20181217-广发证券-2019_China_Retail_Investment_Strategy_Lower-tier_mass_market_the_new_growth_driver_5页_967kb

2019 China Retail Investment Strategy Summary

Core Content

The 2019 China Retail Investment Strategy report from GF Securities highlights the challenges and opportunities in the Chinese retail sector amidst macroeconomic uncertainties. It emphasizes the importance of adapting to changing consumer behavior and focusing on growth in lower-tier cities. The report also discusses the strategic importance of membership systems and targeted brands for e-commerce players to sustain growth. Stock recommendations and risk factors are provided to guide investors.

Main Views

• Consumption Growth and Economic Cycles:
  The consumer discretionary sector is more sensitive to economic cycles than the consumer staples sector. During periods of economic contraction, consumer staples typically outperform discretionary. The report notes that consumption growth is unlikely to accelerate in the short term due to macroeconomic uncertainties, and that leading retailers should adjust their strategies accordingly.

• Growth in Lower-Tier Cities:
  The mass market in third and lower-tier cities is identified as a key growth driver. The Chinese government's consumption stimulus policies, such as personal income tax reform, are expected to boost the spending power of the middle and lower classes in these regions. The large population, rapid retail sales growth, and consumption upgrade trend make these cities a critical battleground for retailers.

• E-commerce Survival Strategies:
  With slow growth in new user acquisition, e-commerce players are advised to focus on maximizing revenue from existing users. This can be achieved through membership classification and the development of targeted brands. Membership systems encourage higher spending, while premium private brands enhance brand competitiveness and attract more members.

• Stock Picks:
  The report recommends the following stocks for investment in the next 1-2 years due to their clear expansion plans and strong profitability:

  • NanJi (002127 CH)
  • Chow Tai Seng (002867 CH)
  • Rainbow Department Store (002419 CH)
  • Lao Feng Xiang (600612 CH)
  • Suning (002024 CH)
  • Yonghui Superstores (601933 CH)

• Risk Factors:
  The report outlines the following risks that could impact the retail sector:

  • A bigger-than-expected economic slowdown
  • Escalation in Sino-US trade tensions
  • Slower-than-expected growth in disposable income
  • Slower-than-anticipated expansion of store networks

Key Information

• Valuation Table:
  The table provides revenue and net profit data for the recommended stocks across multiple years, along with PS and PE ratios, indicating their valuation trends.

• Figures and Data:
  Several figures illustrate the correlation between retail sales and GDP growth, the time lag between GDP and disposable income growth, and the performance of different retail sub-sectors. These figures support the strategic focus on lower-tier cities and the importance of consumer behavior trends.

• Tax Reform Impact:
  The report includes a table showing the impact of the personal income tax reform on taxable income and tax savings, highlighting how the reform benefits middle and lower-income groups by reducing their tax burden.

Sector and Company Ratings

• Sector Rating:
  The retail sector is rated as Positive, indicating it is expected to outperform the benchmark (Shanghai and Shenzhen 300 index) by more than 10%.

• Company Ratings:
  The report provides specific ratings for the recommended stocks, though the exact rating (Buy, Accumulate, Hold, etc.) is not explicitly stated. The focus is on their growth potential and profitability.

Legal and Disclaimer Information

• The report is prepared by GF Securities and its affiliates, and is subject to legal and regulatory requirements in different jurisdictions.
• GF Securities (Hong Kong) is licensed to provide securities advice and is responsible for the distribution of the report in Hong Kong.
• The report is distributed only to authorized clients and is not intended for public use.
• The contents of the report are for reference only and do not constitute an offer or inquiry. Investors should not rely solely on this report for investment decisions.
• The report may contain conflicts of interest, as GF Securities may have business relationships with the companies mentioned.
• The research analysts’ views and recommendations are their personal opinions and are not necessarily those of GF Securities or its affiliates.

Conclusion

The report underscores the need for retailers to focus on lower-tier cities and optimize their strategies for existing customers. It recommends specific stocks with strong growth potential and provides a comprehensive analysis of macroeconomic factors and consumer behavior trends that influence the retail sector. Investors are advised to consider the risks and use the report as a reference rather than a sole basis for decision-making.