Company profile:
Xinji Shaxi is the largest hotel supplies mall operator in China. As of April 2019, the company has three hotel supplies malls and two household goods malls in Guangzhou and Shenyang, China, with a total floor area of about 360000 square meters, a total rentable area of about 270000 square meters, and a total leased area of about 230000 square meters, with an average occupancy rate of 85.2%.
Sino-Thai point of view:
The company is located in an important area of hotel supplies in China and will develop a diversified business network in the future: according to the Frost & Sullivan report, competition in the hotel supplies industry in China is fierce and highly dispersed, with more than 17000 hotel supplies manufacturers in China. According to the China Hotel supplies Association (CHSA), the output value of Chinese hotel supplies was about 1.8 trillion yuan in 2018, with a compound annual growth rate of 6.9 percent from 2013 to 2018. China's household goods market recorded retail sales of about 5 trillion yuan in 2018, with a compound annual growth rate of 10.5% from 2013 to 2018. It is expected that China's hotel and household goods industry will grow with the steady growth of China's macro-economy and tourism, and will grow at a compound annual growth rate of 6.4% and 8.2% respectively from 2018 to 2023. The company's main mall, located in Guangdong Province, is the most important area for the production and distribution of hotel supplies in China. In the future, the O2O platform will be expanded to provide omni-channel sales experience, while actively seeking appropriate expansion and diversification of business networks in other major cities in China.
In terms of operating performance: in the fiscal year from 2016 to 2018 and as of April 30, 2019, the company's operating income was 209 million yuan, 210 million yuan, 280 million yuan and 90 million yuan respectively, of which property rental income accounted for the highest proportion, accounting for 87.5% of the total income in the first four months of 2019. Most of them are the rental income of two hotel supplies stores and a household goods mall in Guangzhou. The rental rates of the three houses are 95.9%, 100% and 100%. The gross profit margin was 89.8%, 89.2%, 90.2% and 91.7% respectively, which remained stable. The core net interest rates were 11.0%, 5.6%, 22.8% and 34.6%, respectively. The substantial increase in 18 years was mainly due to the increase in rental income, especially driven by the Xin Ji Shaxi Hotel supplies Expo City. coupled with the reduction in marketing and advertising costs and a 49% increase in the equity share of Guangzhou Wanhua Hotel according to the restructuring of the Group. The year-on-year increase in the first four months of 19 years was due to (1) a 30% increase in the Group's share of Shaxi Hotel in Guangzhou, and (2) a decrease in total borrowing (resulting in interest expenses) of Shaxi Hotel in Guangzhou.
Valuation: based on 1.5 billion shares after the global public offering, the company's market capitalization is HK $13.5-1.65 billion, which is lower than that of its Hong Kong counterparts. The 18-year price-to-earnings ratio is about 19.0-23.2 times, which is higher than the industry average, and the 18-year price-to-book ratio is about 0.66-0.79 times, which is lower than the industry average. In terms of profitability, the 18-year ROE and ROA were 17.0% and 8.1% respectively, higher than the industry average. Consider that the atmosphere of the IPO market tends to be rational recently, and the track record of the relevant sponsors is not satisfactory. Considering the company's industry status, performance and valuation, we give it a score of 55, with a rating of "do not apply for purchase".
Risk tips: (1) market competition risk, (2) unable to compete fully and effectively with China's online sales network.