20140317-高盛-Answering_the_big_5_questions_for_Luxury_Goods_25页_498kb

报告摘要

Summary of Europe: Branded Consumer Goods - Luxury Goods

Core Content

The luxury goods sector is currently in a period of normalised growth, with a forecast of 12% annual growth through 2020. Despite a slowdown in sales growth in 2013, the sector is viewed as being midway through a multi-year expansion with double-digit compound growth, high margins, and returns. The sector is currently trading at a discount (1.2x market 1-yr forward P/E, lowest since 2008), offering a buying opportunity for investors.

Main Points

1. Is luxury an EM asset and what is the risk to growth?

Global demand for luxury goods comes primarily from Chinese, Japanese, US, and European consumers (78% of total demand).
China accounts for 23% of demand, and Japan for 22%.
FX headwinds in 2013 were a key factor, with the yen and USD dragging sales growth.
Despite challenges, underlying demand has remained strong, with 9% growth since 1H12.
We expect convergence in regional growth as affluent consumers benefit from wealth effects and middle-class growth in China.

2. What is "the risk from China"?

While there are concerns, Chinese luxury demand grew 19% in 2013, better than most expectations.
HNWI growth was +6% (down from +35% pa since 2008), and inland consumption decreased due to tax and price pressures.
Middle class and affluent consumers drove +24% and +33% growth, respectively.
Tourist and international spending in Hong Kong, Macau, and Europe helped offset inland weakness.
The bigger concern is which brands will win in China, not a systemic demand compression.

3. Is this the end of the luxury space race?

Store growth slowed to 11% in 2013 (from 15% pa since 2010).
We expect slower growth (6% pa to 2020) as eCommerce becomes a more significant growth driver.
Own retail expansion continues but at a slower pace. Wholesale is expected to decline, while online will play a key role in value capture and distribution.
Brands are shifting from capital intensity to cost intensity, which may impact margins but improve returns on capital.

4. Dispersion the new normal - how to identify leading brands?

Growth and pricing power are key differentiators between brands.
Soft luxury (e.g., fashion, accessories) is expected to show greater dispersion in performance than hard luxury (e.g., watches, jewelry).
Leading brands are those that can combine heritage with innovation, differentiate products, and leverage brand extensions into new categories.
Digital platforms will still require a strong store portfolio and brand positioning.

5. Are sector margins too high?

Cost intensity is replacing capital intensity in evolving business models.
High-growth brands with strong pricing power and mix improvements can still see margin expansion.
Brands that extend into new categories can also benefit from higher asset turnover and returns on capital.

Key Investment Insights

The luxury sector offers broad-based growth, with 12% normalised growth expected through 2020.
High return on capital (19% in 2013, 1.9x Stoxx 600) supports the re-rating of shares.
Buy recommendations are given to Burberry, Richemont, LVMH, Prada, Ferragamo, and Swatch Group, with average upside of 30–54% over 12 months.
Sell recommendations are given to Luxottica, indicating poor competitive positioning and cash management.

Valuation and Outlook

The sector trades at 1.2x Stoxx 600 1-yr forward P/E, the lowest since 2008.
Re-rating is expected if the sector delivers 12%+ growth and high returns.
FX headwinds are expected to fade, improving revenue growth and sector valuation.

Investment Conclusion

Buy leading brands with strong industry positioning, growth exposure, and pricing power.
Burberry and Richemont are highlighted as the most compelling opportunities in the sector.
Brands that balance scale and brand protection, and leverage online and retail are best positioned for future success.