FY6/15 core profit dropped by 53%, in line with ourexpectations, while reported profit declined by 87% dueto provisions
Industry headwinds including soft consumer sentiment, ecommerce challenges, anti-gifting, etc, should continueto drag its profitability in FY6/16, in our view
Lack of positive catalysts in the near term
Sluggish FY6/15. In FY6/15, core profit dropped by 53%to HKD264m, in line with our expectations and its earlierprofit warning. Including HKD186m of provision on storeclosures and impairments, reported profit declined by 87%to HKD70m. DPS was HKD0.08 vs. HKD0.35 last year.
Gross sales proceeds and same-store-sales growth (SSSG)dropped by 7.1% and 7.0% respectively, illustrating adifficult operating environment. Gross margin dropped by1.6ppts to 82.1%. Staff cost/revenue and rentalcost/revenue ratio increased by 2.6ppts and 2.5ppts to18.5% and 29.6% respectively, reflecting ongoing costpressure. As a result of revenue decline and cost pressure,core net margin dropped by 6.9ppts to 6.6%.
Headwinds persist. We overall expect industry headwinds,including soft consumer sentiments, anti-gifting, ecommerce challenges, etc, to persist in the near term. Forexample, July and August SSSG were at negative mid-tohigh single digit levels with no sequential improvement.On a positive note, the company is developing direct salesand private labels such as “REDValentino” and“MOSCHINO” to differentiate itself from its peers. It is alsoimproving in-store recreational facilities such as Kids andF&B areas. However, we believe any potential benefit willonly be visible gradually over the next 2-3 years.Lack of positive catalysts. We trim our FY6/16 coreprofits by 16% on lower sales growth and higher costassumptions, and introduce FY6/17 forecast. We now valuethe counter at HK$1.35, based on 10x forward PE (vs. 12xpreviously due to weakened market sentiments andoperating outlook).
FY6/15 core profit dropped by 53%, in line with ourexpectations, while reported profit declined by 87% dueto provisions
Industry headwinds including soft consumer sentiment, ecommerce challenges, anti-gifting, etc, should continueto drag its profitability in FY6/16, in our view
Lack of positive catalysts in the near term
Sluggish FY6/15. In FY6/15, core profit dropped by 53%to HKD264m, in line with our expectations and its earlierprofit warning. Including HKD186m of provision on storeclosures and impairments, reported profit declined by 87%to HKD70m. DPS was HKD0.08 vs. HKD0.35 last year.
Gross sales proceeds and same-store-sales growth (SSSG)dropped by 7.1% and 7.0% respectively, illustrating adifficult operating environment. Gross margin dropped by1.6ppts to 82.1%. Staff cost/revenue and rentalcost/revenue ratio increased by 2.6ppts and 2.5ppts to18.5% and 29.6% respectively, reflecting ongoing costpressure. As a result of revenue decline and cost pressure,core net margin dropped by 6.9ppts to 6.6%.
Headwinds persist. We overall expect industry headwinds,including soft consumer sentiments, anti-gifting, ecommerce challenges, etc, to persist in the near term. Forexample, July and August SSSG were at negative mid-tohigh single digit levels with no sequential improvement.On a positive note, the company is developing direct salesand private labels such as “REDValentino” and“MOSCHINO” to differentiate itself from its peers. It is alsoimproving in-store recreational facilities such as Kids andF&B areas. However, we believe any potential benefit willonly be visible gradually over the next 2-3 years.Lack of positive catalysts. We trim our FY6/16 coreprofits by 16% on lower sales growth and higher costassumptions, and introduce FY6/17 forecast. We now valuethe counter at HK$1.35, based on 10x forward PE (vs. 12xpreviously due to weakened market sentiments andoperating outlook).
