20180920-中国银河国际证券-China_Consumer_Sector__High_Speed_Rail_XRL__A_Game_Changer_for_Hong_Kong_Retail_13页_2mb

Summary of Greater China Retail Sector

Core Content

The opening of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL) on 23 Sept 2018 marked a significant milestone in connecting Hong Kong to China's high-speed rail network. This infrastructure development is expected to have a substantial and long-term positive impact on Hong Kong's retail sector by increasing tourist and consumer access to the city.

Key Points

Impact of XRL on Retail and Tourism

• XRL Overview: The XRL connects Hong Kong to 44 mainland destinations, with the Hong Kong section linking to Shenzhen via West Kowloon Station (WKS). It significantly reduces travel time between Hong Kong and Shenzhen to just 14 minutes.
• Passenger Forecast: According to the Hong Kong Transport and Housing Bureau, daily passenger numbers are expected to grow from 80,100 in 2018 to 95,000 in 2021 and 129,300 in 2031, translating to approximately 29 million annual passengers.
• Tourist Impact: These passengers represent around 50% of Hong Kong's total annual visitors in 2017, with an estimated 14.6 million being Mainland tourists. Even if only 20-30% of these are new visitors, the impact on retail is still significant.
• Comparison with Through Trains: The XRL is expected to carry eight times more passengers than the existing Guangzhou-Kowloon Through Train, which had 3.6 million passengers in 2017.

Economic Impact

• Additional Spending: Assuming 5.8 million new Mainland visitors per year, with an average spending of HK$5,000, the XRL could boost retail sales by at least HK$29 billion annually, which is 6.5% of Hong Kong's total retail sales in 2017 (HK$446 billion).
• Price Advantage: Hong Kong has no VAT, making imported goods 14-15% cheaper than those in mainland China. This advantage is especially notable in electronics, luxury goods, cosmetics, and personal care products.

Infrastructure and Connectivity

• HZMB (Hong Kong-Zhuhai-Macao Bridge): Expected to open by the end of 2018, it will provide another major link between Hong Kong and the mainland, though initial traffic is anticipated to be lower than that of the XRL. Long-term, it could have a similar impact to the XRL by 2030.
• Hotel Capacity: Hong Kong is increasing hotel room supply, with over 80,000 rooms in 2018. The government and retailers are optimistic that this will help absorb the increased tourist flow.

Retail and Tourism Sector Opportunities

• Retailers: Mainland tourists are the top spenders in Hong Kong, and the XRL is expected to bring more of them. Retailers with strong exposure to Mainland visitors, such as Luk Fook (590.HK) and Chow Seng Seng (116.HK), are rated BUY. Mid-cap companies like Sa Sa International (178.HK) and Lifestyle International (1212.HK) are also expected to benefit.
• Landlords: Increased foot traffic is expected to benefit landlords, particularly those managing high-traffic areas like Harbour City. Wharf REIC (1997.HK) and Hysan Development (0014.HK) are rated ADD.
• Tourism and Lodging: The hotel industry is likely to benefit from higher occupancy and room rates. Operators like HK&S Hotels (0045.HK), Regal REIT (1881.HK), and Langham Hospitality (1270.HK) are worth revisiting. China Travel HK (0308.HK) is also highlighted for its exposure to tourism and lodging.

Conclusion

The XRL is a transformative infrastructure that enhances connectivity between Hong Kong and the mainland, particularly the Greater Bay Area. While the immediate impact may be tempered by the time required for consumers to adapt, the long-term potential for increased tourist arrivals and spending is substantial. Hong Kong's tax-free environment and price advantages continue to make it an attractive retail destination for Mainland visitors. The retail, landlord, and tourism sectors are all expected to benefit, with several companies recommended for investment.

Investment Ideas

• Retail: Luk Fook (590.HK), Chow Seng Seng (116.HK), Sa Sa International (178.HK), Lifestyle International (1212.HK)
• Landlords: Wharf REIC (1997.HK), Hysan Development (0014.HK)
• Tourism and Lodging: HK&S Hotels (0045.HK), Regal REIT (1881.HK), Langham Hospitality (1270.HK), China Travel HK (0308.HK)

Equity Ratings

• BUY: Share price is expected to increase by >20% within 12 months.
• ADD: Indicates a recommendation to add to the portfolio.
• HOLD: No clear catalyst, and downgraded from BUY pending clearer signals.

Disclaimer

This report is not directed at any person or entity in a jurisdiction where it would be illegal or subject to registration requirements. The information is based on reliable sources, but no guarantees are made regarding its accuracy or completeness. No liability is accepted for any actions taken based on this report.