CMB International Securities | Equity Research | Company Update Summary
Core Information
- Company: Sun Art Retail (6808 HK)
- Analyst: Albert Yip
- Sector: China Supermarket
- Ratings: BUY (maintain)
- Target Price: HK$8.70 (previous: HK$15.60)
- Current Price: HK$7.60
- Target Price Change: +14% from current price
- Auditor: KPMG
Key Highlights
- 12M20 Net Profit: RMB2,872mn, up 1% year-on-year, but 12‰/9% below estimates/consensus, due to lower revenue and GPM.
- Strategic Initiatives:
- Community Group Purchase:
- Collaborating with Cainiao to expand through over 8,000 active pick-up stations.
- Self-operated group purchase in over 220 stores across 125 cities.
- Avoiding heavy subsidies and negative GPM to ensure sustainability.
- Targeting RMB3bn in sales for 2021E with losses limited to 10ppt.
- Multi-store Format Expansion:
- Plan to open 30-50 superstores and 200-300 mini-stores in 2021E.
- Superstores will target young consumers in second and third-tier cities.
- Mini-stores focus on fresh food and dairy, aiming to meet daily meal demands.
- Store Remodeling:
- Increase lettable area and attract more tenants with catering, entertainment, and services.
- Reduce non-food areas in under-performing stores to support online and group purchase operations.
Financial Performance (12M20)
- Revenue: RMB95,486mn, flat compared to FY19A, but 80%+ growth in B2C and 60%+ growth in daily orders per store.
- Rental Income: RMB3,782mn, down 14%.
- Gross Profit: RMB24,343mn, down 5% YoY.
- Gross Margin: 25.5%, down 1.5ppt.
- EBIT: RMB4,349mn, down 2%.
- Net Profit: RMB2,872mn, up 1% YoY.
- EPS: RMB0.30, up 1% YoY.
- Other Income: RMB1,604mn, up 56% YoY, driven by investment gains and government grants.
- Operating Costs: Down 2% YoY due to reduced social welfare payments.
- Administrative Expenses: Down 12% YoY due to integration of two banners.
Earnings Forecast (FY21E - FY23E)
| Metric |
FY21E |
FY22E |
FY23E |
| Revenue (RMB mn) |
102,243 |
112,347 |
124,710 |
| Gross Profit |
25,590 |
27,748 |
30,515 |
| Operating Profit |
3,782 |
4,096 |
4,557 |
| Net Profit |
2,487 |
2,759 |
3,148 |
| Net Margin |
2.4% |
2.5% |
2.5% |
Earnings Revisions
- Revised Down: FY21E and FY22E net profit estimates cut by 35-36% due to lower revenue, GPM, and start-up losses.
- Rebound Expected: Net profit expected to rebound 11% in FY22E, with a 13% drop in FY21E.
Valuation and Ratios
| Metric |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| P/E (x) |
22.6 |
22.5 |
24.2 |
21.8 |
19.1 |
| P/B (x) |
2.7 |
2.5 |
2.3 |
2.1 |
2.0 |
| Yield (%) |
2.1 |
2.1 |
1.9 |
2.2 |
2.5 |
| ROAE (%) |
12.3 |
12.1 |
9.5 |
10.1 |
10.8 |
| Net Margin (%) |
3.0 |
3.0 |
2.4 |
2.5 |
2.5 |
Market Position and Trends
- Community Group Purchase: Expected to grow at 44% CAGR in FY19-22E.
- Market Share: Sun Art Retail gained market share in retail sales (rolling 12 weeks).
- Competitive Landscape: Industry is expected to be less competitive in FY22E.
- Catalysts: Revenue and margin beat.
- Risks: Intense competition in community group purchase.
Share Performance
| Period |
Absolute (%) |
Relative (%) |
| 1-month |
+2.2 |
-1.6 |
| 3-months |
-3.9 |
-18.1 |
| 6-months |
-25.2 |
-34.9 |
Peer Valuation Comparison
| Company |
P/E (x) |
EPS Growth (%) |
Revenue Growth (%) |
| Sun Art Retail |
24.2 |
1 |
7 |
| Yonghui |
22.5 |
49 |
17 |
| Suning |
38.2 |
-90 |
19 |
| Jiajiayue |
18.9 |
19 |
26 |
| Chengdu Hongqi |
12.0 |
23 |
9 |
| Zhongbai |
29.3 |
815 |
5 |
| Better Life |
22.2 |
35 |
10 |
| A-share average |
23.8 |
140 |
13 |
Key Ratios
| Ratio |
FY19A |
FY20A |
FY21E |
FY22E |
FY23E |
| Gross Margin (%) |
27.0 |
25.5 |
25.0 |
24.7 |
24.5 |
| EBIT Margin (%) |
4.6 |
4.6 |
3.7 |
3.6 |
3.7 |
| Net Margin (%) |
3.0 |
3.0 |
2.4 |
2.5 |
2.5 |
| Effective Tax Rate |
28.4 |
26.0 |
26.0 |
26.0 |
26.0 |
| Payout Ratio (%) |
47.1 |
47.0 |
47.0 |
47.0 |
47.0 |
Summary of Key Initiatives and Outcomes
- Strategic Expansion: Focus on multi-format stores (superstores and mini-stores) and community group purchase.
- Sustainability: Avoid heavy subsidies, relying on supply chain and store network.
- Financial Performance: Net profit expected to decline in FY21E but rebound in FY22E.
- Valuation: P/E is below historical average due to the impact of Alibaba's investment.
- Catalysts: Revenue and margin beat.
- Risks: High competition in the group purchase sector.
Conclusion
Sun Art Retail is focusing on sustainable growth through strategic expansion into community group purchase and multi-format store operations. Despite lower-than-expected revenue and GPM in FY20, the company is optimistic about the future with a target of RMB3bn in sales for 2021E and a rebound in net profit expected in FY22E. The stock is currently rated as a BUY, with a revised target price of HK$8.70, reflecting a more conservative outlook due to the challenges in the current financial landscape.
