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雷达卡
UBS Investment Research
China Department Store
“Confidence is more precious than gold”—
Premier Wen Jiabao
Consumer confidence close to the bottom
We expect China’s consumer confidence index to bottom out soon, after a sharp
correction. We believe the current weakness in consumption is a confidence issue,
rather than one of fundamentals, as household fundamentals should remain strong
in 2009E: 1) unemployment is limited to certain sectors; 2) we expect disposable
income to grow 7%; and 3) the consumer loan-to-deposit ratio has fallen to 16%.
Department stores should benefit most among retailers
We believe department stores will benefit most from a recovery in consumer
confidence as they have strong bargaining power and high visibility in costs. We
forecast their same-store-sales (SSS) growth to be 10.7% in 2009, based on our
assumptions of 1) marginal propensity to consume apparel and footwear of 10.4%;
2) GDP growth of 6.5%; 3) a 0.2% CPI rise; and 4) 7% disposable income growth.
Risks
Deflation can harm disposable income growth and household consumption. We
believe there will be downside risk to our 10.7% SSS growth estimate if China
enters a period of deflation and the A-share index falls significantly.
Valuation: Parkson Retail is our top pick
We think the market is overly pessimistic on discretionary consumption. We prefer
Parkson Retail, due to strong management execution and national store coverage.
Beijing Wangfujing is our top pick among A-share retailers. We favour Lifestyle
International less than the other two, due to its larger exposure in Hong Kong. We
continue to derive our price targets for these stocks from DCF-based methodology,
but now explicitly forecast long-term valuation drivers with UBS’s VCAM tool.
Contents page
Summary and investment case 3
Long-term trend to continue despite unprecedented crisis 5
— Consumer confidence ..........................................................................................5
— Unemployment rate..............................................................................................7
— Stock performance...............................................................................................8
— Financial position of urban households.................................................................9
Outlook in 2009 12
— More measures to come.....................................................................................14
— Department stores benefiting from a CCI turnaround .........................................16
Risks 17
— Downside risk on disposable income growth ......................................................17
— Regional exposure .............................................................................................17
— Promotions erode commission rates ..................................................................17
Valuation 18
— Lower price targets.............................................................................................18
— Valuation metrics................................................................................................19
Comparables 21
Company pages 23
— Parkson Retail....................................................................................................24
— Lifestyle International .........................................................................................29
— Beijing Wangfujing .............................................................................................38
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