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报告摘要

Market Report Summary - Sun Art Retail Group Limited (6808.HK)

Core Content Overview

Sun Art Retail Group Limited (6808.HK) reported its 2013 financial results, showing 10.7% YoY sales growth and 15.2% YoY earnings growth, which were largely in line with market expectations. The company's net profit remained consistent with the market consensus, and the analysts are positive about the performance due to resilient sales growth and expanding gross profit (GP) margins. The stock is currently trading at a 20x P/E ratio, below its historical average of 27x P/E, indicating an attractive valuation.

Key Financial Performance

Sales Growth: 10.7% YoY in 2013, driven by the opening of 50 new stores and a 2% Same Store Sales Growth (SSSG).
Earnings Growth: 15.2% YoY in 2013.
GP Margin: Expanded by 90 basis points (bps) to 20.7% in 2013, thanks to merchandise mix optimization and increased scale.
Operating Expenses: Increased to 17.5% of sales, up from 17.0% in 2012, due to higher labor costs and new store opening expenses.
EBIT Margin: Remained at 4.5–5.0%, similar to 2013 levels.
Net Profit: Grew by 16.1% YoY to HK$2,942 million.

Analyst Views

Positive Outlook: The analysts are optimistic about the results and the company's future prospects.
SSSG Outlook: Management expects 2% SSSG in the near-term, which is considered achievable given the low base of sales in 2013 and expected reduction in rental costs due to increasing property supply.
E-commerce Strategy: While some investors are concerned about the company's slow progress in e-commerce, the analysts believe that consumer switching costs are low, and Sun Art can expand quickly once a proven business model is established.
Long-term Potential: The analysts are confident that Sun Art could become the Wal-Mart of China, given its margin improvement and store network expansion.

Valuation and Market Position

Current P/E Ratio: 20x, below its historical average of 27x.
Market Cap: HK$84.14 billion, or US$10.85 billion, representing only 5% of Wal-Mart's market cap.
Forward P/E Ratio: 25.2x (2013) and 22.7x (2014).
Price to Book Ratio (PBR): 3.4x (2013) and 3.1x (2014).
Earnings Yield: 2.0% (2013) and 2.2% (2014).

Peer Comparison

Company	Ticker	2013 EPS Change	2014 EPS Change	2013 PER	2014 PER	2013 PBR	2014 PBR	2013 Dvd Yield	2014 Dvd Yield	2013 ROE	2014 ROE
Sun Art Retail Group Ltd	6808 HK	13.4%	17.0%	22.7	19.4	3.4	3.1	3.2	2.0	16.1	16.6
Beijing Jingkelong Co Ltd-H	814 HK	-36.0%	50.0%	11.0	7.4	0.4	0.4	4.3	4.4	3.7	3.9
Lianhua Supermarket Holdgs-H	980 HK	-36.7%	20.5%	17.2	14.3	1.0	1.0	2.3	2.7	5.9	7.0
Wumart Stores Inc-H	1025 HK	2.6%	11.4%	15.2	13.6	2.4	2.2	2.9	3.3	na	na

Financial Highlights

Turnover: Increased from HK$77,851 million (2012) to HK$86,195 million (2013).
Net Profit: Rose from HK$2,533 million (2012) to HK$2,942 million (2013).
EPS: Increased from HK$0.20 (2012) to HK$0.29 (2013).
Normalized Income: Increased from HK$2,790 million (2012) to HK$2,790 million (2013).
Operating Margin: Increased from 3.3% (2012) to 4.4% (2013).
Net Margin: Increased from 3.1% (2012) to 3.2% (2013).
Effective Tax Rate: Remained at 28.8% in 2013.

Balance Sheet Summary

Cash & Near Cash Items: Increased from HK$2,630 million (2012) to HK$6,271 million (2013).
Total Current Assets: Increased from HK$10,115 million (2012) to HK$22,123 million (2013).
Total Long-Term Assets: Increased from HK$10,399 million (2012) to HK$27,787 million (2013).
Total Assets: Increased from HK$20,514 million (2012) to HK$49,910 million (2013).
Total Current Liabilities: Increased from HK$15,278 million (2012) to HK$30,366 million (2013).
Total Liabilities: Increased from HK$15,726 million (2012) to HK$30,529 million (2013).
Total Equity: Increased from HK$4,788 million (2012) to HK$19,381 million (2013).
Total Liabilities & Equity: Increased from HK$20,514 million (2012) to HK$49,910 million (2013).

Key Ratios

Return on Common Equity (ROCE): 15.6% (2013).
Return on Assets (ROA): 5.9% (2013).
Return on Capital (ROC): 15.7% (2013).
Return on Invested Capital (ROIC): 14.3% (2013).
Gross Margin: Increased from 20.4% (2012) to 21.6% (2013).
EBITDA Margin: Increased from 6.9% (2012) to 7.0% (2013).
Pretax Margin: Increased from 4.5% (2012) to 4.8% (2013).
Net Income Margin: Increased from 3.1% (2012) to 3.2% (2013).
Effective Tax Rate: 28.8% (2013).
Dividend Payout Ratio: 75.9% (2013).
Sustainable Growth Rate: 3.8% (2013).

Market Performance (3 March 2014)

Market	Price (3 Mar)	Absolute Change	% Change
Hang Seng Index (HSI)	22,501	-336	-1.5%
H-share Index	9,752	-140	-1.4%
CSI 300 Index	2,190	+11	+0.5%
Sh Composite Index	7,392	+26	+0.4%
Sz Composite Index	1,109	+19	+1.7%
Nikkei 225	14,652	-189	-1.3%
Korea KOSPI	1,965	-15	-0.8%
Taiwan TWSE	8,602	-38	-0.4%
India Sensex 30	20,947	-173	-0.8%
DJIA	16,168	-154	-0.9%
S&P500	1,846	-14	-0.7%
NASDAQ	4,277	-31	-0.7%
UK FTSE 100	6,708	-101	-1.5%
Germany DAX	9,359	-333	-3.4%
France CAC40	4,291	-117	-2.7%

Valuation Metrics

Metric	2013	2014
Trailing P/E	10.41	10.14
Forward P/E	10.14	10.14
PBR	1.38	1.13
Earnings Yield	9.60	9.60
EV/EBITDA	17.2	15.8

Outlook and Catalysts

Short-term Catalysts: Improved SSSG or breakthrough in e-commerce growth.
Long-term Catalysts: Continued margin improvement and store network expansion.
Management: Experienced and strong execution skills are seen as key to the company's long-term success.

Shareholding Structure

Shareholder	Percentage
Ji Xin Holdings Limited	51.00%
Auchanhyper SA	9.71%
Concord Greater China Limited	8.46%
Kofu International Limited	7.85%
Free Float	22.98%

Conclusion

Sun Art Retail Group Limited (6808.HK) demonstrated solid growth in a tough market environment, with resilient sales growth and expanding margins. The company is currently undervalued compared to its historical average, and the analysts are positive about its future prospects. The management team's strong execution skills are a key strength, and the company is expected to continue its growth trajectory as a leading hypermarket retailer in China.