20150828-DBS_Group-利邦-00891.HK-Pending_signs_of_recovery_11页_292kb

DBS Group Research Summary: Trinity (HK: 891)

Overview

Trinity is a leading high-to-luxury menswear retailer in Greater China and Europe, with over 380 points of sale (POS) globally. The report issued on 28 August 2015 provides a detailed analysis of its financial performance, valuation, and investment thesis. The current recommendation is HOLD, with a revised price target of HK$1.00 (14% upside from the last traded price of HK$0.88).

Key Financial Highlights (FY Dec)

1H15 Performance

• Loss of HK$47m, partly due to one-off restructuring costs of HK$29m.
• Sales declined across all markets, with SSS (Same Store Sales) falling by 15.9% y-o-y.
• GP margin dropped to 70.7% (-8.6ppts), due to lower average selling prices (ASP).
• Admin expenses remained flat, while selling expenses decreased by 10% y-o-y.
• EBIT margin turned negative at -6.5%, due to a sharp decline in sales.
• 11 stores closed, reducing the total to 386 POS.

Outlook and Recovery

• Weak consumer sentiment and anti-gifting policy are expected to continue affecting sales in the near term.
• Margins may improve in 2H15 due to:
  • Lower inventory levels (17% reduction from Dec-14).
  • Cost savings from restructuring (11% reduction in headcount).
  • Lower sourcing costs due to brand integration.
  • Brand image refresh for its three owned brands to enhance value-for-money proposition.
• Store rationalization is expected to continue, but closures are likely to be moderate, as non-performing stores represent less than 10% of total sales.

Investment Thesis

Profile

• Trinity operates 386 outlets in Greater China and Europe.
• Owns three luxury menswear brands: Kent & Curwen, Cerruti 1881, Gieves & Hawkes.
• Manages licensed brand D’URBAN.
• A unique player in the luxury menswear segment with a strong brand reputation and experienced management.

Rationale

• Strong brand reputation in Asia.
• Well-experienced management team.
• Near-term earnings challenges due to weak consumer sentiment and anti-gifting policy.
• Higher expenses in Europe as it builds its presence, but this is expected to be positive in the mid-to-long term.

Valuation and Price Target

• Price Target: HK$1.00 (14% upside from last traded price), based on DCF.
• Valuation Metrics:
  • 0.5x P/BV
  • 0.8x P/sales
• Earnings Forecast:
  • Revised down to a mild loss in FY15.
  • Expected to return to profit in FY16.

Key Assumptions

Segmental Breakdown (HK$ m)

Peer Comparison

Conclusion

• HOLD recommendation due to weak near-term earnings and sub-par margins.
• Price Target reduced to HK$1.00 due to lower earnings forecast and revised valuation.
• Recovery is expected, but uncertainty remains due to weak consumer sentiment and operating challenges.
• Store rationalization is ongoing, but magnitude is likely to be moderate.
• Valuation is based on DCF, reflecting a discounted outlook for FY15 and moderate recovery in FY16.