Swiss Watch Export increased by 3.8% in December
According to statistics announced by the Federation of the Swiss Watch Industry, Swiss watch exports in December were +3.8% yoy in value. Francesca Di Pasquantonio commented in the report, Closing 2013 with improving Swiss watch exports (+3.8% in Dec), that this was a modest improvement vs. the trend reported in the previous months driven by a lower comp base (the base for December was -5.6% vs. 4.5% in November). Mainland China posted a +18.8% yoy performance in December, a nice reversal of the negative monthly trends experienced in most of the previous 18 months and should probably further improve in CNY, while HK was -1.8% yoy (2013: -5.6%).
Deutsche Bank view
The share price did not react positively as a result of the positive comment from Swatch’s management and December’s Swiss watch export data. We believe this might be due to company specific concerns on whether as a watch retailer, Hengdeli is able to smoothly shift its focus to a more mass market business in China, potential operating deleverage in HK if SSSG slowed, and whether major shareholders will repay the loans to Swatch. As mentioned in yesterday’s alert, we believe the transition might continue at least into 1H14 but at least there are some green shoots. As for the shares pledged (550m shares or 11% of the total stake) to Swatch (UHR.VX, Buy, CP 597.50 CHF), management explained that the expiry date is in July 2014. Management believes that Mr. Cheung will repay a USD100m loan.
Swiss Watch Export increased by 3.8% in December
According to statistics announced by the Federation of the Swiss Watch Industry, Swiss watch exports in December were +3.8% yoy in value. Francesca Di Pasquantonio commented in the report, Closing 2013 with improving Swiss watch exports (+3.8% in Dec), that this was a modest improvement vs. the trend reported in the previous months driven by a lower comp base (the base for December was -5.6% vs. 4.5% in November). Mainland China posted a +18.8% yoy performance in December, a nice reversal of the negative monthly trends experienced in most of the previous 18 months and should probably further improve in CNY, while HK was -1.8% yoy (2013: -5.6%).
Deutsche Bank view
The share price did not react positively as a result of the positive comment from Swatch’s management and December’s Swiss watch export data. We believe this might be due to company specific concerns on whether as a watch retailer, Hengdeli is able to smoothly shift its focus to a more mass market business in China, potential operating deleverage in HK if SSSG slowed, and whether major shareholders will repay the loans to Swatch. As mentioned in yesterday’s alert, we believe the transition might continue at least into 1H14 but at least there are some green shoots. As for the shares pledged (550m shares or 11% of the total stake) to Swatch (UHR.VX, Buy, CP 597.50 CHF), management explained that the expiry date is in July 2014. Management believes that Mr. Cheung will repay a USD100m loan.
