Market Report Summary - December 19, 2014
Core Content Overview
This report provides an analysis of the China Sportswear Sector and TMT Sector, highlighting investment recommendations and financial forecasts for several key companies. The report also includes stock market performance data and valuation statistics for selected equities.
China Sportswear Sector Analysis
Sector Outlook
- The sportswear sector is expected to maintain high single-digit growth in FY15E.
- Government support, low per capita spending, customer-oriented strategies, and wearable technology are expected to drive demand.
- Inventory concerns are lessened due to a more retail-focused model and recovery in demand.
Company-Specific Insights
Anta Sports Products (2020.HK)
- Rating: Buy
- Target Price: HK$17.20
- Upside Potential: 23.4%
- Key Points:
- Anta is the top pick due to its leading market position and value for money products.
- Anta is expected to leverage sponsorship deals, such as with the NBA, to boost brand value and increase revenue by 1% by FY16E.
- New businesses (Fila, Anta Kids, E-commerce) are projected to increase revenue contribution to 25% in FY15E from 20% in FY13.
- Net profit CAGR is forecasted at 19% in FY13-16E, significantly higher than the -5% in FY10-13.
- Valuation: DCF-based target price implies 17.5x FY15E PE, higher than the historical average of 15.2x and peers’ average of 15.2x.
Xtep International (1368.HK)
- Rating: Buy
- Target Price: HK$4.20
- Upside Potential: 29.2%
- Key Points:
- Xtep is expected to see trade fair order growth trend up to mid-/high-single-digit in FY15E due to better SSSG and channel destocking.
- Dividend yield is projected to reach 5.1% - 6.0% in FY14E-16E, making it attractive for income-focused investors.
- However, business model transformation is a long-term concern due to fierce competition from fast fashion and casualwear brands.
- Valuation: DCF-based target price implies 11.8x FY15E PE, which is higher than the historical average of 9.7x, but lower than peers at 15.2x.
Li Ning Company (2331.HK)
- Rating: Hold
- Target Price: HK$3.60
- Upside Potential: 8.1%
- Key Points:
- Li Ning failed to meet expectations in 1H14 results, despite recovery in revenue.
- Management efficiency and channel control are weak, and uncertainty in fund raising and management shift are concerns.
- Forecasted net profit is expected to turn around from Rmb653mn loss in FY14E to Rmb50mn profit in FY15E and Rmb329mn in FY16E.
- Valuation: Target price is derived from blending DCF and PE models, and is considered fair at 11.8x FY16E PE.
Haichang Holdings (2255.HK)
- Rating: Buy
- Target Price: HK$2.40
- Upside Potential: 73%
- Key Points:
- Completed the acquisition of Dalian Haichang Discoveryland, aligning with expectations.
- Earnings growth is expected to be 84.2% YoY in FY14E, with 134% growth on reporting basis.
- Positive outlook on new projects and expanding park areas.
- Valuation: Trading at 6.1x EV/EBITDA, significantly lower than international peers (10-12x), making it attractive.
TMT Sector Update
Key Highlights
- JD.com & Intel are set to cooperate on 'RealSense' shopping.
- Tencent & Sony Music Entertainment have signed a distribution partnership.
- Tuliu is leveraging China's rural land reform.
- Lashou will lay off 1/3 of its workforce.
- Huawei is expected to reach the top spot in 3 years.
Stock Market Performance
HK Equities
| Index |
Price (18 Dec) |
Abschg |
%chg |
| Hang Seng Index |
22,832 |
246 |
1.1 |
| Spot mth fut. |
22,791 |
(Prem.: -41) |
|
| H-share Index |
11,331 |
61 |
0.5 |
| Spot mth fut. |
11,329 |
(Prem.: -2) |
|
China Equities
| Index |
Price (18 Dec) |
Abschg |
%chg |
| CSI 300 Index |
3,346 |
(15) |
(0.4) |
| Sh Composite Index |
10,665 |
(122) |
(1.1) |
| Sz Composite Index |
1,484 |
(9) |
(0.6) |
Asian Equities
| Index |
Price (18 Dec) |
Abschg |
%chg |
| Nikkei 225 |
17,210 |
390 |
2.3 |
| Korea KOSPI |
1,898 |
(3) |
(0.1) |
| Taiwan TWSE |
8,879 |
50 |
0.6 |
| India Sensex 30 |
27,127 |
416 |
1.6 |
US/European Equities
| Index |
Price (18 Dec) |
Abschg |
%chg |
| DJIA |
17,778 |
421 |
2.4 |
| S&P500 |
2,061 |
48 |
2.4 |
| NASDAQ |
4,748 |
104 |
2.2 |
| UK FTSE 100 |
6,466 |
130 |
2.0 |
| Germany DAX |
9,811 |
267 |
2.8 |
| France CAC40 |
4,249 |
138 |
3.3 |
Valuation Comparison (Selected Companies)
| Company |
Market Cap (HK$bn) |
FY15E PE |
FY15E PB |
Dividend Yield (%) |
ROE (%) |
Net Debt/Equity (%) |
| Anta (2020.HK) |
34.81 |
14.2 |
3.1 |
4.3 |
21.3 |
-63.3 |
| Xtep (1368.HK) |
7.08 |
9.2 |
1.0 |
5.1 |
12.2 |
-56.4 |
| Li Ning (2331.HK) |
4.67 |
75.6 |
1.7 |
0.0 |
2.2 |
29.7 |
Key Investment Recommendations
- Anta (2020.HK): Strong sponsorship strategy and value for money products position it as the top pick.
- Xtep (1368.HK): Attractive valuation and dividend yield justify a Buy rating.
- Li Ning (2331.HK): Hold rating due to uncertainties in fund raising and management, but potential for recovery.
- Haichang Holdings (2255.HK): Buy rating due to strong earnings growth and attractive valuation.
Conclusion
The sportswear sector is expected to outperform due to sector growth and reduced inventory concerns. Anta is the top recommendation, while Xtep is also recommended for Buy due to attractive valuation and dividend yield. Li Ning is held due to ongoing transformation challenges. Haichang Holdings is recommended for Buy due to positive earnings growth and valuation advantages.
