HSI : 23,210
Price Target : 12-Month HK$4.95
Good yield plus M&A potentials
FY13 core profit up 10% to HK$616m, in line. Final DPS climbed 12% to HK$0.092, lifting full-year DPS by 6% to HK$0.19, at flat payout of 50%.
SSSG reached mid single-digit rate for Jul-Aug 2013 (non-peak), while NWDS’ FY14 target of a mid to high single-digit SSSG reveals confidence on a firm outlook.
Maintains 10-15% CAGR in self-operated retail space for FY12- 16. Will also add 6-8 managed stores in FY14-16 to beef up growth at minimal risks & investments.
Potential injection of managed stores during FY14 could also form impending catalysts. Trading at merely 9.7x PE, > 5% yield and 19% discount to our TP of HK$4.95, BUY.
FY13 results in line. New World Dept Store (“NWDS”) posted 15% y-o-y revenue growth to HK$4bn, driven by new store sales and 11.4% same-store sales growth (SSSG), along with the increase in ticket size (+5%), traffic (+4%), forex (+1%) and conversion rate (+0.5%). Core profit grew 10% to HK$616m after stripping away revaluation of investment properties, other gains/losses and tax adjustment on disposal of Wuxi properties. Despite 0.4ppt increase in adv. & promotional expenses to 1.8% of gross sales proceeds (GSP), cost savings on rentals (down 0.1ppt to 6% GSP), staff costs (down 0.3ppt to 3.5% GSP), depreciation (down 0.1ppt to 2% GSP) and utility costs (down 0.3ppt to 1.1% GSP) had all helped alleviated overall margin pressure. A total of 2 self-operated stores (Yancheng and X’ian) and 2 managed stores (Ningbo Beilun and Yanjiao) were opened in FY13, making an overall 41 stores as of Jun 2013.
Decent performance expected. NWDS plans to add 2 selfoperated stores (Yantai Store and Shanghai Hongxin Trendy Plaza) and 2 managed stores (Shaoxing and Yantai Stores) in FY14. Coupled with RMB1bn budgeted for possible acquisition of store properties, total investments in FY14 could reach RMB1.4bn (FY13: RMB1.6bn). Its strong increase in rental income (up > 30%) should partially offset c.HK$80m new store losses (FY13: HK$85m), while the company will also strive to reduce adv. & promotional costs by 0.3ppt to 1.5% GSP. We believe NWDS’ active negotiation with managed stores including Shanghai Wujiaochang Store (44,000sm), Dalian Store (32,000sm) and Wuhan Xudong Store (31,700sm) could also likely conclude at least 1 injection in FY14. We maintain BUY.
Publish date: 26/09/13