汇丰银行中国特殊零售业中国香港珠宝再次闪耀的时候到了201832933页

Disclosures&DisclaimerThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.Issuerofreport:TheHongkongandShanghaiBankingCorporationLimitedViewHSBCGlobalResearchat:THISCONTENTMAYNOTBEDISTRIBUTEDTOTHEPEOPLE'SREPUBLICOFCHINA(THEPRC)(EXCLUDINGSPECIALADMINISTRATIVEREGIONSOFHONGKONGANDMACAO)Weseeabuyingopportunity:themarkethasmissedtheturnaroundcatalystsRaise1-yrforwardEPS;wearenowaheadofconsensusforChowTaiFookandLukFookUpgradethreestockstoBuyandraisetargetprices;ourpeckingorderisLukFook,ChowTaiFook,ChowSangSangThestoryhaschanged.Inanon-consensuscall,weturnpositiveonthesectorforthefirsttimesinceApril2017.Valuationshavede-ratedoverthepastsixmonths,pointingtoslowergrowthandthefactthatupwardrevisionstoconsensusearningshaveloststeam.ButwethinkthisoverlookspositivecatalystsinbothChinaandHongKong.Inourview,thethreeleadingjewellerscanbeatconsensusonsalesandprofitsin2018,especiallyinHongKong,andthecurrentmid-rangevaluationsofferreratingopportunities.Here’swhy.Catalysts.DiscretionaryspendinginHongKongisontheriseinmanysectors,buoyedbythewealtheffectasrealestatepricesandthestockmarketmovehigher.Jewelleryretailsalesgrowthrose10%y-o-yinJanuary,despiteChinavisitornumbersfalling6%y-o-y.Samestoresalesgrowthisstabilisingafterthejewellerstrimmedthenumberofretailoutlets,whichbodeswellforprofitability.Lowerrentsalsohelp.InChina,allthreecompanieshavestemmedtheirmarketsharelossesaftershakinguptheirproductrangeandsalesnetworks.Overall,wethinktheturnaroundissustainable,afterfinallyemergingfromtheshadowcastbytheanti-corruptioncampaignfrom2013.Changeinforecasts.Weraiseourearningsforecastsfor1-yrforwardEPSforCTF,LF,andCSSby4.4%,9.2%and0.7%,respectively,witha3-yrnetprofitCAGRof13.8%,16.7%,and10.1%,basedonasalesCAGRof7.6%,8.2%,and7.9%.OurforecastsforFY19e(Mar-end)earningsforCTFandLFare5.6%and5.5%aboveconsensus.ForCSSweare8%belowconsensusforFY18e(Dec-end)duetoitsthinanalystcoverage.Stocks.WeupgradeallthreestockstoBuyandincreaseourtargetpricesby28%forCTF,11%forLF,and3%forCSS(seetable).ThestocksaretradingaroundthemiddleoftheirhistoricalPErange,whiletheMSCIChinaDiscretionaryIndexisclosetothehighendofitsrange.Wethinkhigherearningsgrowthin2018willdriveareratingstory.29March2018LinaYan*ConsumerAnalyst,HK/[e-mail][phone]KarenChoi*HeadofConsumerandRetailResearch,Asia-PacificTheHongkongandShanghaiBankingCorporationLimited,[e-mail][phone]VishalGoel*AssociateBangalore*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations.HK&ChinaJewelleryEQUITIESSPECIALTYRETAILHongKongCurrent______TP________Rating__Upside/CompanyTickerCurrencypriceOldNewOldNewdownsideMarketcap(USDm)3mADTV(USDm)PEYr0PEYr1ROEYr1ChowTaiFook1929HKHKD8.748.811.3HoldBuy29.3%11,752529.021.512.8LukFook590HKHKD27.3030.633.9HoldBuy24.2%2,080318.314.012.3ChowSangSang116HKHKD16.1019.419.9HoldBuy23.6%1,511114.311.59.1Source:Bloomberg,HSBCestimates.Pricedasofcloseat28March2018TimetosparkleagainEQUITIES●SPECIALTYRETAIL29March20182TimetosparkleWeturnpositiveonHongKongjewellerysalesbecauseofthewealtheffectthatishelpingtodriveanincreaseinoverallsales.Webelievethemarketismissingthefactthatlocalsaccountedformorethan60%oftotaljewellerysalesinHongKongin5ofthepast7months.Asaconsequence,growthinHongKongjewelleryretailsaleshasoutperformedthegrowthinChinesevisitorstoHongKong.Thathasonlyhappenedfourtimesoverthepast42monthsfromJan2014toJune2017.WealthyChinesetouristscontinuetotraveltomoreexoticdestinations,attheexpenseofHongKong,withperovernightspendinHongKongdroppingtoHKD7,101in2017fromHKD7,275in2016,andHKD7,924in2015.Therefore,thefastergrowthinHongKongjewelleryretailsalesislikelytocomefromlocalsspendingmoreratherthanfromgrowthinmainlandChinesetourists.Figure1.MonthlymainlandChinavisitationgrowthvs.HongKongjewellerysalesgrowthSource:CEICThemarkethasyettoreacttothepickupinthelocaldemandinHongKong.ThesharepriceperformanceofHongKong-listedjewellerycompaniesstalledin2H17asSSSGmoderatedandupwardrevisiontoconsensusearningsloststeam.3.7%-2.0%7.2%8.3%8.6%7.2%-5.5%13.3%7.4%14.8%8.5%7.9%6.2%10.4%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%Jul-17Aug-17Sep-17Oct-17Nov-17Dec-17Jan-18PRCVisitorstoHKYoY%Jewellery,Watches&ClocksYoY%TimetosparkleWeseeabuyingopportunity–consensusismissingthecatalystsBullishonjewellerysalesinHK,especiallygivenlocals’pent-updemand;competitiontoremainbenignWebelieveHongKongjewellersstemmedtheirmarketsharelossin2015/16andwillsolidifytheirsharesinChina3EQUITIES●SPECIALTYRETAIL29March2018However,webelievecurrentmarketexpectationsonearningshaveoverlookedsomepocketsofstrength.WebelieveHongKongjewellerswillbeatconsensusbothintermsofsalesandprofitin2018,allowingtheirvaluationstotradeabovetheirhistoricalaveragelevels.Specifically,wearepositiveonthebelowcatalysts:Pent-updemandfromHongKong