Hong Kong Retail:What do Chow Sang Sang/Hengdeli results tell us about HK retail?

类别:行业研究 机构:高盛高华证券有限责任公司 研究员:Ricky Tsang,Joshua Lu 日期:2015-08-27

Three implications from CSS/Hengdeli results.

    Chow Sang Sang, a leading HK gold jeweler, and Hengdeli, a HK Swisswatch retailer, reported results. We believe both companies offer someinteresting insights into the HK retail market outlook.

    #1: 2H trends continue to diverge; higher ticket price items weaker.

    With a deceleration in Chinese tourist arrivals (-10% in Jul vs. -2% in Jun),it is clear that retail momentum slowed further. However, there remains adivergence by price points. Hengdeli, with an ASP of HK$70k, cites acontinued deterioration in HK, which already saw a 30% decline in 1H15sales. Lifestyle, which operates a leading HK department store at a muchlower ASP of HK$800, has only seen a single digit SSS drop in July.

    Hengdeli management expects volatile equity markets and continuedstrength in HKD to continue to pressure high ticket item spending in HK.

    #2: “Mini gold rush” offers a timely topline boost to gold jewelers.

    After six quarters of negative SSSG, gold jewelers have seen a sharpimprovement in Jul/Aug trends, thanks to lower gold prices. The 8% goldprice drop in July triggered a strong volume response, resulting in a midteenslevel SSSG for Chow Sang Sang in both July and August. We believethe same applies for peers such as Chow Tai Fook and Luk Fook – pointingto improved topline momentum for the Jul-Sep quarter. According to CSS,strong momentum has not faded even as we head into end August.

    #3: Rental response is coming through, but only in street stores.

    Rental pressure is indeed easing, with all gold jewelers looking for lowerrents in new contracts. CTF in particular is looking for a c.20%-30% decline,which should meaningfully support margins in 2016. However, rentaleasing appears to be confined to street stores. Hengdeli, which operatesmost stores in malls, is not seeing significant rental declines. According tothe company, mall operators still have a strong brand pipeline awaiting toenter the mall, which is supporting mall rents.

    Tough environment, but opportunities remain.

    With a challenging overall outlook, we continue to see opportunities innames which are geared to the mass market, can outperform other HKretail peers, and see valuation support – leading to our preference inLifestyle (1212.HK, last close HK$11.90) and Luk Fook (0590.HK, HK$18.96),both Buy rated.

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