股 票 研 [Table_Title] 宋涛 Company Report: Morris Holdings (01575 HK) Andrew Song 究 (852) 2509 5313 Equity Research 公司报告： 慕容控股 (01575 HK) [email protected]. hk 30 August 2018 [Table_Summary] Tapping into Retail Market with Own Brand, Initiate with "Buy" 以自有品牌打入零售市场，首次给予“买入”评级 Morris Holdings is a fast growing sofa manufacturer which has [Table_Rank] 公 successfully transformed from an OEM to an OBM. The Company has Rating: Buy Initial become the second largest upholstered sofa manufacturer in China in terms 司 of export value to the U.S. The Company is further tapping into the retail 评级： 买入 (首次覆盖) 报 market with its own brand "MorriSofa". In 1H18, Morris’s revenue reached 告 RMB656 million, up 27.4% YoY. Shareholders’ profit surged 40.2% YoY to [Table_Price] RMB79 million. 6-18m TP 目标价: HK$2.40 Company Report Investment highlights: 1) Products are well received by the U.S. market. The Company has established solid partnerships with leading retailers in the U.S., Share price 股价: HK$1.390 including Costco and Sam’s Club selling its OBM products. 2) Entrance into mainland China and Hong Kong’s retail markets with its own brand through offline flagship stores and online platforms, building brand reputation and Stock performance 股价表现 achieving higher profitability. 3) The Company is strong in design and produces functional sofas following fashion trends and targeting the young [Table_QuotePic] 30.0 % of return generation and middle class, with good value products. 4) No impact from 25.0 China-US trade disputes so far. 20.0 证 We forecast 2018-2020 EPS to increase to RMB0.216, RMB0.282 and 15.0 告 RMB0.368, respectively, representing a CAGR of 31.7% during 2017-2020. 券 Report We believe that the Company’s current valuation is attractive compared with 10.0 研 报 its peers considering its rapid growth and solid fundamentals. Initiate with 5.0 究 究 "Buy" and a TP of HK$2.40. Our TP represents 9.6x, 7.3x and 5.6x 2018, 0.0 2019 and 2020 PER, respectively. 报 研 (5.0) Risks: 1) Intense competition in China’s sofa retail market. 2) A rise in 告 (10.0) 券 raw material prices. 3) Property sales slowdown. Aug-17 Nov-17 Feb-18 May-18 Aug-18 Equity Research HSI Index Morris Holdings 证 慕容控股是一家快速发展的沙发制造商，成功从原设备生产转型为原品牌生产。公司已经 成为（按对美国出口额计）中国第二大软体沙发生产商。公司现在正进一步以自有品牌“慕 [Tab 容沙发”打入零售市场。2018 年上半年公司收入达到 656 百万元人民币，同比上升 27.4%。 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y 股东净利同比跃升 40.2%至 79 百万元人民币。 le_I 股价变动 1 个月 3 个月 1 年 投资亮点：1）产品受到美国市场的广泛接受。公司与美国领先零售商如好市多和山姆会 消 Abs. % (24.0) (15.2) (8.9) nfo1 绝对变动 % 员店建立了牢固的合作关系以销售公司原品牌产品。2）以自有品牌通过线下旗舰店和线 费 Retailing ] - Rel. % to HS Index (22.7) (8.5) (11.2) 行 上平台打入中国内地和香港市场，以此建立品牌声誉并提升盈利能力。3）公司长于设计 相对恒指变动 % 和生产跟随时尚的功能沙发，以高性价比产品瞄准年轻群体和中产阶层。4) 目前不会受到 Avg. Share price(HK$) 1.6 1.6 1.6 业 平均股价（港元） - 中美贸易争端的影响。 Source: Bloomberg, Guotai Junan International. 零 我们预测 2018 年-2020 年每股盈利将分别上升至 0.216 人民币、0.282 人民币和 0.368 人 售 民币，相当于 2017 年-2020 年复合增长率 31.7%。考虑到公司快速的发展和稳定的基本 面，我们认为其目前估值相对于同业较为吸引。首次给予“买入”评级以及目标价 2.40 Consumer Sector 港元。目标价分别相当于 9.6 倍、7.3 倍和 5.6 倍 2018 年-2020 年市盈率。 风险：1）中国沙发零售市场竞争激烈。2）原材料价格上升。3）地产销售减速。 Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE Profit] [Tab 年结 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%) le_I 2016A 942 81 0.108 (2.7) 11.5 0.212 5.9 0.124 10.0 69.3 nfo2 2017A 1,200 160 0.161 49.1 7.2 0.386 3.0 0.083 7.1 59.1 中] 2018F 1,543 216 0.216 34.2 5.5 0.545 2.2 0.054 4.5 46.6 2019F 1,951 282 0.282 30.6 4.2 0.757 1.6 0.071 5.9 43.3 外 慕 2020F 2,453 368 0.368 30.5 3.2 1.032 1.2 0.092 7.7 41.1 容运 [Table_BaseData]Shares in issue (m) 总股数 (m) 1,000.0 Major shareholder 大股东 Zou Gebing 75.0% 控 输 Market cap. (HK$ m) 市值 (HK$ m) 1,390.0 Free float (%) 自由流通比率(%) 25 股 3 month average vol. 3 个月平均成交股数(‘000) 2,031.4 FY18 Net gearing (%) FY18 净负债/股东资金 (%) 29.5% 52 Weeks high/low (HK$) 52 周高/低 (HK$) 2.210 / 1.270 FY18 Est. NAV (HK$) FY18 每股估值（港元） 4.3 Source: the Company, Guotai Junan International. Morris HK) Holdings (01575 See the last page for disclaimer Page 1 of 22 [Table_PageHeader]Morris Holdings (01575 HK) TABLE OF CONTENTS ] 1 r a M t h g i R _ e l b a T [ INDUSTRY ANALYSIS .....................................................................................................................................3 August 2018 Sofa Industry in China ..............................................................................................................................3 30 Sofa Industry in the United States...........................................................................................................4 COMPANY ANALYSIS ......................................................................................................................................7 Corporate Profile .......................................................................................................................................7 Business Model .........................................................................................................................................7 Expansion Strategy ...................................................................................................................................9 FINANCIAL ANALYSIS ..................................................................................................................................12 ] 2 r a M t h g i R _ e l b a T [ 1H18 Results Review ................................................................................................ ..............................12 Revenue ....................................................................................................................................................12 Gross Profit and Gross Margin ..............................................................................................................14 Operating Profit & Operating Margin ....................................................................................................16 Shareholders’ Profit & Net Margin .........................................................................................................16 EPS & Dividend........................................................................................................................................17 Working Capital Management ................................................................................................................17 VALUATION ....................................................................................................................................................19 (01575 HK) Financial Statements and Ratios .................................................................................................................21 慕容控股 Morris Holdings Report Company See the last page for disclaimer Page 2 of 22 [Table_PageHeader]Morris Holdings (01575 HK) INDUSTRY ANALYSIS ] 1 r a M t h g i R _ e l b a T [ Sofa Industry in China The furniture market is steadily growing in China. According to the National Bureau of Statistics of China, total sales of furniture manufacturing enterprises increased 10.1% YoY to RMB905.6 billion in 2017, while total profits reached RMB56.5 billion, up 9.3% YoY. In terms of total retail sales of consumer goods, retail sales of furniture above designated size increased by August 2018 12.8% YoY to RMB280.9 billion, up 12.8% YoY, outperforming growth of total retail sales. On the other hand, household related 30 consumption expenditure per capita has been increasing faster than total consumption expenditure, reaching RMB4,107 in 2017 and accounting for 22.4% of total expenditure. As an industry post the property cycle, the furniture market recorded decent growth over the past years alongside a prosperous property market and recorded decent performance. Figure-1: Growth of Total Retail Sales above Figure-2: Expenditure of Household Related per Designated Size in China Capita in China RMB % 5,000 12% 20 4,000 10% ] 2 r a M t h g i R _ e l b a T [ 8% 15 3,000 6% 10 2,000 4% 1,000 5 2% 0 0% 0 2013 2014 2015 2016 2017 2016/04 2016/10 2017/04 2017/10 2018/04 Expenditure per capita: Housing YoY Total retail sales Furniture Source: National Bureau of Statiatics of China, Guotai Junan International. Source: National Bureau of Statiatics of China, Guotai Junan International. (01575 HK) Demand for upholstered sofas continues to grow in China. Compared with hard furniture, soft furniture has a higher replacement rate due to a shorter life time and faster product update pace. In the context of a slowdown in new residential property sales, renovation and decoration of existing properties has become an important driver of soft furniture demand. 慕容控股 According to Intelligence Research, the proportion of renovations of existing properties to total reached 31.5% in 2016, an increase from 25.5% in 2013, and the proportion is expected to continue increasing in the future. According to Euromonitor, YoY growth of retail sales of sofas ranged from 7% to 10% in recent years. In our estimation, there were approximately 421 million units of households in China in 2017, and on average each household renovates and replaces sofas every 8-10 years, while the Morris Holdings ASP for sofas is around RMB1,000. Therefore renovation demand for sofas will be around RMB46.7 billion in 2018. In addition, urbanization rate reached 58.5% in 2017, increasing by approximately 1 ppt every year. These new drivers for furniture are further drivers for industry growth. Thus we believe that soft furniture may be negatively impacted by the slowdown of property