Company profile
EQUITIES HONG KONG STRATEGY
INSTITUTIONAL RESEARCH: TRADING PLACES
DATE FRIDAY JUNE 26, 2015
QUAM PULSE Nike Earnings Beat Estimates as North American Sales Advance (SCMP) – Nike INC. (NKE US) Q4 profit topped estimates after it released new products and won market share from its athletic-gear rivals. Net income +24% YoY to USD865mn, or USD0.98/sh, beating analysts’ estimates of USD0.84/sh. Revenue +5% to USD7.8bn. Nike benefited from the fashion trend shifting towards casual and comfort, the “athleisure”. The strength in orders was broad-based, after excluding currency effects, with North America +13%, Western Europe +14% and China +22%. However, emerging markets were the weak spot, growing just 2%. At the end of the quarter, future orders for Nike brand athletic footwear and apparel, scheduled for delivery through Nov, +2% to USD13.5bn. It expects FY2016 sales growth of mid-single digit. Our Take: Apart from Nike, Adidas (ADS GR) also reported +17% in 1Q FY03/15 revenue growth earlier. We believe Nike’s strong results were due to its investment in innovation in design, raw materials and functionality. The strong results for Nike and Adidas will benefit their major OEM in China, for footwear Yue Yuen (551 HK), Eagle Nice (2368 HK) and Stella International (1836 HK) and innerwear for Shenzhou International (2313 HK). Yue Yuen trades at only 11.9x, while Stella International at 13.1x and Shenzhou International at 18.3x for 2015, according to Bloomberg consensus.
QUAM RESEARCH Tsui Wah (1314 HK, HK$2.61, Rating: Not-rated) – “FY03/15 Results: The Worst is Yet to Come” – Tsui Wah’s FY03/15 net profit +1.0% YoY to HK$156mn, despite revenue increase of 22.2% YoY to HK$1,474mn. Total DPS at HK$ 0.08, +14% YoY (interim/final DPS: HK$0.02/0.06). An almost flat bottom-line was mainly due to i) higher operating expenses from relocation of its central kitchen in HK and its office in Shanghai, rental expenses to total revenue +1.3ppt to 15.5%; ii) higher depreciation expenses (FY15: 5.4% of total revenue; FY14: 4.5%) and iii) initial start-up costs of new stores (~12% of total revenue). Staff was stable. Hence, EBITDA and net margin down 1.3/1.8ppts, despite a mild increase in gross margin of 0.3 ppt. to 69.6%. It added 10 new restaurants (HK/PRC: +4/+6) in FY15, hence total number of restaurants reached 51. SSSG was at a low single-digit (HK: +1% to 3%; PRC +0.2%), attributed to menu price (50%) and volume increases (50%). Outlook: Management guided for higher expenses from relocation of central kitchen and offices in FY16E, which will continue to weigh on its net margin in the coming two years. Nevertheless, it still targets a 12-15 net addition of restaurants in FY16E (one-third from HK) and reiterates its plan to expand the total number of restaurants to over 80 by FY17E. The target seems too aggressive, given an almost zero SSSG especially in the PRC market and management also admitted that the breakeven period for its stores lengthened to 2-3 years, compared to 2 years in the past. Hence, we believe downside risk is high due to potential closure of existing stores and larger than expected initial start-up losses, which suggest further operating deleveraging. Capex guidance is ~HK$100mn in FY03/16E. We believe synergies from the new central kitchen are yet to be seen. It currently trades at 17x P/E for 2015E, according to Bloomberg consensus.
HSI TOP MOVERS Leaders Ticker MENGNIU DAIR TINGYI HANG LUNG PP CHINA UNICOM AIA
Laggers % 1.65 1.12 1.05 0.96 0.76
Ticker BANK OF CHIN LENOVO GROUP WANT WANT CH CHINA LIFE-H GALAXY ENTER
INDEX
% -5.70 -3.36 -2.53 -2.14 -1.91
1D Chg
1D % Chg
27145.75 13467.90 4706.52 9476.34 2085.06 3349.87 1716.81 27908.78 8405.55
-259.22 -216.90 -173.61 79.03 -0.47 -1.46 -14.87 179.11 44.70
-0.95 -1.58 -3.56 0.84 -0.02 -0.04 -0.86 0.65 0.53
1519.47 4920.04 7581.91 5632.72
1.21 -33.47 -61.42 -54.05
0.08 -0.68 -0.80 -0.95
Asia HSI HSCEI SHSZ300 TWSE KOSPI FSSTI KLCI SENSEX NIFTY SET JCI PCOMP AS51
COMMODITIES
Close
1D % Chg YTD % Chg
Energy WTI Brent Natural Gas Gasoline
60.13 63.66 2.79 206.48
-0.23 0.27 1.16 0.45
5.73 1.27 -7.34 18.87
260.65 1173.99 15.84 1075.43
-0.67 -0.12 -0.34 -0.13
-7.82 -0.88 0.83 -10.97
Corn Wheat Soybeans Coffee Sugar Cotton
369.00 520.75 956.25 134.45 12.07 64.31
-0.67 -0.48 0.03 -0.48 0.42 -0.43
-11.14 -13.89 -4.90 -22.82 -22.97 -0.17
Baltic Dry
829.00
4.94
6.01
Metals Copper Gold (Spot) Silver (Spot) Platinum (Spot)
Agriculture
HSI Daily
Analyst: Jennifer So +852 2971 5433
CHINA TAKEAWAYS Hong Kong’s Stock Regulator Opposes Proposal for Weighted Voting Rights – Hong Kong’s stock market watchdog, the Securities and Futures Commission(SFC), said it did not support a draft proposal to allow companies to issue weighted voting rights (WVR), a week after market operator Hong Kong Exchanges and Clearings said it would launch a second round of consultation on the contentious topic later this year.
Institutional Research Team [email protected] Jennifer So, Head of Research
+852 2971-5433
Christopher Ho, Analyst
+852 2971-5436
1
Beijing to Launch Departure Tax Rebate in July – The Beijing Municipal Commission of Commerce has recently released 15 measures to stimulate consumption, including the launching in July of tax rebates upon departure. Except for government prohibited products and VAT-free products, foreign visitors who purchase products in Beijing can enjoy tax rebates upon departure. A visitor who makes purchases worth a minimum of RMB500 on the same day in qualified tax-rebate shops and departs within 90 days from the date of, purchase is entitled to a 11% tax rebate on the purchase amount. Hong Kong Rejects Jetstar’s Licence Application – Hong Kong Air Transport Licensing Authority has rejected Jetstar Hong Kong Airways Ltd.’s operating license application, stating that it does not comply with legal requirements to have its principal place of business in Hong Kong. Cathay Pacific(293 HK) said the ruling is the right decision for Hong Kong as it ensures Hong Kong’s economic assets, its air traffic rights, are used for the benefit of the people and economy of Hong Kong. Local Governments’ Financing Platform Functions to Expand – According to a Chinese media report, the functions of some local government financing platforms are expanding under the easing policy of the central government. Some local governments seek to have credit facilities from policy banks and cooperate with financial institutions to set up funds and issue medium- and short-term notes and convertible bonds for financing infrastructure projects. However, some local governments set up other platforms to borrow from commercial banks through PPP and government procurement. More Canadian Food Products to Land on Chinese Tables – An official delegation of agricultural and food associations from Canada visited China last week and brought more Canadian products to Chinese tables. During the promotion event that was held last Wednesday in Beijing, Agriculture and Agri-Food Canada(AAFC) signed a cooperative framework agreement with China’s JD.com. Over the next year, the parties will seek to increase the number of Canadian agri-food and seafood products available on JD.com’s online stores.
QUAM INSTITUTIONAL SALES
STANLEY NG
Sales Director
+852 2217 2857
GUY STILLE
Executive Director
+852 2217 2853
[email protected] [email protected]
If you w ant to trade w ith us, please feel free to contact our institutional sales team above 18/F China Building, 29 Queen's Road Central, Hong Kong
Disclaimer and Risk Statement This document is published by Quam Securities Company Limited (“Quam Securities”), a licensed corporation (central entity num ber AAC557) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct or consequenti al loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this docum ent. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions
2
INSTITUTIONAL RESEARCH: TRADING PLACES
DATE FRIDAY JUNE 26, 2015
QUAM PULSE Nike Earnings Beat Estimates as North American Sales Advance (SCMP) – Nike INC. (NKE US) Q4 profit topped estimates after it released new products and won market share from its athletic-gear rivals. Net income +24% YoY to USD865mn, or USD0.98/sh, beating analysts’ estimates of USD0.84/sh. Revenue +5% to USD7.8bn. Nike benefited from the fashion trend shifting towards casual and comfort, the “athleisure”. The strength in orders was broad-based, after excluding currency effects, with North America +13%, Western Europe +14% and China +22%. However, emerging markets were the weak spot, growing just 2%. At the end of the quarter, future orders for Nike brand athletic footwear and apparel, scheduled for delivery through Nov, +2% to USD13.5bn. It expects FY2016 sales growth of mid-single digit. Our Take: Apart from Nike, Adidas (ADS GR) also reported +17% in 1Q FY03/15 revenue growth earlier. We believe Nike’s strong results were due to its investment in innovation in design, raw materials and functionality. The strong results for Nike and Adidas will benefit their major OEM in China, for footwear Yue Yuen (551 HK), Eagle Nice (2368 HK) and Stella International (1836 HK) and innerwear for Shenzhou International (2313 HK). Yue Yuen trades at only 11.9x, while Stella International at 13.1x and Shenzhou International at 18.3x for 2015, according to Bloomberg consensus.
QUAM RESEARCH Tsui Wah (1314 HK, HK$2.61, Rating: Not-rated) – “FY03/15 Results: The Worst is Yet to Come” – Tsui Wah’s FY03/15 net profit +1.0% YoY to HK$156mn, despite revenue increase of 22.2% YoY to HK$1,474mn. Total DPS at HK$ 0.08, +14% YoY (interim/final DPS: HK$0.02/0.06). An almost flat bottom-line was mainly due to i) higher operating expenses from relocation of its central kitchen in HK and its office in Shanghai, rental expenses to total revenue +1.3ppt to 15.5%; ii) higher depreciation expenses (FY15: 5.4% of total revenue; FY14: 4.5%) and iii) initial start-up costs of new stores (~12% of total revenue). Staff was stable. Hence, EBITDA and net margin down 1.3/1.8ppts, despite a mild increase in gross margin of 0.3 ppt. to 69.6%. It added 10 new restaurants (HK/PRC: +4/+6) in FY15, hence total number of restaurants reached 51. SSSG was at a low single-digit (HK: +1% to 3%; PRC +0.2%), attributed to menu price (50%) and volume increases (50%). Outlook: Management guided for higher expenses from relocation of central kitchen and offices in FY16E, which will continue to weigh on its net margin in the coming two years. Nevertheless, it still targets a 12-15 net addition of restaurants in FY16E (one-third from HK) and reiterates its plan to expand the total number of restaurants to over 80 by FY17E. The target seems too aggressive, given an almost zero SSSG especially in the PRC market and management also admitted that the breakeven period for its stores lengthened to 2-3 years, compared to 2 years in the past. Hence, we believe downside risk is high due to potential closure of existing stores and larger than expected initial start-up losses, which suggest further operating deleveraging. Capex guidance is ~HK$100mn in FY03/16E. We believe synergies from the new central kitchen are yet to be seen. It currently trades at 17x P/E for 2015E, according to Bloomberg consensus.
HSI TOP MOVERS Leaders Ticker MENGNIU DAIR TINGYI HANG LUNG PP CHINA UNICOM AIA
Laggers % 1.65 1.12 1.05 0.96 0.76
Ticker BANK OF CHIN LENOVO GROUP WANT WANT CH CHINA LIFE-H GALAXY ENTER
INDEX
% -5.70 -3.36 -2.53 -2.14 -1.91
1D Chg
1D % Chg
27145.75 13467.90 4706.52 9476.34 2085.06 3349.87 1716.81 27908.78 8405.55
-259.22 -216.90 -173.61 79.03 -0.47 -1.46 -14.87 179.11 44.70
-0.95 -1.58 -3.56 0.84 -0.02 -0.04 -0.86 0.65 0.53
1519.47 4920.04 7581.91 5632.72
1.21 -33.47 -61.42 -54.05
0.08 -0.68 -0.80 -0.95
Asia HSI HSCEI SHSZ300 TWSE KOSPI FSSTI KLCI SENSEX NIFTY SET JCI PCOMP AS51
COMMODITIES
Close
1D % Chg YTD % Chg
Energy WTI Brent Natural Gas Gasoline
60.13 63.66 2.79 206.48
-0.23 0.27 1.16 0.45
5.73 1.27 -7.34 18.87
260.65 1173.99 15.84 1075.43
-0.67 -0.12 -0.34 -0.13
-7.82 -0.88 0.83 -10.97
Corn Wheat Soybeans Coffee Sugar Cotton
369.00 520.75 956.25 134.45 12.07 64.31
-0.67 -0.48 0.03 -0.48 0.42 -0.43
-11.14 -13.89 -4.90 -22.82 -22.97 -0.17
Baltic Dry
829.00
4.94
6.01
Metals Copper Gold (Spot) Silver (Spot) Platinum (Spot)
Agriculture
HSI Daily
Analyst: Jennifer So +852 2971 5433
CHINA TAKEAWAYS Hong Kong’s Stock Regulator Opposes Proposal for Weighted Voting Rights – Hong Kong’s stock market watchdog, the Securities and Futures Commission(SFC), said it did not support a draft proposal to allow companies to issue weighted voting rights (WVR), a week after market operator Hong Kong Exchanges and Clearings said it would launch a second round of consultation on the contentious topic later this year.
Institutional Research Team [email protected] Jennifer So, Head of Research
+852 2971-5433
Christopher Ho, Analyst
+852 2971-5436
1
Beijing to Launch Departure Tax Rebate in July – The Beijing Municipal Commission of Commerce has recently released 15 measures to stimulate consumption, including the launching in July of tax rebates upon departure. Except for government prohibited products and VAT-free products, foreign visitors who purchase products in Beijing can enjoy tax rebates upon departure. A visitor who makes purchases worth a minimum of RMB500 on the same day in qualified tax-rebate shops and departs within 90 days from the date of, purchase is entitled to a 11% tax rebate on the purchase amount. Hong Kong Rejects Jetstar’s Licence Application – Hong Kong Air Transport Licensing Authority has rejected Jetstar Hong Kong Airways Ltd.’s operating license application, stating that it does not comply with legal requirements to have its principal place of business in Hong Kong. Cathay Pacific(293 HK) said the ruling is the right decision for Hong Kong as it ensures Hong Kong’s economic assets, its air traffic rights, are used for the benefit of the people and economy of Hong Kong. Local Governments’ Financing Platform Functions to Expand – According to a Chinese media report, the functions of some local government financing platforms are expanding under the easing policy of the central government. Some local governments seek to have credit facilities from policy banks and cooperate with financial institutions to set up funds and issue medium- and short-term notes and convertible bonds for financing infrastructure projects. However, some local governments set up other platforms to borrow from commercial banks through PPP and government procurement. More Canadian Food Products to Land on Chinese Tables – An official delegation of agricultural and food associations from Canada visited China last week and brought more Canadian products to Chinese tables. During the promotion event that was held last Wednesday in Beijing, Agriculture and Agri-Food Canada(AAFC) signed a cooperative framework agreement with China’s JD.com. Over the next year, the parties will seek to increase the number of Canadian agri-food and seafood products available on JD.com’s online stores.
QUAM INSTITUTIONAL SALES
STANLEY NG
Sales Director
+852 2217 2857
GUY STILLE
Executive Director
+852 2217 2853
[email protected] [email protected]
If you w ant to trade w ith us, please feel free to contact our institutional sales team above 18/F China Building, 29 Queen's Road Central, Hong Kong
Disclaimer and Risk Statement This document is published by Quam Securities Company Limited (“Quam Securities”), a licensed corporation (central entity num ber AAC557) regulated by the Securities and Futures Commission in Hong Kong. This document is for distribution in Hong Kong only to persons who are “Professional Investors” as defined in Part 1 of Schedule 1 of Securities and Futures Ordinance (Cap 571) of Hong Kong and any rules made thereunder. This document is not intended for distribution to or use by, any person or entity who is a citizen or resident of any jurisdiction where such distribution or use would be contrary to applicable law or regulation within such jurisdiction. This document does not constitute an offer or a solicitation of an offer to buy or sell any securities. This document is circulated to addresses solely and may not be reproduced or redistributed to any other person or published, in whole or in part, for any purpose. The research is based on information obtained from sources believed to be reliable, but Quam Securities does not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without prior notice. Any recommendation does not have regard to specific investment objectives, financial situation and particular needs of any specific addressee. Quam Securities accepts no liability whatsoever for any direct or consequenti al loss arising from any use of this document. Quam Securities and its affiliates as well as persons associated with any of them from time to time may or may not have interests in the securities mentioned in this docum ent. The prices of securities may move up or down, and past performance is not an indication of future performance. Investors shall consider seeking separate legal or financial advice before making investment decisions
2
