绝对保密 Consumer Discretionary (OUTPERFORM) Walter WOO (852) 9845 6974 / 3761 8776 [email protected] Jan 2020 Contents Part 1 Investment summary and Top picks Part 2 Positive on 2020E, led by faster income and wealth growth Part 3 Outperform: Appliances, Luxury, Tourism and Sportswear Part 4 Market-perform: Catering, Apparel and Textiles & Exports Part 5 Valuation table 1 Investment summary and Top picks • Industry trend : Positive on 2020E, led by faster income and wealth growth – 2019 retail sales growth slowed again, but quality picks continue to outperform (Sports, Catering and Appliances). – Positive on 2020E demand, thanks to accelerated income and wealth growth. – Home Appliance & Furniture (+ve) to recover in 2020E, derived by property completion cycle and wealth effect. – Luxury goods (+ve)’s growth should be decent in 2020E, thanks to premiumization. – Tourism (+ve)’s growth (ex-HK/Macau) accelerated in 2019 and should be fast in 2020E (includes HK/ Macau). – Sportswear (+ve) leaders shall keep on outperform and gain shares in 2020E by product and branding upgrades. • Top picks : Haier Electronics, Midea, Prada, Samsonite, Li Ning, Lifestyle – Haier Electronics (1169 HK, NR, at 13x FY20E P/E): 1) potential privatization, 2) premiumization (accelerated growth from Casarte), and 3) low base last year. – Midea (000333 CH, BUY, TP: RMB75.33, on 18x FY20E P/E): 1) excellent and diversified product mix, 2) meaningful exposure in small appliance and 3) rightly placed incentives. – Prada (1913 HK, BUY, TP: HK$ 31.39, on 37x FY20E P/E): 1) better sales growth despite drag from HK, 2) greater efforts in marketing (e.g. hired brand ambassador in China) and 3) better product in the pipeline. – Samsonite (1910 HK, NR, at 14x FY20E P/E): 1) speed up in tourists demand, 2) new products (e.g. in house materials and technology) and 3) less negatives from trade war (China souring to go down from 70% to 50%). – Lifestyle (1212 HK, NR, at 8x FY20E P/E and 8% yield): 1) tourists flow recovery, 2) better investment return, and 3) attractive valuation (includes the ability to maintain fixed amount of dividends). – Li Ning (2331 HK, BUY, TP: HK$ 24.43, on 32x FY20E P/E): 1) robust sales growth sustain, 2) innovative marketing, and 3) significant operating leverage. 2 Contents Part 1 Investment summary and Top picks Part 2 Positive on 2020E, led by faster income and wealth growth Part 3 Outperform: Appliances, Luxury, Tourism and Sportswear Part 4 Market-perform: Catering, Apparel and Textiles & Exports Part 5 Valuation table 3 Positive on 2020E, led by faster income and wealth growth China retail sales growth slowed down to 8.1% in 2019, from 9.0% in 2018. Outperformance was driven by industry consolidation, where shares are gained by companies with better channels (E-commerce and shopping malls) and preferred by the 80-90s. We forecast 8.0% growth in 2020E, supported by faster income and wealth growth. Income growth has actually accelerated, where the highest and lowest income group did better. Wealth effect was still strong and firm, and expected to be intensified in 2020E. China retail sales growth by EC/offline Income growth, by rural/urban Asset prices growth by stocks/properties 13.3 70.0 59.4 14.0 40 28 60.0 13.0 12.2 25 51.3 49.7 30 22 50.0 12.0 11.2 20 11 11 33.3 12.6 8 40.0 32.2 11.0 10 6 6 26.2 0 3 30.0 23.9 20.5 10.0 9.2 0 8.9 8.6 8.8 20.0 14.3 13.1 12.0 9.0 8.2 10.7 10.4 10.2 9.0 8.1 9.7 -10 -3 9.0 10.0 8.0 -11 8.2 8.3 -20 -14 0.0 7.0 7.8 7.8 7.9 -19 2012 2013 2014 2015 2016 2017 2018 YTD 2012 2013 2014 2015 2016 2017 2018 YTD -30 -25 2019 2019 2015 2016 2017 2018 YTD 2019 中国零售销售 中国零售销售-在线 中国可支配收入-城市 中国可支配收入-农村 国企指数 沪深300 中国70城房价 Source: NBS, CMBIS estimates Source: NBS, CMBIS estimates Source: Bloomberg, NBS, CMBIS estimates 4 Contents Part 1 Investment summary and Top picks Part 2 Positive on 2020E, led by faster income and wealth growth Part 3 Outperform: Appliances, Luxury, Tourism and Sportswear Part 4 Market-perform: Catering, Apparel and Textiles & Exports Part 5 Valuation table 5 Outperform: Home appliances and furniture Housing completion resumed growth in 4Q19 (+5% in Nov), we foresee a decent 2020E. Completion ratio was low as 35% in 11M19, as developers focus more on new starts. But such level is not sustainable as those properties will all need to be delivered at the end. Funding is now better as more developers delay or reduce land purchases. Area sold & completion growth Completion as % of Area starts or sold Monthly area completion growth 45% 44% 85% 80% 50.0% 74% 77% Nov-19, 5.0% 68% 66% 22% 70% 66% 30.0% 25% 18% 17% 56% 8%11% 7% 55% 50% 10.0% 6% 7%6% 8% 8% 4% 2% 45% 44% 5% 2% 1% 0% 42% 40% 35% -10.0% -7% -4% -5% -15% -8% -8% 25% -30.0% Property area sold (1 year eariler) GFA completed, as % of total construction GFA new start GFA construction completed GFA completed, as % of total GFA sold 房屋竣工面积:住宅:当月同比增长 Source: NBS, CMBIS estimates Source: NBS, CMBIS estimates Source: NBS, China IOL, CMBIS estimates 6 Outperform: Home appliances and furniture Base for home appliances was low, as growth in 2018 and 2017 were only 3% and 1%. Inventory level is not high (healthy for home AC and WM, less good for Fridges). We expect premium brands/ products (e.g. Carsate by Haier/ Toshiba by Midea) to outperform. Raw material price risk may need to be monitored in 2020E. Haier Electronics (13x PE/ 1.5x PEG) = Haier Smart Home (14x PE/ 1.8x PEG) > Midea (15x PE/ 1.5x PEG) > Gree (14x/ 2.0x PEG). Completion & appliances volume growth Appliances volume growth, by category Appliances inventory level, by category 35% 32% 35% (x) 1.4 25% 1.2 18% 25% 13% 13% 1.1 15% 0.9 0.9 8% 7% 8% 13% 0.8 0.8 3%6% 6% 4% 15% 1% 3% 3% 0.8 0.6 0.7 5% 2% 1% 0.6 0.6 3% 4% 0.5 5% 1% 3% -5% 1% 0.5 0.40.4 -3% -4% -4% -5% -7% -8% -15% -5% -4% 0.2 2014 2015 2016 2017 2018 2019E 2020E Home AC WM Fridges Home AC sales volume growth 12 years average WM sales volume growth 2017 Inventory / monthly sales GFA construction completed Fridges sales volume growth 2018 Inventory / monthly sales Appliances volume growth (avg. of AC, WM and Fridges) Average volume growth 11M19 Inventory / monthly sales Source: NBS, CMBIS estimates Source: China IOL, CMBIS estimates Source: China IOL, CMBIS estimates 7 Outperform: Luxury goods 2019 growth was resilient, indicated by strong Swiss watches (3% in 2H19E vs 2% in 1H19), luxury brand as well as cosmetic product sales growth. Demand shall be strengthened in 2020E, as wealth effect (more rosy stocks and housing market) and consumer polarization intensify (the top and lowest income group enjoy better growth). Gold & Jewelry > Prada (34x PE/ 2.7x PEG) = Oriental watches (8x PE/ 10%+ yield). Income growth, by income group Sales growth in Asia, by luxury brand Swiss watches export value growth 13% 50% 21.0% 20.2% 40% 11% 10% 14.0% 8% 17% 10.5% 9% 9% 8% 30% 12% 6.0% 8% 8% 7.0% 7% 2.7% 2.7% 20% 5% 2.4%1.7% 1.7% 7% 6% 10% 0.0% 5% 4% 3% 0% -7.0% -3.5% 3% -10% -9.4% 1% -14.0% 高收入 中高收入 中等收入 中低收入 低收入 1Q16 4Q17 3Q19 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 2014 2015 2016 2017 2018 Kering- APAC LVMH -AxJ Richemont -APAC Source: NBS, CMBIS estimates Source: Company data, CMBIS estimates Source: Federation of Swiss watch, CMBIS estimates 8 Outperform: Tourism (includes HK retail) Chinese international route flight passengers growth actually speeded up in 2019, and we do expect a better 2020E. 2020 Tokyo Olympic should be a positive catalyst of travelling demand. USDCNY rate is the lowest in since 2009, certain rebounds may drive tourists purchasing power. Visitors to HK had fallen by 50%, downside is now relatively limited. Samsonite (14x PE/ 6.1x PEG) = Macau Gaming > Lifestyle (8x PE/ 4.6x PEG/ 7% yield) = SaSa (23x PE/ 3% Yield) > CDC (22x PE/ 4% Yield). Passengers growth, by domestic/ int’l HK retail sales growth, by local/tourists Retail sales growth - forecast 45.0 25.0 (%) 16 20 12 35.0 11 10.0 7 7 10 2 25.0 16.9 0 15.0 -5.0 -2 0 -10 -4 -2 5.0 7.3 -20.0 -20 -17 -18 -5.0 -21 -30 -23 -22 -35.0 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Sep-10 Sep-12 Sep-14 Sep-16 Sep-18 May-19 May-13 May-15 May-17 May-11 2012 2013 2014 2015 2016 2017 2018 YTD 3Q18 2Q18 4Q18 2Q19 3Q19 Mar18 Mar19 2Q20E 3Q20E 4Q20E 民航客运量 国内航线 累计同比 2019 4Q19E : : Mar20E 香港零售销售 澳门博彩总收入 Jan-Feb19 民航客运量:国际航线:累计同比 Jan-Feb18 Jan-Feb20E Source: Civil Aviation Administration of China, CMBIS Source: Census and Statistics Department, Direcção de Source: Census and Statistics Department, CMBIS estimates Inspecção e Coordenação de Jogos, CMBIS estimates estimates 9 Outperform: Sportswear 2H19E Industry growth remained fast, at 27%, closed to 1H19’s 26%.