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1、 1 See the last page of this report for important disclosures Hong Kong Research Hong Kong / Consumer Consumer Discretionary The sales are on but were not buying yet The China consumer discretionary sector has underperformed the market for the last two years, P/E multiples have compressed and the ou
2、tlook for SSSG is uncertain. From our experience of covering the retail sector in Europe, we recognise these as entry point signals for this typically early-cyclical sector. We know that consumer spending always returns, and consequently that the time to buy this sector for maximum gain is when expe
3、ctations for the consumer are weak and P/E valuations are at the bottom end of the historic range. However, as sector valuations have rebounded somewhat since the lows of July, these valuations are not compellingly cheap (nor expensive). Furthermore we think that the sector is facing an exceptional
4、situation with inventory days having increased to all-time highs and operating cost growth outpacing SSSG. We believe that earnings expectations for the sector have not yet corrected for this and so, for the time being, we are keeping our dollars in our wallets as we wait to see if deeper discounts
5、are to come. We initiate our coverage of the sector with a NEUTRAL rating. In this initiation on Hong Kong listed retailers we set out our framework for investing in retail, with a focus on which stocks can outperform in a slower growth environment and why. We look at global category leaders listed
6、in Hong Kong such as Prada. We examine why excess inventory in the jewellery sector will lead to lower gross margins at Chow Tai Fook and Luk Fook. In footwear, we compare Belle and Daphne and demonstrate the necessity of good management information and IT. Global category leaders: Prada BUY Luxury
7、sector stocks are not just China growth stories. They are well diversified businesses with a true global presence. They both have a strong brand which confers pricing power over the consumer and significant scope for expansion. Prada is our top pick in the consumer sector and we rate it a BUY with a
8、 target price of HK$70.60 (+15% upside). Hong Kong/China Jewellers: Chow Tai Fook REDUCE, Luk Fook HOLD Following a period of supernormal growth, jewellery retailers found themselves severely overstocked when growth slowed. Prices have been cut across this sub- sector and these cuts will continue un
9、til inventories are cleared. In the meantime, gross margins will be depressed. This inventory overhang is a sector-wide issue affecting all players; hence our negative views on this sub-sector. Chinese footwear: Daphne HOLD, Belle HOLD The footwear sector highlights perfectly why we focus so much of
10、 our attention on the engine rooms of retailers and not just the shop fronts. In Daphne we see a business with a strong franchise, but one that lacks the foundations for future profitable growth. The business needs better management information and more automated processes to maximise future earning
11、s growth, but changes are underway. In close comparator Belle however, we find a business with all the attributes that we like but an expensive valuation and poor asset allocation. 19 November 2012 NEUTRAL Price performance of MSCI China consumer discretionary versus Hang Seng Index Source: DataStre
12、am, Mirae Asset Research China discretionary sector 12 month forward EPS compared to HK retail sales Source: DataStream, HK Cens. And Stats. Dept., Mirae Asset Research Janey Dillon, Head of Consumer Research 852-3653-8616 janey.dillonmiraeasset.hk Maxwell Yang, Analyst 852-3653-8608 maxwell.yangmir
13、aeasset.hk 05,00010,00015,00020,00025,00030,00035,000050100150200250300350400Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12MSCI China disc. (LHS)HSI (RHS)-15%-10%-5%0%5%10%15%20%25%30%35%579111315171921Apr-07Oct-07Apr-08Oct-08Apr-09Oct-09Apr-10Oct-10Apr-11Oct-11A
14、pr-12Oct-12MSCI China disc. Sector EPS (LHS)Janey Dillon, Head of Consumer Research, 852-3653-8616, janey.dillonmiraeasset.hk Consumer Maxwell Yang, Analyst, 852-3653-8608, maxwell.yangmiraeasset.hk 2 2 Mirae Asset Securities Contents Executive summary . 3 Performance of China consumer discretionary sector . 4 Historic performance . 4 Drivers of the sector . 5 Current performance of the sector and fundamentals . 7 Fundamentals. 7 Valuation of the sector .
