International Home Retail (1373.HK/ HK $1.91, bought) sales in fiscal 2015 rose 12 per cent year-on-year to HK $1.95 billion, 2 per cent lower than we expected. Gross profit margin fell 0.2 percentage points to 46.3%, in line with expectations. Due to a 16% increase in sales management and administrative expenses, the operating profit of the main business fell 29% year-on-year to HK $96 million, 19% lower than we expected. Net profit from the main business fell 22% to HK $8800, also 19% lower than expected. The net interest rate of the main business fell 2 percentage points to 4.5% from 6.5% in the same period last year. The dividend per share is HK $0.105 (interim dividend of HK $0.049 plus final dividend of HK $0.056), with a dividend payout ratio of 86 per cent, 6 per cent higher than expected.

Performance analysis of each division. Hong Kong sales, which account for 84.6 per cent of total revenue, rose 11 per cent year-on-year to HK $1.7 billion, while same-store sales rose 8.2 per cent, 0.2 percentage points higher than expected. Sales in Singapore rose 19 per cent, driven by the opening of new stores, but same-store sales fell 8.9 per cent, 0.9 per cent lower than expected.

Business strategy. International Home Retail opened a uniform price retail store in Tin Shui Wai, Hong Kong in July 2015. In addition, the Group has upgraded its membership program in order to attract members to patronize again. At present, the number of members of the Group in Hong Kong has exceeded 200000. The group also plans to use the newly acquired ELLA retail store and the newly launched JHCeshop.com electronic platform to further enter the youth market and online shopping.

Valuation. The current share price corresponds to 14.7 times 2016 forward price-to-earnings ratio and 6.7% expected 2016 dividend yield.