On the morning of February 17, Zhuo Hyatt Holdings (653.HK), which had been suspended for half a month, announced that the group Deputy Chairman of the Board, which holds about 19.5% of the shares (about 665 million shares), agreed to buy a total of 1.378 billion shares from Chairman Ye Junheng and his wife Zhong Peiyun, accounting for about 40.4% of the total issued share capital at a total consideration of HK $158 million, equivalent to about HK $0.1147 per share. A discount of about 7.5 per cent to the last price of HK $0.124 before suspension. Upon completion of the deal, Chen Jianwen will increase his shareholding to 59.9% and make a full-buy proposal to other shareholders at the same price.

Since then, Zhuoyue Holdings's shares rose nearly 60 per cent at one point, but closed up 13.71 per cent at HK $0.141.

Since the second half of last year, due to the impact of the incident, Hong Kong retailers have generally had a difficult time. Combined with the impact of the epidemic at the beginning of this year, it is even more difficult to operate. In terms of stock prices, Hong Kong's major retailers are gloomy and have not seen an obvious inflection point for the time being, so privatization seems to be a last resort. In addition to Zhuo Yue Holdings, Hong Kong boutique chain Joyce Boutique Group Ltd. (0647.HK) also announced its decision to privatize at the end of last year.

First, the retail in Hong Kong under the double kill

How bad is retail in Hong Kong? From the data released by the Hong Kong Census and Statistics Department, we can see that from January to December this year, retail sales in Hong Kong showed an obvious downward trend, and the year-on-year data were all the way down, falling more than 10% in July and 24.4% in October. The figure for the whole year fell 9.2% from the same period last year.

The direct reason for the dismal retail industry is the decline in the number of visitors to Hong Kong. Since the incident, one after another, countries and regions have issued travel warnings or warnings to Hong Kong. According to the statistics of Tianfeng Securities, at present, 40 countries and regions in the world have put Hong Kong on the travel warning list. Since May, the growth rate of visitors to Hong Kong has been declining. The number of visitors to Hong Kong showed a negative growth in July, and in October, the number of visitors to Hong Kong fell to the lowest level in nearly a decade, a decline of 43.7%. Most of the visitors to Hong Kong are from the mainland, and the proportion of mainland visitors has long been as high as 80%. The number of mainland visitors to Hong Kong fell by 42.3% in August and 58.4% in November.

At the beginning of this year, under the influence of the epidemic, the Hong Kong Government announced on 5 February that it would invoke the Disease Prevention and Control Ordinance to enact subsidiary legislation to require people entering from China, including Hong Kong people, Chinese and foreign visitors, to be subject to compulsory quarantine for 14 days. effective in the early hours of February 8. This has directly led to a cliff drop in the number of visitors to Hong Kong.

On February 14, the Hong Kong Tourism Board announced that the number of visitors to Hong Kong reached 3.21 million in January this year, down 53% from the same period last year, to an average of about 100000 per day. Among them, the mainland and short-distance markets had the largest decline, with more than 50%. At the same time, although January is the Spring Festival and the number of visitors to Hong Kong has rebounded to an average of 130000 per day at the beginning of the month, most airlines have suspended Hong Kong routes or cut flights under the influence of the epidemic, and the government has also introduced a series of measures to significantly reduce the flow of people from Hong Kong and the mainland.In late January, the number of visitors dropped sharply, with the number of daily visitors falling to 65,000. The latest figures for February show that the number of visitors continues to decline, with less than 3000 visitors a day, 75 per cent of whom are non-mainland visitors.

For relying on tourists to support the retail industry, I thought that the cold winter of last year had passed, but I did not realize that the cold winter might only come, and the performance pressure of Hong Kong's local retail companies was further increased.

Second, the Hong Kong local retail stocks under the double kill

Since the incident, the share prices of local retail stocks in Hong Kong have begun to plunge. According to the previous thinking, from the cost-side and revenue-side perspectives, the retail industry in Hong Kong is mainly divided into two categories: retailers represented by Chow Tai Fook Jewellery and Sasha International, and commercial real estate developers represented by Wharf Real Estate Investment and Swire Properties. For commercial real estate developers, it only affects the income side; for retailers, not only the income side is affected, but because rigid costs, such as labor rent, cannot be reduced, they still have to pay a lot of costs in the absence of income. the operation is much larger than that of commercial real estate developers.

1. Retailer: event superimposed epidemic double click, thinking about survival

First, retailers who need to think about survival. Although there are many local retail stocks in Hong Kong, the trading volume of most retail stocks is relatively small and their market value does not go up. As of the close of trading on February 17, only five retailers had a market capitalization of more than 5 billion. They are Chow Tai Fook Jewellery, Liufu Group, Liufu International, Chow Sang Sang and Yongan Department Store. The five retailers are mainly gold jewellers. Chow Tai Fook Jewellery, Liufu Group and Zhou Sangsheng are well-known local gold jewellers in Hong Kong, while Lifu International and Wing on Department Store are well-known department store operators in Hong Kong.

Judging from the rise and fall in the second half of last year, the average decline of the leading companies is more than 15 per cent, but Chow Tai Fook Jewellery, which has the highest market capitalization, is down only 5 per cent, mainly due to the high proportion of business in the mainland. Among the large retailers, Chow Tai Fook Jewellery's share price was less affected by the events in the second half of last year. Coupled with the results released by Chow Tai Fook Jewellery in June and November last year, the mainland sales data performed well and the stock price reached two small peaks.

But the peak didn't last long. In late January, Chow Tai Fook Jewellery's share price fell nearly 15 per cent from its peak under the influence of the epidemic. Originally thought that the impact of the events at the end of the year gradually slowed down, perhaps in the Christmas, Spring Festival holidays and other factors, the turnover can be increased, but the actual business situation is still not optimistic.

According to the market, Chow Tai Fook Jewellery will review the performance of more than 40 Hong Kong outlets whose leases expire before fiscal year 2021. Most of these outlets are located in Hong Kong's important tourist streets, such as Causeway Bay, Mong Kok and Tsim Sha Tsui. Chow Tai Fook Jewellery is expected to close 15 of them. By the end of 2019, Chow Tai Fook Jewellery had 3789 outlets worldwide, most of them in mainland China, and only more than a hundred in Hong Kong. Although there are not many business outlets in Hong Kong, it creates more than 30% of the company's turnover, and important tourist streets account for a larger proportion of revenue. The impact of closing these outlets on the company's revenue can be imagined.

Previously, Hong Kong business has been hit, but the mainland business accounts for a relatively high share price, and Chow Tai Fook Jewellery's share price is still supportive, but now under the influence of the superimposed epidemic, many shopping malls in the mainland are waiting for employment, and at the same time, the data of Hong Kong tourists have been declining again and again, coupled with the fact that rigid costs such as rent and labor can not be reduced, and the company's performance in the next quarter can be expected.

Even the leading retailers have begun to close their stores to survive, as other retailers can imagine. Previously, the business on the mainland could survive, but now the situation is that even if the revenue of the mainland business accounts for a considerable share, it will still be greatly affected by the epidemic. Tianfeng Securities has previously issued a research report saying that under the impact of the incident, it may take more than a year for Hong Kong's local retail industry to recover. It is recommended to avoid it first. Now the impact of the epidemic is superimposed and the time line is lengthened again.

2. Commercial real estate developers: they are already in the worst stage, thinking about human nature.

For commercial real estate developers who only affect the income side, what will affect the performance of the next quarter, the current rent has already been in the pocket. However, with the deterioration of the incident and the impact of the epidemic, after more and more retailers think about survival, real estate developers will also find that they may run out of food in the next phase.

There are many commercial real estate developers in Hong Kong, but they have a large number of businesses, and not many companies make money purely by "rent collection". According to the ranking of the top 10 ups and downs so far in the second half of last year, Mr. Eagle, who fell first, fell nearly 30 per cent in the second half of 2019. From a business point of view, Mr. Eagle's main business in Hong Kong hotels, accounting for more than half. After the events intensified in the second half of the year, the tourism industry was hit hard, the hotel business was already gloomy, and the marginal effect of the epidemic was no longer obvious. And the company's share price has already fallen sharply.

And Hysan Societe Generale, which fell second, from the trend of the stock price, the share price of Hysan Societe Generale has been falling all the way since the incident intensified in July. In terms of business composition, Hysan's main business includes shop business, office business and residential business. Judging from the data of this year's semi-annual report, the shop business is the main business, accounting for nearly 50%. It is mainly located between Wan Chai and Causeway Bay on Hong Kong Island, and it is also one of the areas most affected by the incident. Under the influence of the incident, stock prices have fallen sharply in the second half of last year, and after the superimposed epidemic, it is no longer obvious.

Although the commercial real estate developers as charterers do not have to worry about survival, they have to think about the future income. If the retailers under the double kill can no longer survive, then the real estate developers will have no food, and this is the time to test human nature. A few days ago, Hong Kong Harbour City, owned by Wharf property, released an internal email, saying that due to the COVID-19 epidemic, the passenger flow of shopping malls had dropped sharply, and the performance of several brands had been seriously affected. In order to ease the pressure on merchants, Harbour City decided to halve the rent in February.

Not long ago, the Real Estate developers Association of Hong Kong issued a statement pointing out that the Hong Kong economy is facing severe challenges. In view of the current difficult situation of the retail and catering industry, it is hoped that members can explore with tenants in the spirit of helping each other and tide over the difficulties together. Provide measures, including rent concessions, to ease the pressure on business. After the release of the call, a number of developers immediately responded. Before the epidemic, most real estate developers showed their sense of social responsibility, but rent reduction was only a drop in the bucket for many retailers.

Summary

They did not come out of the incident in the first place, superimposing the impact of the epidemic, making life even more difficult for Hong Kong retailers. As Tianfeng Securities said in a previous research report, under the influence of the incident, it may take more than a year for Hong Kong's local retail industry to recover. It is recommended to avoid first. Now the impact of the epidemic is superimposed and the timeline is further lengthened. For investors, of course, it is a respectful distance. Life for the leading retailers is difficult, and the tail retailers are even more difficult, and the aforementioned Zhuo Yue Holdings, which is not up or down, but has already become a fairy stock, perhaps the managers think that its share price has long been divorced from the real value. Privatization is a better choice.