Holding 1698 HK N.R. 449.7 1.68 6.8Ports Design 589 HK Neutral 442 6.15 7.2 Giordano International 709 HK N.R. 1,238 6.23 12.5 IT 999 HK Buy 508.5 3.21 7.2Evergreen International 238 HK N.R. 190.9 1.56 6.9YGM Trading 375 HK N.R. 362 16.92 8.2 Glorious Sun Enterprises 393 HK N.R. 310 2.27 13.4 Embry Holdings 1388 HK N.R. 206.1 3.86 11.0Mcap Weighted Average 10.5
P/B EV/EBITDA Div yld (%)E Net debt to equity (%)ROE(%)
Source: Bloomberg, Nomura estimates, closing prices here and throughout this presentation as at Sep 21 2012, unless
Valuation table of China retail companies
Name Bloomberg ticker
Nomura rating
Market cap
(US$mn)Closing price CY12F CY
Retailer: Department StoreParkson 3368 HK Neutral 2,353 6.49 14.1 12Golden Eagle 3308 HK Buy 3,730 14.96 19.0 16Intime 1833 HK Buy 2,123.3 8.23 18.0 15NWDS 825 HK Neutral 935.2 4.30 13.3 1Lifestyle International 1212 HK N.R. 3,438 16.02 14.2 12Maoye International 848 HK N.R. 970 1.40 8.4 7PCD Stores 331 HK N.R. 331.5 0.61 6.3 4Springland International 1700 HK N.R. 1,219.0 3.78 12.0 10Shirble 312 HK N.R. 232 0.72 5.9 5Mcap Weighted Average 15.0 13
Retailer: Jewelry and Watch RetailerChow Tai Fook 1929 HK N.R. 14,058 10.90 15.9 13Chow Sang Sang 116 HK N.R. 1,650 18.90 11.9 9Luk Fook 590 HK N.R. 1,888 24.85 11.4 10Hengdeli 3389 HK N.R. 1,258 2.22 9.8 8Mcap Weighted Average 14.7 12
Retailer: Home Appliance RetailerGome 493 HK N.R. 1,741 0.80 na 2Haier Electronic 1169 HK N.R. 2,760 8.78 10.2 8Mcap Weighted Average 10.2 13
P/B EV/EBITDA Div yld (%) Net debt to equity (%)ROE(%)
Source: Bloomberg, Nomura research
China retail stock performance – by subsec
3
ctors
● China retail companies have underperformed MSCI China Index YTD.
● Footwear Brands is the only subsector that has performed in line with MSCI China Index YTD, but it retreated QTD after gains in 1H12.
● The performances of Jewelry & Watch Retailers and Sportswear Brands have improved and outperformed the MSCI China index QTD.
● Home Appliance Retailer sand Department Stores remain weak QTD.
Source: Bloomberg, Nomura research
China retail stock performance – by compa
4
nies
Source: Bloomberg, Nomura research
China retail stock earnings revision – by su
5
ubsectors
● Downward earnings revision trend persists.
● The magnitude of earning revisions is correlated with sector share price performance, except for department stores.
● Department stores suffer more de-rating than other subsectors.
● De-rating of department stores sector reflects rising concerns about overall retail sales growth in China.
Source: Bloomberg, Nomura research
China retail stock performance – by compa
(120.0)
(100.0)
(80.0)
(60.0)
(40.0)
(20.0)
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EPS change for FY12 (%) (YTD)
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EPS change for FY13 (%) (YTD)
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EPS change for FY12 (%) (QTD)
(80.0)
(70.0)
(60.0)
(50.0)
(40.0)
(30.0)
(20.0)
(10.0)
0.0
10.0
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EPS change for FY13 (%) (QTD)
Financial performance comparison in 1H12
25.1
7.3
15.3
19.5
25.1
5.2
13.2
16.8
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Belle - Footwear Belle - Sportswear Daphne C.Banner
1H11 1H12
Operating profit margin comparison (%)
Source: Company filings, Nomura research
15.4
28.9
21.8
9.0 11.2
5.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Belle Daphne C.banner
Sales Operating profit
Sales and operating profit growth comparison (1H12) (%)
7
- Footwear
186
125
149
207200
143
202
239
0
50
100
150
200
250
300
Belle - Footwear Belle - Sportswear Daphne C.Banner
1H11 1H12
Inventory turnover days comparison
68.6
37.4
61.2 62.3
67.6
37.1
60.7 62.4
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
Belle - Footwear Belle - Sportswear Daphne C.Banner
1H11 1H12
Gross profit margin comparison (%)
Financial performance comparison in 1H12
16.2
22.0
1.8
9.7
21.9
1.8
14.7
32.8
3.8
10.1
23.7
(0.9)(5.0)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Trinity China Lilang Evergreen Ports Design China Outfitters Giordano
Sales Operating profit
Sales and operating profit growth comparison (1H12) (%)
21.6 23.1
29.2 26.3
44.2
14.3
21.4
27.3 23.5
21.6
39.7
12.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Trinity China Lilang Evergreen Ports Design China Outfitters Giordano
1H11 1H12
Operating profit margin comparison (%)
Source: Company filings, Nomura research 8
- Apparel
80.8
36.4
66.9
81.6
75.5
59.7
79.7
39.7
68.3
81.9
76.6
58.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Trinity China Lilang Evergreen Ports Design China Outfitters Giordano
1H11 1H12
Gross profit margin comparison (%)
361
49
320
635
325
70
409
59
430
681
399
60
0
100
200
300
400
500
600
700
800
Trinity China Lilang Evergreen Ports Design China Outfitters Giordano
1H11 1H12
Inventory turnover days comparison
Financial performance comparison in 1H12
(16.4)(11.6) (9.9)
1.4
(29.4) (28.5)
(86.3)
(18.6)
(32.1)
5.2
(80.9)
(40.8)
(100.0)
(80.0)
(60.0)
(40.0)
(20.0)
0.0
20.0
Li Ning Anta 361 Degrees Xtep China Dongxiang Peak Sports
Sales Operating profit
Sales and operating profit growth comparison (1H12) (%)
9.2
23.7
27.8
22.0 23.5 22.9
1.5
21.9 21.0 22.8
6.4
18.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Li Ning Anta 361 Degrees Xtep China Dongxiang Peak Sports
1H11 1H12
Operating profit margin comparison (%)
Source: Company filings, Nomura research9
- Sportswear
45.0 42.8
41.1 40.9
61.2
39.9
44.2 41.8 42.7
40.9
50.1
37.7
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Li Ning Anta 361 Degrees Xtep China Dongxiang Peak Sports
1H11 1H12
Gross profit margin comparison (%)
64
36 19
81
125
50
96
50 45
82
304
86
0
50
100
150
200
250
300
350
Li Ning Anta 361 Degrees Xtep China Dongxiang
Peak Sports
1H11 1H12
Inventory turnover days comparison
Financial performance comparison in 1H12
20.1
18.1 18.6
16.3
18.6
23.1
18.9 17.2
18.2 16.2
17.3
23.4
0.0
5.0
10.0
15.0
20.0
25.0
Golden Eagle Intime Parkson Maoye PCDS Lifestyle
1H11 1H12
Comprehensive gross profit margin for merchandise sales (%)
Source: Company filings, Nomura research
16.6 18.5
7.6 5.1
13.8 9.9
15.7 20.1
6.4
(0.6)
3.6
10.0
3.0
12.7
(17.2)
2.1
(29.0)
12.4
(40.0)
(30.0)
(20.0)
(10.0)
0.0
10.0
20.0
30.0
Golden Eagle Intime Parkson Maoye PCDS Lifestyle
GSP Sales Core-operating profit
GSP, Sales and operating profit growth comparison (1H12) (%)
10
– Department stores
20.0 18.0 18.7
17.3 18.2
22.3
19.0 17.3
18.3 17.1 17.2
22.5
0.0
5.0
10.0
15.0
20.0
25.0
Golden Eagle Intime Parkson Maoye PCDS Lifestyle
1H11 1H12
Concessionaire rate (%)
13.2
7.4
10.3
7.7
13.0
16.4
11.6
7.0 7.9 7.5
8.1
16.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Golden Eagle Intime Parkson Maoye PCDS Lifestyle
1H11 1H12
Core operating profit to GSP (%)
Financial performance comparison in 1H12
9.8
6.3
(18.8)
5.3
(25.0)
(20.0)
(15.0)
(10.0)
(5.0)
0.0
5.0
10.0
15.0
Chow Sang Sang Hengdeli
Sales Operating profit
Sales and operating profit growth comparison (1H12) (%)
Source: Company filings, Nomura research
7.7
11.9
5.7
11.8
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Chow Sang Sang Hengdeli
1H11 1H12
Operating profit margin comparison (%)
11
– Jewelry & Watches
18.4
25.7
17.6
26.7
15.0
17.0
19.0
21.0
23.0
25.0
27.0
29.0
Chow Sang Sang Hengdeli
1H11 1H12
Gross profit margin comparison (%)
129
162 152
217
0
50
100
150
200
250
Chow Sang Sang Hengdeli
1H11 1H12
Inventory turnover days comparison
Financial performance comparison in 1H12
(22.4)
8.4
(1,901.1)
25.9
(2,000.0)
(1,500.0)
(1,000.0)
(500.0)
0.0
500.0
Gome Haier
Sales Operating profit
Sales and operating profit growth comparison (1H12) (%)
Source: Company filings, Nomura research
0.2
3.0
(5.2)
3.5
(6.0)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
2.0
3.0
4.0
Gome Haier
1H11 1H12
Operating profit margin comparison (%)
12
– Home appliance
12.5 11.7
12.6
14.9
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Gome Haier
1H11 1H12
Gross profit margin comparison (%)
58
10 12
74
14 15
0
10
20
30
40
50
60
70
80
Gome Haier Washing Machine and Water Heater
Haier Integrated Channel Services
1H11 1H12
Inventory turnover days comparison
Source: Nomura research
Summary of stock rating and TP under our
Name Stock code C(H
Brand: Footwear & ApparelBelle 1880 HK 14Daphne 210 HK 7I.T 999 HK 3Trinity 891 HK 5China Lilang 1234 HK 4Ports Design 589 HK 6Retail: Department storesIntime 1833 HK 8Golden Eagle 3308 HK 14Parkson 3368 HK 6NWDS 825 HK 4
Cash excluding unused balance of prepaid cardsCash inflow from business operation excluding prepaid cards balance Repayment of shareholder's loansRefinancingInteret incomeRepayment of CB and BondCapexDividend payment
(CN
Ym
)
Cash flow analysis for 2012‐14F
Source: Bloomberg, company data, Nomura research
Intime (1833.HK, BUY, CP:HKD8.23; TP: HK
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Mar
-07
Jun-
07
Sep-
07
Dec
-07
Mar
-08
Jun-
08
Sep-
08
Dec
-08
Mar
-09
Jun-
09
Sep-
09
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
Jun-
12
(x)
Trading PE MeanMean + 1std Mean + 2stdMean - 1std Mean - 2std
P/E band with standard deviation
2010Net GFA additions (sqm) 35,000 26
SSSG (%) 18.2
Concessionaire rate (%) 17.8Gross profit margin for direct sales (%) 20.0Comprehensive merchandise gross margin (%) 17.9
Operating expenses to GSP ratio (%) 14.4Staff costs 3.4Rental costs 3.4Depreciation 2.7Utilities 1.4Promotion 0.8Others operating expenses 2.6
Any Authors named on this report are Research Analysts unless otherwAnalyst CertificationI, Sarah Xing, hereby certify (1) that the views expressed in this Research report accurately reflect my pepart of my compensation was, is or will be directly or indirectly related to the specific recommendations oinvestment banking transactions performed by Nomura Securities International, Inc., Nomura InternationaImportant DisclosuresOnline availability of research and conflict-of-interest disclosuresNomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHImportant disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/discyou have any difficulties with the website, please email [email protected] for help.
The analysts responsible for preparing this report have received compensation based upon various factoUnless otherwise noted, the non-US analysts listed at the front of this report are not registered/qualified asubject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies
Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists idresponsible for the sales and trading effort in the sector for which they have coverage. Industry SpecialistMarketing Analysts identified in some Nomura research reports are research analysts employed by Nomusector for which they have coverage. Marketing Analysts may also contribute to research reports in which
Distribution of ratings (Global)The distribution of all ratings published by Nomura Global Equity Research is as follows:46% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a 43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified aAs at 30 June 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and AfriThe rating system is a relative system indicating expected performance against a specific benchmark idevalue - current price)/current price, subject to limited management discretion. In most cases, the fair valuevaluation methodology such as discounted cash flow or multiple analysis, etc.STOCKSA rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock totarget price and estimates have been suspended temporarily to comply with applicable regulations and/ocapacity in a merger or strategic transaction involving the company.Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanationshttp://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emmethodology.SECTORSA 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector tBenchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emergin
42
wise indicated
ersonal views about any or all of the subject securities or issuers referred to in this Research report, (2) no r views expressed in this Research report and (3) no part of my compensation is tied to any specific al plc or any other Nomura Group company.
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ors including the firm's total revenues, a portion of which is generated by Investment Banking activities. as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be s, public appearances, and trading securities held by a research analyst account.
dentified in some Nomura International plc research reports are employees within the Firm who are ts do not contribute in any manner to the content of research reports in which their names appear. ura International plc who are primarily responsible for marketing Nomura’s Equity Research product in the h their names appear and publish research on their sector.
Buy rating; 40% of companies with this rating are investment banking clients of the Nomura Group*.a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. s a Sell rating; 21% of companies with this rating are investment banking clients of the Nomura Group*.
ca, US and Latin Americaentified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair e will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate
12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the o underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory
s of relevant benchmarks for stocks, which can be accessed at: merging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation
next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the to underperform the Benchmark during the next 12 months.ng Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan and Asia ex-JapanSTOCKSStock recommendations are based on absolute valuation upside (downside), which is defined as (TargeTarget Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate vA 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation inrecommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates thaand/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity inSecurities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular rcontinuing or additional information from Nomura relating to such securities and/or companies.SECTORSA 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of thstocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a weighted average recommendation of the stocks under coverage is) a negative absolute recommendat
Target PriceA Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achiother risks related to the company or the market, and may not occur if the company's earnings differ fro
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