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Market Report Summary - 8 May 2015

Core Content Overview

This market report provides an analysis of Esprit Holdings' FY3Q15 performance and highlights key updates in the TMT sector, alongside market indices, commodity prices, and other financial indicators.

Esprit Holdings (330.HK)

FY3Q15 Operation Results

• Total sales declined by 25.5% YoY.
• HKD sales dropped 12.2% and local currency sales declined 25.5%.
• Retail sales declined by 8.3% in local currency, while wholesale sales declined by 17.7%.
• Asia region saw a slight increase of 1.1%, while Germany and Europe declined by 11.4% and 17.8% respectively.
• New product launches showed some improvement in February and March, with a 2.9% decline compared to 17.1% in January, but not enough to indicate a solid rebound.
• The company is still in a down cycle, with weak macro environment and special discounts contributing to the decline.

Business Model and Outlook

• Esprit's business model is under pressure due to poor product appeal and slow supply chain.
• It is positioned between a brand and a retailer, which is not competitive with both traditional high-end brands and fast-fashion retailers.
• New products may provide short-term recovery, but fundamental business model improvement will take time.
• Valuation is not attractive, and buying on a rebound is not recommended at this time.
• Market consensus forecasts show revenue and net profit declining in 2015, with EPS declining by 78.2% and EV/PER at 287.5.

Key Financial Metrics

• Price on 7 May: HK$6.90.
• Market Cap: HK$13.41 billion / US$1.73 billion.
• Average 3-months price: HK$41.63 million.
• Shareholding structure:
  • Lone Pine Capital LLC: 12.55%
  • Marathon Asset: 12.04%
  • Total Market Limited: 10.90%
  • Marathon Asset Management: 6.07%
  • Sanderson Asset Management: 5.00%
  • Free float: 52.81%

TMT Sector Highlights

Key News

• Qihoo 360 is launching new phones under the Qiku brand, which will be cheaper than similar models from other manufacturers.
• China's IT spending is expected to rise by 20% to US$516 billion in 2015.
• Didi Dache faces regulatory scrutiny in Wuhan for operating illegal private cars.
• Aiwujiwu, a real estate startup, closed a $120 million series D funding.
• Xiaomi plans to launch its most expensive model at US$484, aiming to lower prices of high-end smartphones in China.

Market Indices and Financial Indicators

Major Equity Indices

• Hang Seng Index (HSI): 27,290, down 1.3%.
• H-share Index: 13,768, down 1.6%.
• CSI 300 Index: 4,470, down 1.8%.
• Shanghai Composite Index: 14,115, down 0.2%.
• Shenzhen Composite Index: 2,181, down 1.2%.
• Nikkei 225: 19,292, down 1.2%.
• KOSPI: 2,091, down 0.6%.
• TWSE: 9,704, down 1.2%.
• Sensex 30: 26,599, down 0.4%.
• DJIA: 17,924, up 0.5%.
• S&P 500: 2,088, up 0.4%.
• NASDAQ: 4,946, up 0.5%.
• FTSE 100: 6,887, down 0.7%.
• DAX: 11,408, up 0.5%.
• CAC 40: 4,967, down 0.3%.

Commodity Prices

• WTI oil: $58.9, down 3.3%.
• Gold: $1,182.2, down 0.7%.
• Copper: $6,390, no change.
• Aluminum: $1,921, no change.
• Reuters/Jefferies CRB futures: 226.8, down 1.5%.
• Baltic Dry Index: 573, down 0.3%.

Currencies and Interest Rates

• HIBOR 3m: 0.39%, up 0.001%.
• USD LIBOR 3m: 0.28%, no change.
• CNY: 6.2067, no change.
• CNH: 6.2129, no change.
• HKD: 7.7539, no change.
• Yen: 119,740, no change.
• Interest rates:
  • HIBOR 3m: 0.387%
  • USD LIBOR 3m: 0.276%
  • SHIBOR 3m: 3.823%

Bond Yields

• US 3m yield: 0.01%
• US 10y yield: 2.18%
• China 2y yield: 3.07%
• China 10y yield: 3.44%

Summary

Main Points

• Esprit Holdings is still experiencing a down cycle, with weak sales performance and no clear signs of recovery.
• The TMT sector is seeing mixed developments, including new product launches and regulatory actions.
• Market indices across Asia and the US/Europe show mixed performance, with some declines and others showing modest gains.
• Commodity prices are generally declining, with gold and oil seeing the most notable drops.
• Currencies and interest rates show minor fluctuations, with HIBOR and USD LIBOR remaining stable.
• Bond yields are low, indicating low interest rate environment.

Key Takeaways

• Esprit's product appeal and business model are key challenges.
• Valuation is not attractive, and investors should remain cautious.
• The TMT sector is dynamic, with new product strategies and regulatory issues influencing market sentiment.
• Market indices reflect mixed regional performance, with Asia and China showing moderate declines.
• Commodity and currency markets are volatile, but no major shifts are observed.