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Talking Retail
Results season is kicking off - Here is what we expect
General Retailing
Ebru Sener KurumluAC
(852) 2800-8521
ebru.sener@jpmorgan.com
Vineet Sharma, CFAAC
(852) 2800-8523
vineet.k.sharma@jpmorgan.com
Selina Sia
(852) 2800 8522
selina.l.sia@jpmorgan.com
Jasmine Bai
(852) 2800-8559
jasmine.d.bai@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
See page 30 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Retail sales growth
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Jan-07 Aug-07 Mar-08 Oct-08
China HK Taiwan
Source: CEIC.
In this issue we focus on upcoming results from retailers:
• Chinese retailers: We are looking for resilient 2H08 earnings growth of
24% for Chinese retailers. While in most cases we are in line with
consensus, our estimates for Belle, NWDS and Lianhua are notably
higher than consensus and for Ajisen we are below consensus. This 24%
2H08E number implies full-year EPS growth of 37% and therefore
represents a marked slowdown as compared to 1H08 results.
• Hong Kong retailers: Among the Hong Kong retailers under our
coverage, Giordano, Lifestyle and Dairy Farm will announce results. For
Lifestyle we expect only 6% increase in earnings for FY08 (excluding
write-offs), impacted by losses from new stores in China and a
slowdown in HK in 4Q08. However, this should not be a surprise. For
Dairy Farm we continue to expect strong results in 2H as well. For
Giordano we are currently looking for a 25% increase in core earnings
but we believe there is downside risk to this figure.
• Taiwan retailers: We have a mixed picture for Taiwan retailers for
2H08. We expect PCSC’s core earnings to be flat in 2H08 which is a
recovery from the 7.5% y/y decline in 1H08. However, our headline
figure does not include any potential write-offs. While not impacting
core earnings, write-offs are likely to put pressure on DPS. For FEDS we
expect a worsening performance in 2H08 vs. 1H08. We expect FEDS
operating profit to decline by 4% in 2H08 given slow sales and
continuing promotion activities.
• Sales up 12% y/y during CNY: CNY sales in China did not reflect
much of the global financial crisis and slowdown impact. According to
the Ministry of Commerce, during CNY, consumer goods sales increased
13.8% y/y. Adjusted for inflation during the respective months, real
growth was 12.5% y/y in the New Year period this year, faster than the
7.3% during last year’s holiday.
• Top picks: In China our top picks are Golden Eagle, NWDS, Ports,
Anta, Xtep and Lianhua. In Hong Kong our top pick is Lifestyle. In
Taiwan we prefer PCSC over FEDS.
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