20160120-美银美林-金鹰商贸集团-03308.HK-Fundamentals_remain_under_pressure__lower_estimates_and_PO_11页_642kb

Summary of Golden Eagle Retail Group Ltd Analysis

Core Content

Golden Eagle Retail Group Ltd is a premium department store chain in China, established in 1996 and listed on the Hong Kong Stock Exchange in 2006. The report outlines the company's financial performance, valuation metrics, and investment outlook as of December 2015.

Main Points

• Earnings Revision: The company's 2015/16 estimates were trimmed by 6‰ (4%) due to a lower SSSG assumption, higher SG&A/GSP, and FX loss. The Price Objective (PO) was reduced by 10% to HK$9.50.
• Near-Term Fundamentals: The company's core business faces pressure due to macroeconomic weakness, a warm winter, and a shift in promotional patterns. The 4Q15 SSS decline is expected to be wider than the mid-single-digit in 3Q15.
• EBIT Decline: The full-year core EBIT decline is estimated to be >15%, widening from the 12% decline in 1H15.
• Non-Core Gains/Losses: Non-core activities are expected to largely offset each other, with one-off interest income from the termination of the Oriental Gate project and investment gains in 1H15, but substantial FX losses due to RMB appreciation.
• Valuation: The stock trades at around 50% discount to its property NAV. The Forward P/E is at 13.97x for 2015E and 14.37x for 2016E. The EV/EBITDA is 9.57x for 2015E and 8.75x for 2016E.
• Investment Opinion: The rating is Neutral, indicating cautious outlook due to industry-wide challenges such as e-commerce and over-supply of commercial properties, as well as firm-specific issues like aggressive expansion and slow adaptation to e-commerce.
• Stock Data: Current price is HK$8.69, with a 52-week range of HK$8.25–HK$13.24. The Free Cash Flow Yield is -3.47% for 2015E and -1.03% for 2016E.
• Key Financials:
  • Sales are projected to grow in 2015E to HK$3,827 million, with a slight decline in 2016E.
  • Gross Profit is expected to be HK$2,704 million in 2015E and HK$2,809 million in 2016E.
  • SG&A is projected to rise to HK$1,883 million in 2015E and HK$1,871 million in 2016E.
  • Operating Profit is estimated to be HK$1,116 million in 2015E and HK$1,234 million in 2016E.
  • Net Income (Adjusted) is expected to be HK$939 million in 2015E and HK$917 million in 2016E.
  • EPS is projected to be HK$0.52 in 2015E and HK$0.51 in 2016E.
  • Free Cash Flow is expected to be HK$-453 million in 2015E and HK$-297 million in 2016E.
  • Net Debt/Equity Ratio is expected to increase to 30.0% in 2017E.
• Balance Sheet:
  • Total Assets are projected to be HK$16,824 million in 2015E and HK$17,938 million in 2017E.
  • Total Liabilities are expected to be HK$10,842 million in 2015E and HK$10,867 million in 2017E.
  • Shareholder Equity is projected to grow to HK$5,980 million in 2015E and HK$7,076 million in 2017E.
• Key Ratios:
  • Return on Equity (ROE) is expected to decline from 23.4% in 2013A to 16.5% in 2015E.
  • Return on Capital Employed (ROCE) is expected to be 8.6% in 2015E and 8.5% in 2017E.
  • Operating Margin is projected to be 29.2% in 2015E and 31.4% in 2017E.
  • Net Margin is expected to be 6.9% in 2015E and 6.6% in 2017E.
• Investment Rationale: Despite the challenges, the company is considered a high-quality core holding in the China department store space. Its strong operations and asset backing may help mitigate some of the risks.

Key Information

• Price to Book Value (P/BV) is 2.2x.
• Key Peer Comparison: Golden Eagle is compared with other listed department store companies in China and Asia-Pacific, with a Neutral rating.
• Discount to NAV: The stock is trading at a 50% discount to its property NAV.
• Share Buybacks: Frequent share buybacks may support the share price.
• Investment Risks: The firm has a conflict of interest due to its business relationship with companies covered in its research reports, which may affect the objectivity of the report.

Conclusion

The report maintains a Neutral rating for Golden Eagle, reflecting the ongoing challenges in the retail sector and the firm's performance. While the company faces operational and macroeconomic pressures, its asset base and operational strengths could provide some downside protection. The Price Objective is HK$9.50, and the stock is currently discounted, suggesting potential value for investors.