MCI (P) 194/11/2012 Ref. No.: SG2013_0124 1 of 14 Zhongmin Baihui Retail Group Into Neighboring Residents’ Daily Life Bloomberg│Reuters ZBR SP │ZBRG.SI Industry: Retail Phillip Securities Research Pte Ltd 22 July 2013 Report type: Site Visit Zhongmin Baihui Retail Group Ltd Rating - Not Rated - Previous Rating - Not Rated Target Price (SGD) - - Previous Target Price (SGD) - Closing Price (SGD) 1.67 Expected Capital Gains (%) N.A. Expected Dividend Yield (%) N.A. Expected Total Return (%) N.A. Raw Beta (Past 2yrs w eekly data) 0.46 Market Cap. (USD mn / SGD mn) 259 / 328 Enterprise Value (USD mn / SGD mn) 243 / 309 3M Average Daily T/O (mn) 0.1 52 w eek range (SGD) N.A. - 1.7 Closing Price in 52 w eek range Major Shareholders (%) 20.61 20.27 10.21 Key Financial Summary FYE Dec FY10 FY11 FY12 1QFY13 Revenue (RMB mn) 81 217 286 104 Net Profit (RMB mn) (7) 16 11 (3) EPS (RMB) (0.17) 0.08 0.06 (0.01) P/E (X) (47.6) 101.2 135.0 N.A. BVPS (RMB) 0.05 0.35 0.40 0.39 P/B (X) 162.0 23.1 20.2 20.8 DPS (RMB) 0.00 0.00 0.00 0.00 Div. Yield (%) N.A. N.A. N.A. N.A. Source: Bloomberg, PSR est. *All multiples & yields based on current market price Analyst Roy Chen [email protected]+65 6531 1535 2. SWEE KENG LEE 3. CAIYE SU 1. KAITONG CHEN 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.40 1.45 1.50 1.55 1.60 1.65 1.70 1.75 1.80 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Volume, mn ZBR SP Equity STI rebased 0% 50% 100% Company Overview Zhongmin Baihui Retail Group Ltd (“ZMBH”) owns, operates and manages department stores in the PRC under the name “中闽百汇”. The group currently owns 6 operational department stores, and has another 5 in the pipelines. The group also manages 4 stabilized department stores for Quanzhou Zhongmin Baihui Shopping Co., Ltd, (”Quanzhou ZMBH”), a non-listed sister company. On a site visit tour to 7 of the 10 operational department stores owned and/or managed by ZMBH. All the department stores are located at prime locations of easy access by public transportation. Shopper traffic is generally decent in the 7 operational department malls we have visited, even in afternoons of normal working days. The very recently opened Quanzhou Zhongshan store has received very healthy shopper traffic and is expected to record profit from 3Q13. This is a non-rated report. What is the news? In June we visited 7 operational department stores of ZMBH in Xiamen and Quanzhou, two major cities of Fujian Province, China. All the ZMBH stores are situated at prime locations, usually the intersections of arterial roads. The stores are easily accessible by public transportation and have strong shopper catchment in the neighborhoods. We are impressed by the heavy shopper traffic in ZMBH’s stabilized stores, particularly the very first self-owned one, Xiamen Wucun Store. ZMBH achieved fast expansion since listed and has opened its 10 th department store, Quanzhou Xinhua store, in April. The management envisions opening more department stores in the following 2 to 3 years and strives to become a department store leader in Fujian Province and beyond. How do we view this? In this increasingly competitive retail market flooded by Chinese indigenous department store players like Xinhuadu and Tianhong, as well as international supermarket giants like Walmart, Carrefour and Tesco, Zhongmin Baihui is able to stand its ground in Fujian and even has yielded remarkable growth thanks to its well established reputation over the past 16 years of local retail business. Walking in Zhongmin Baihui’s self-owned supermarkets, one is reminded, by the cheaply priced and neatly shelved daily goods, of some supermarket chains in Singapore. The stabilized ZMBH department stores have already well merged into neighboring residents’ daily life. We believe, by sticking to fairly pricing and warranted service quality, ZMBH is solidly grounded in Fujian where it has competitive edge as well as great potential for further expansion.
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MCI (P) 194/11/2012 Ref. No.: SG2013_0124 1 of 14
Zhongmin Baihui Retail Group
Into Neighboring Residents’ Daily Life
Bloomberg│Reuters
ZBR SP │ZBRG.SI
Industry: Retail
Phillip Securities Research Pte Ltd
22 July 2013
Report type: Site Visit Zhongmin Baihui Retail Group Ltd
Rating - Not Rated
- Previous Rating - Not Rated
Target Price (SGD) -
- Previous Target Price (SGD) -
Closing Price (SGD) 1.67
Expected Capital Gains (%) N.A.
Expected Dividend Yield (%) N.A.
Expected Total Return (%) N.A.
Raw Beta (Past 2yrs w eekly data) 0.46
Market Cap. (USD mn / SGD mn) 259 / 328
Enterprise Value (USD mn / SGD mn) 243 / 309
3M Average Daily T/O (mn) 0.1
52 w eek range (SGD) N.A. - 1.7
Closing Price in 52 w eek range
Major Shareholders (%)
20.61
20.27
10.21
Key Financial Summary
FYE Dec FY10 FY11 FY12 1QFY13
Revenue (RMB mn) 81 217 286 104
Net Profit (RMB mn) (7) 16 11 (3)
EPS (RMB) (0.17) 0.08 0.06 (0.01)
P/E (X) (47.6) 101.2 135.0 N.A.
BVPS (RMB) 0.05 0.35 0.40 0.39
P/B (X) 162.0 23.1 20.2 20.8
DPS (RMB) 0.00 0.00 0.00 0.00
Div. Yield (%) N.A. N.A. N.A. N.A.
Source: Bloomberg, PSR est.
*All multiples & yields based on current market price
Company Overview Zhongmin Baihui Retail Group Ltd (“ZMBH”) owns, operates and manages department stores in the PRC under the
name “中闽百汇”. The group currently owns 6 operational
department stores, and has another 5 in the pipelines. The group also manages 4 stabilized department stores for Quanzhou Zhongmin Baihui Shopping Co., Ltd, (”Quanzhou ZMBH”), a non-listed sister company.
On a site visit tour to 7 of the 10 operational department stores owned and/or managed by ZMBH.
All the department stores are located at prime locations of easy access by public transportation.
Shopper traffic is generally decent in the 7 operational department malls we have visited, even in afternoons of normal working days.
The very recently opened Quanzhou Zhongshan store has received very healthy shopper traffic and is expected to record profit from 3Q13.
This is a non-rated report. What is the news? In June we visited 7 operational department stores of ZMBH in Xiamen and Quanzhou, two major cities of Fujian Province, China. All the ZMBH stores are situated at prime locations, usually the intersections of arterial roads. The stores are easily accessible by public transportation and have strong shopper catchment in the neighborhoods. We are impressed by the heavy shopper traffic in ZMBH’s stabilized stores, particularly the very first self-owned one, Xiamen Wucun Store. ZMBH achieved fast expansion since listed and has opened its 10
th department store, Quanzhou
Xinhua store, in April. The management envisions opening more department stores in the following 2 to 3 years and strives to become a department store leader in Fujian Province and beyond.
How do we view this? In this increasingly competitive retail market flooded by Chinese indigenous department store players like Xinhuadu and Tianhong, as well as international supermarket giants like Walmart, Carrefour and Tesco, Zhongmin Baihui is able to stand its ground in Fujian and even has yielded remarkable growth thanks to its well established reputation over the past 16 years of local retail business. Walking in Zhongmin Baihui’s self-owned supermarkets, one is reminded, by the cheaply priced and neatly shelved daily goods, of some supermarket chains in Singapore. The stabilized ZMBH department stores have already well merged into neighboring residents’ daily life. We believe, by sticking to fairly pricing and warranted service quality, ZMBH is solidly grounded in Fujian where it has competitive edge as well as great potential for further expansion.
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Company Background Zhongmin Baihui Retail Group Ltd was incorporated in Singapore on 17 September 2004 and listed on the Catalist Board of the Singapore Exchange (“SGX”) on 20 January 2011, becoming the first SGX-listed company with pure exposure to the PRC retail business.
Prior to being listed, the “中闽百汇” brand was previously
carried by 5 department stores in Quanzhou and 1 in Zhangzhou, under Quanzhou ZMBH (the non-listed sister company of ZMBH). To date, the brand name has already been well established in Fujian local retail market from the past 16 years of business operations. ZMBH currently owns and/or manages 10 department stores across 4 cities including Xiamen, Quanzhou, Zhangzhou and Nanjing. Business Segment The Group’s revenue mainly comprised of 4 components, namely, direct sales, commission from concessionaire sales, rental income and income from managed rental: Direct Sales is the revenue from merchandise sourced and sold by ZMBH directly. The arrangement mainly applies to supermarket sales and electric appliance sector, and give ZMBH better control to achieve the optimizing mix of product offerings. Concessionaire Sales refers to the commission, usually a fixed rate of the sales revenue generated by store concessionaires. This arrangement usually applies to jewellery, cosmetics, and apparels and so on. The rates charged usually depend on popularity, recognition and estimated sales on a particular brand. Rental Income refers to the fixed rental collection from leasing certain areas to tenants, including F&B and some telecommunication companies. Managed Rental refers to the income from leasing of store areas bundled with management services including cash collection, staff management and payroll services. Fig 1. FY12 Revenue Breakdown
57%
17%
17%
8%
Direct Sales
Concessionaire
Sales
Rental Income
Managed Rental
Source: Company Data, PSR
Fig 2. FY12 Revenue (in RMB mn) continues growing
81
217
286
104
45
95
138
43
16 11-7 -3
-50
0
50
100
150
200
250
300
350
FY10 FY11 FY12 1QFY13
Total Revenue
Gross Profit
Net Proft
Source: Company Data, PSR
Review and Outlook on ZMBH Operations
Steady Cash Flow from the 1st
Self-owned Store: The very first self-owned Wucun store of ZMBH is one of the largest underground pedestrian retail malls in Fujian province. The store provides a very convenient pedestrian connection between the long distance bus station and Xiamen Railway station and therefore enjoys very heavy shopper traffic since opened in 2010. Wucun store would continue to bring in steady and decent operating cash flow to help finance ZMBH’s potential acquisitions of existing managed stores and openings of new ones in the future (Refer to Fig 4 on page 4 to see the heavy shopper traffic in a normal Monday afternoon) Fast Expansion in Fujian and Ventured into Nanjing: After listed, the group continues to expand by opening up Xiamen Jiahe store in Oct 2011 and Nanjing Nanzhan store in Sep 2012. Besides newly openings, in Mar 2013, ZMBH has also acquired 2 of the 6 stabilized department stores managed by ZMBH but owned by Quanzhou ZMBH, the non-listed sister company. In Apr 2013, ZMBH opened Quanzhou Xinhua store, the 10
th department stores under
the name “中闽百汇” (the 6th
self-owned store). Strategically
located close to Kaiyuan Temple and some other popular historical sites, Xinhua store enjoys a strong shopper catchment from not only the neighboring residence, but also the rich tourist traffic. Opened for barely two months, Xinhua store has shown healthy shopper traffic and is expected to record profit from 3Q13. Expect More Openings in the next 2-3 years: Besides the 10 operational departments totaling 1,751,000 sq ft, ZMBH also holds a strong pipeline of 5 department stores totaling 1,922,000 sq ft (incl. 718,000 sq ft managed for Hui’an Hongyi Property Development Co., Ltd, an interest related company under a management agreement of 3 year term). The management envisions a strong expansion in the following years and targets to achieve a total GFA of 3,229,000 sq ft (300,000 sq m) in 2016. ZMBH also has 30% stake in the Joint Venture with Citi-Base Holdings Ltd to develop a logistic centre in Xiamen.
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Fig 3. Details on ZMBH Stores
ZMBH Stores Sq ftOperation started /
expected to startLocation
Operational Stores
Xiamen Wucun Store (厦门梧村店) 309,000 Dec-09
It is located in the commercial centre of Xiamen City, in the heart of
a transportation hub that is a nexus linked by walkways and
underground pedestrian crossings to bus terminals.
Xiamen Jiahe Store (厦门嘉禾店) 251,000 Oct-11Jiahe Store is strategically located in the heart of a residential area
in Xiamen City with heavy human traffic.
Nanjing Nanzhan Store (江苏省南京市南站店) 361,000 Sep-12Nanjing Nanzhan Store is near to the Nanjing Railway Station
which is the biggest train station in Asia.
Quanzhou Xinhua Store (泉州市新华店) 188,000 Apr-13
Next to Kaiyuan Temple in Fujian province which is an attraction
for domestic and foreign travelers. The store is also close to some
of the most popular historical and commercial scenic spots in
Quanzhou City, including Bell Tower, Zhongshan Road,
Confucian Temple, Chengtian Temple, Guandi Temple and West
Lake.
Quanzhou Tumen Store (泉州涂门店) * 178,000 1999
Tumen Store spans across four floors and a basement, at Tumen
Street, one of the busy shopping belts in the city centre of
Quanzhou City.
Quanzhou Quanxiu Store (泉州泉秀店) * 115,000 2006
Quanxiu Store spans across three floors of a building at Quanxiu
Street, situated at the city centre of Quanzhou City with high
pedestrian flow and high visibility.
Quanzhou Anxi Store (泉州安溪店) ** 69,000 1997
Anxi Store spans across five floors of a shopping mall on Jiefang
Road, the commercial centre of Anxi County with high and
constant pedestrian flow and high visibility.
Quanzhou Quangang Store (泉州泉港店) ** 43,000 2003 Centre of Quangang District, an industrial area for petrochemicals.
Zhangzhou Zhongshan Store (漳州中山店) ** 120,000 2003
Zhangzhou Store spans across five floors and a basement of a
building in the city centre of Zhangzhou City with high and
constant pedestrian flow and high visibility.
Quanzhou Hui’an Store (泉州惠安店) ** 117,000 2009
Hui’an Store spans across three floors of a building at the heart of
Hui’an county with high and constant pedestrian flow and high
visibility, and within the residential areas.
Total space sq ft 1,751,000
Pipeline Stores
Quanzhou Qiaonan Store (福建省泉州市桥南店) 68,000 2H/2013
Quanzhou Qiaonan Store is located at intersection to several city
areas such as Jinjiang District, Quanzhou Development District,
and South District of Quanzhou Bridge.
Xiamen Zhongshan Store (厦门中山店) 172,000 4Q13/1H14
The Building is strategically located at along the Zhongshan
Road, being one of the busiest commercial walking streets in
Xiamen City.
Zhangzhou Longwen Store (福建省漳州市龙文店) 471,000 1H14
Zhangzhou Longwen Store is next to the CBD area and the
municipal government of Zhangzhou City, surrounded by
residential buildings and schools.
QuanZhou Hui'an Hongyi Store (泉州惠安宏毅店) 992,000
self-owned part 274,000
managed part (managed by ZMBH for 3 years from 1 Oct 2013) 718,000
Quanzhou Quangang Store (new) (泉州泉港店) 219,000 2H14
Located at the intersection of Zhongxing Street and Xuefu Road
which are the main roads cutting through Quangang District’s
central area and is near to the offices of the Quangang District
Government.
Total space sq ft 1,922,000
* Mar 2013 transferred from Quanzhou ZMBH (non-listed)
** ow ned by Quanzhou ZMBH and managed by ZMBH
Company Disclosure, PSR
strategically located adjacent to Luoyang Town Government,
Hui’an County, Quanzhou City, Fujian and is located in the south
of the town area of Hui’an County, a heavy human traffic area
with a strong economic strength.
1H14
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Fig 4. XiamenWucun Store (self-owned)
Source: PSR
Fig 5. Xiamen Jiahe Store (self-owned)
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Fig 6. Quanzhou Xinhua Store (self-owned)
Source: PSR
Fig 7. Quanzhou Tumen Store (self-owned)
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Fig 8. Quanzhou Quanxiu Store (managed store)
Source: PSR
Fig 9. Quanzhou Quangang Store (managed store)
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Fig 10. Quanzhou Hui’an Store (managed store)
Source: PSR
Fig 11. Xiamen Zhongshan Store (pipeline store)
Source: PSR
Fig 12 Quanzhou Hui’an Hongyi Store (pipeline store)
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Key risks: Slowdown in China GDP growth and hence slower growth in consumption - China’s GDP growth slowed down to 7.5% y-y in 2Q13, compared to an average growth rate of 7.8% y-y in 2012. The nation is undergoing an economic restructuring period led by the government. The government finance minster has indicated that there would be no large scale stimulus in 2013. Out of the 3 main drivers of China economy, investment and exports are under significant downward pressure. Under such background, households’ wealth accumulation is expected to slow down as well. Therefore we do not render the nation’s consumption would stay intact, even though the central government advocates consumption. Longer than expected gesture period for Nanjing Store - Nanjing Nanzhan store is strategically located at Nanjing South Station, a suburban station of Nanjing city and one of the biggest train stations in Asia. Opened in Sep 2012, Nanjing Nanzhan Store is currently the largest operational department store of ZMBH. Nanzhan store has opened ahead of other projects that are currently under development in the neighborhood. Under the macro picture of nationwide economic slowdown, it might take longer than expected time for shopper traffic to ramp up. Nevertheless, ZMBH has negotiated some favored leasing term with landlord according to which no fixed rental would be paid to landlord in the first few years of operation. Competition from existing physical retail players and the fast expanding E-commerce - E-commerce has been expanding very fast in China during past few years, which has put the physical retail business under pressure in general. A potentially increasing level of competition for customers from existing competitors may also shrink ZMBH’s profit margin. Currency translation risk - though we hold a positive long term outlook for RMB, a possible depreciation in RMB could have adverse impact on potential investment return repatriated to Singapore as dividend in the future.
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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FYE Dec FY10 FY11 FY12 1QFY13
Valuation Ratios
P/E (X) (47.6) 101.2 135.0 N.A.
P/B (X) 162.0 23.1 20.2 20.8
Dividend Yield (%) N.A. N.A. N.A. N.A.
Per share data (RMB)
EPS (0.17) 0.08 0.06 (0.01)
DPS 0.00 0.00 0.00 0.00
BVPS 0.05 0.35 0.40 0.39
Growth & Margins (%)
Growth
Revenue N.M. 168.8% 31.4% N.M.
EBIT N.M. N.M. -8.3% N.M.
Net Income N.M. N.M. -29.7% N.M.
Margins
Gross margin 55.9% 43.7% 48.2% 41.3%
EBIT margin -10.3% 11.6% 8.1% -0.6%
Net Profit Margin -8.8% 7.5% 4.0% -2.6%
Key Ratios
ROE (%) -171.8% 42.6% 15.6% -3.5%
ROA (%) -9.2% 9.5% 4.4% -1.0%
Net Debt/(Cash) (6) (68) (100) (96)
Net Gearing (X) Net Cash Net Cash Net Cash Net Cash
Income Statement (RMB mn)
Revenue 81 217 286 104
Gross Profit 45 95 138 43
SG&A (59) (92) (142) (50)
Depreciation and amortization (1) (2) (3) (1)
Other Income 7 24 31 8
EBIT (8) 25 23 (1)
Finance Expense (0) 1 (0) (0)
Other items n/a n/a n/a n/a
Associates & JVs 0 (0) (1) (0)
Profit Before Tax (9) 25 23 (1)
Taxation 2 (8) (12) (2)
Net Income (7) 16 11 (3)
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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FYE Dec FY10 FY11 FY12 1QFY13
Balance Sheet (RMB mn)
PPE 11 13 34 36
Investment in an Associate 0 5 8 11
Deferred Tax Asset 4 6 8 10
Total non-current assets 14 24 50 57
Inventories 11 23 48 51
Trade and other receivables 9 20 28 28
Prepayment and others 9 17 24 25
Cash & Cash Equivalents 33 88 111 112
Others 0 0 0 0
Total current assets 62 147 210 215
Total Assets 77 171 261 272
Loan and Borrow ings 6 6 1 3
Trade & Other Payables 20 50 104 109
Others 6 12 15 14
Total current liabilities 33 68 120 125
Loan and Borrow ings 20 14 10 13
Others 16 21 52 57
Total non-current liabilities 36 35 62 71
Shareholder Equity 8 68 79 76
Cashflow Statements (RMB mn)
CFO
PBT (9) 25 23 (1)
Adjustments 16 7 15 7
Cash from ops before WC changes 7 32 38 7
WC changes 22 4 14 0
Cash generated from ops 29 36 52 7
Taxes paid & net interest received (0) (9) (11) (4)
Cashflow from ops 29 27 41 3
CFI
Net purchases of PPE (10) (4) (24) (3)
Investment in Associate 0 (5) (4) (3)
Others 0 0 0 0
Cashflow from investments (10) (9) (27) (7)
CFF
Net proceeds from issue of new shares 23 43 0 0
Loans, net of repayments 8 (7) (9) 5
(Dec)/Inc in amount due to shareholders & directors 5 0 19 (0)
Others (24) 0 (0) 0
Cashflow from financing 11 37 10 4
Net change in cash 30 55 24 0
Effects of exchange rates (2) 0 (1) 0
Cash & Cash Equivalent, end 33 88 111 112
Source: PSR
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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F12
-
Zho
N.A.
N.A.
N.A.
Total Returns Recommendation Rating
> +20% Buy 1
+5% to +20% Accumulate 2
-5% to +5% Neutral 3
-5% to -20% Reduce 4
< -20% Sell 5
We do not base our recommendations entirely on the above quantitative return bands.
We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market
sentiment, recent rate of share price appreciation, presence or absence of stock price
catalysts, and speculative undertones surronding the stock, before making our f inal
recommendation
Ratings History
PSR Rating System
Remarks
12345
0
0.5
1
1.5
2
Jan-1
1
Apr-1
1
Jul-1
1
Oct-1
1
Jan-1
2
Apr-1
2
Jul-1
2
Oct-1
2
Jan-1
3
Apr-1
3
Jul-1
3
Oct-1
3
Source: Bloomberg, PSRMarket Price
Target Price
Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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Zhongmin Baihui Retail Group Phillip Securities Research 22 July 2013
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