20150804-DBS_Group-Lifestyle_International_12页_335kb

DBS Group Research Summary: Lifestyle International Holdings Limited (1212 HK)

Core Content

This report provides an analysis of Lifestyle International Holdings Limited (1212 HK), a leading department store operator in Hong Kong and China, with a focus on its financial performance, valuation, and market outlook. The report is issued by DBS Vickers and outlines the company's recent results, operating environment, and investment thesis.

Key Information

• Current Price: HK$12.82
• Price Target: HK$13.69 (6.8% upside from current price)
• Rating: HOLD (downgraded from BUY)
• Reason for Downgrade: A weakened operating environment is expected in 2H15 due to the negative wealth effect from the recent stock market correction and challenges in Hong Kong and China.
• ICB Industry: Consumer Services
• ICB Sector: General Retailers

Financial Performance (1H15)

• Total Sales: Increased by 6.6% to HK$3.1 billion.
• Hong Kong Sales: Rose by 5.9% to HK$2.384 billion.
• China Sales: Increased by 9.2% to HK$684 million.
• Core Profit: Slightly declined by 0.8% to HK$994 million.
• Reported Net Profit: Rose by 15.1% to HK$1.172 billion.
• EPS: HK$1.34 (up 3.2% from 2014)
• DPS: HK$0.29 (up 40% from 2014)
• Payout Ratio: 45.0%
• Gross Profit Margin: 60.1%
• PBT Margin: 50.7%
• Net Profit Margin: 38.2%

Operating Environment

• Hong Kong: SOGO Causeway Bay reported a negative 1.4% same-store-sales growth (SSSG) in 1H15, attributed to stock market volatility and reduced mainland tourist arrivals. The renovation of the store's entrance and selected floors is expected to impact traffic in the near term.
• China: Despite growth in sales, the operating environment remains challenging, with SSSG for Shanghai Jiuguang at 9.7%, Suzhou Jiuguang at 5.1%, and Dalian Jiuguang at -13.2%. The slowdown in the A-share market also impacted sales in July, though less severely than in Hong Kong.

Valuation and Assumptions

• SOTP Valuation: Based on a sum-of-the-parts approach, the estimated net asset value (NAV) per share is HK$13.69.
• Current Share Price: HK$12.82, which is at a -6.4% discount to the estimated NAV.
• Capitalization Rates:
  • Hong Kong property discount: 45%
  • China property discount: 50%
• Key Assumptions:
  • Investment income and FX gains contributed significantly to profit growth in 1H15.
  • The company owns most of the properties where its stores are located, which adds to its value.

Investment Thesis

• Strengths:
  • Strong market and asset value position.
  • Leading department store operator in Hong Kong.
  • Majority ownership of retail space in Hong Kong and China.
  • Potential for rising land prices in China to increase intrinsic value.
• Risks:
  • Intensifying competition.
  • Capacity constraints in Hong Kong limiting expansion.

Peer Comparison

• Peer Table Highlights:
  • Lifestyle International's valuation metrics are compared with other retail companies in Hong Kong and China.
  • The company's PE, P/Sales, and dividend yield are in line with industry averages.
  • The company's ROAE is slightly lower than some peers, reflecting a challenging operating environment.

Balance Sheet Highlights

• Total Assets: Increased to HK$31,796 million in 2016.
• Net Cash/(Debt): Positive at HK$2,172 million.
• Shareholder's Equity: Increased to HK$13,524 million.
• Debtors Turnover: Increased to 40.1 days in 2016.
• Creditors Turnover: Increased to 477.7 days in 2016.
• Inventory Turnover: Increased to 18.4 days in 2016.
• Current Ratio: Improved to 3.1 in 2016.
• Quick Ratio: Improved to 3.1 in 2016.

Cash Flow Highlights

• Net Operating Cash Flow (CFPS): Increased to HK$1.68 per share in 2016.
• Free Cash Flow (CFPS): Increased to HK$1.06 per share in 2016.
• Capital Expenditure: Increased to HK$1,000 million in 2016.
• Net Investing Cash Flow: Negative at HK$1,000 million.
• Net Financing Cash Flow: Positive at HK$293 million in 2016.

Key Metrics

• EPS Growth: 3.2% for 2015 and -0.9% for 2016.
• Core Earnings Rev: -9.0% for 2015 and -13.0% for 2016.
• ROAE: Declined to 17.0% in 2016.
• Dividend Yield: 4.7% in 2015 and 4.7% in 2016.

Rating and Recommendations

• Rating System: DBS Vickers uses an Absolute Total Return rating system.
• Current Rating: HOLD
• Target Price: HK$13.69
• Ratings History:
  • 29-Dec-14: Hold, Target: HK$16.21
  • 7-Jan-15: Hold, Target: HK$16.85
  • 27-Jan-15: Buy, Target: HK$16.85
  • 11-Feb-15: Buy, Target: HK$16.85
  • 17-Mar-15: Buy, Target: HK$15.73
  • 13-Apr-15: Buy, Target: HK$16.00
  • 23-Jul-15: Buy, Target: HK$16.00

Disclaimer

• This report is for clients of DBSV Group only.
• No part of this document may be copied or redistributed without prior written consent.
• The research is based on information from reliable sources, but accuracy and completeness are not guaranteed.
• Opinions and forecasts are subject to change without notice.
• The report is not an offer to buy or sell any securities.
• DBS Vickers and its affiliates may have interests in the securities mentioned.
• No liability is accepted for any loss arising from reliance on this document.