20161208-招商证券_香港_-HK_China_Consumer_Discretionary_Equity_Strategy_Outlook_2017_56页_2mb_2mb

HK/China Consumer Discretionary Equity Strategy Outlook 2017 Summary

Core Content

The document provides an outlook for the consumer discretionary equity strategy in Hong Kong and China, focusing on key sectors such as sportswear, education, and retail. It highlights the challenges and opportunities in each sector, supported by market data and analysis.

Main Points

Retail Sector Overview

• Mainland China: Retail growth in 2017 is expected to remain challenging due to intense competition and a highly fragmented market. However, the long-term outlook is positive with the growth of the middle class. The sector is under pressure from anti-corruption measures, economic slowdown, and the depreciation of the RMB. E-commerce is expected to continue growing, with offline retail sales projected to grow at 5%-6% YoY in 2015, while e-commerce sales have been increasing at 20% annually.
• Hong Kong: Retail sales in Hong Kong are facing uncertainties due to a slowdown in Chinese visitor growth and a decline in visitor quality. The weakening local consumer sentiment, along with political instability and anti-Chinese visitor sentiment, is expected to keep retail growth pressured. The document suggests a 3% YoY growth for 2017E, assuming the decline bottoms out but with no clear catalyst for significant growth.

Sportswear Sector

• The sportswear sector is viewed as the most attractive sub-sector in consumer discretionary, due to sustainable demand growth and high barriers to entry related to brand power and technology.
• Anta (2020 HK): Market leader among Chinese brands with a multi-brand strategy as a future growth driver. The company is rated as BUY with a target price of HK$24.50.
• Xtep (1368 HK): Seen as the most attractive risk-reward opportunity in the current uncertain market, with a BUY rating and target price of HK$4.88.
• 361 Degrees (1361 HK): Also rated BUY, with a target price of HK$3.03.
• The sector has seen significant improvements in brand, design, and technology since 2011, with a shift in management focus from POS expansion to improving store and inventory efficiency, and e-commerce growth.

Education Sector

• The education sector is identified as a long-term growth story, with the private fundamental education industry in China generating c.RMB136.9bn in 2013 and a CAGR of 27.4% since 2009.
• Maple Leaf Education (1317 HK): Rated BUY with a target price of HK$6.79. It is the largest international school operator in China, with a strong market share and expected recurring earnings CAGR of 25% for FY16-18E. The stock is considered oversold, and the document advises buying on weakness.
• The new regulations (announced in early November and effective from 1 Sep 2017) aim to improve regulation and control over compulsory education (grades 1-9) and do not target VIE structures. Maple Leaf's schools are already non-profit and meet current legal requirements.
• The education sector is expected to continue growing due to increased demand and per student expenditure, supported by new schools and improved utilization rates.

Key Information

Stock Recommendations

Education Sector Data

• Revenue Growth: Maple Leaf's revenue is expected to grow at 20.0% in FY17E and 22.7% in FY18E.
• Net Profit Growth: Maple Leaf's net profit is expected to grow at 22.1% in FY17E and 27.6% in FY18E.
• EPS Growth: EPS is expected to increase from 0.21 in FY16 to 0.25 in FY17E and 0.31 in FY18E.
• P/E Ratio: Maple Leaf's P/E ratio is expected to be 18.2 in FY17E and 14.2 in FY18E.
• P/B Ratio: Maple Leaf's P/B ratio is expected to be 2.7 in FY17E and 2.4 in FY18E.
• Dividend Yield: Maple Leaf's dividend yield is expected to increase from 2.2% in FY16 to 2.5% in FY17E and 3.2% in FY18E.
• ROAE: Maple Leaf's ROAE is expected to be 16.0% in FY17E and 15.5% in FY18E.

Sportswear Sector Data

• Market Share: The sportswear market is expected to see further consolidation, with market leaders gaining more share.
• Product Breakdown (1H16):
  • Anta: Apparel (47%), Footwear (49%), Accessories (4%)
  • Li Ning: Apparel (43%), Footwear (51%), Accessories (5%)
  • Xtep: Apparel (29%), Footwear (69%), Accessories (2%)
  • 361 Degrees: Apparel (42%), Footwear (69%), Accessories (1%)
• Growth Drivers: Increased participation in sports, government policies to stimulate the sports sector, and the "show off factor" in social media.

Sector Turnaround and Growth

• The sportswear sector has seen significant improvements in brand, design, and technology since 2011.
• The government has set targets for increasing sports facilities and promoting regular exercise.
• The sector is expected to continue its growth trajectory, supported by both policy and lifestyle changes.

Conclusion

The document emphasizes the potential for growth in the sportswear and education sectors despite overall retail sector challenges. It recommends investing in companies with strong fundamentals and growth prospects, particularly in the sportswear and education industries. The outlook for 2017 is cautiously optimistic, with the expectation of continued growth in these sectors and a moderate growth rate for the retail sector in Hong Kong.