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1、1/12,2/12,3/12,4/12,5/12,6/12,7/12,8/12,9/12,10/12,11/12,12/12,CompanyResearch/Wholesale&RetailSector,70,25,2.4,14.7,NC,12M,0,51.00,9.71,8.46,Sun Art Retail Group Ltd.(06808.HK)Secularly-growing market leaderamid rapid nationwide expansion,17 Jan 2012Investment HighlightsLeader in Hypermarket sector
2、 with rapid nationwide expansion.Sun Artoperates hypermarket complexes in mainland China under two bannersRT-mart and Auchan.With market share of 12.8%,its turnover totalledRM68.1 billion in 2011 and both its revenue and store number ranked first inChinas hypermarket sector.Turnover/Net profit grew
3、at a 3 year-CAGR of21.6%/25.0%in 2009-2011.During 2009 to 2011,Sun Art newly opened 24,28 and 46 stores respectively.As of 30th June,Sun Art operated 240hypermarkets in China(45 in Auchan banner while 195 in RT-mart banner)and the total GFA reached 6.7 million square meters.,OVERWEIGHT(Initiation)Sh
4、are Price:HK$11.24Target Price:HK$11.93CSI Research DepartmentXueqin ZhaoTel:(8621)68762787Email:Yu ZhouTel:(8621)68761622Email:yu_Price Chart,Turnover(HK$mn),(HK$),Rapid growth of hypermarket sector amid trend of industryconcentration.In China there are 5.5 hypermarkets for every million urbanresid
5、ents,implying substantial insufficiency compared to developedcountries(eg.15.1 in US,25.7 in Britain,and 32.1 in France).The superstorefloor area per capita is just 1/3 of that in developed countries.We forecastthe market size of hypermarket,driven by urbanization and ascending salesefficiency,will
6、increase at a CAGR of 21.1%in the next 5 years.Currently,the CR10 of Chinas supermarket industry is 17.2%,lower than developedcountries(CR10=60%),but it is expected to improve in the future.Supply,500450400350300250200150100500,Sun Art Retail GroupMSCI-China,13.011.09.07.05.03.01.0,chain management
7、and cross-regional expansion ability are crucial for future,competition.,Source:Bloomberg,CSI,“One-stop”complex operator,penetrating in lower tier cities for greatgrowing potential.71%of Sun Art stores are located in third or lower tiercities and 76%of the planned sites are in those areas.During 200
8、6-2011,theCompanys retail sales of consumer goods enjoyed stronger growthmomentum in lower-tier cities(at a CAGR of 19.8%)compared tofirst/second-tier cities(16.4%/19.2%).We believe lower-tier cities will gethigher growth potential due to the low base effect.Sun Art leases outapproximately 15%20%of
9、its hypermarket GFA to other tenants whooperate complementary products.In 2011,its rental income equalled 107%of its rent cost(for its peers the ratio was usually below 40%).We believegrowing rental income will efficiently reduce its operation cost in the future.,Latest Key DataMSCI-ChinaFF no of sh
10、ares(mn)FF(%)FF market cap(HK$mn)52 week high/low(HK$)12M daily turnover(mn)12M volatility(%)PEG FY12-14E(%)RoE avg FY11-13E(%)P/B FY12E,6613.02197.823.02597912.28/8.495.4,Strong bargaining power aided by scale advantage,efficientmanagement results in higher profitability.We expect Sun Art will open
11、43/52/50 stores in 2012-2014E respectively with average GFA per store of,Net debt/equity FY12EStock Performance(%)1M YTD,3500045000 sqm.Sun Arts gross margin is about 1.0 ppt higher than thepeers average due to its scale advantages.We forecast its gross margin will,AbsoluteRel to MSCI-China,(6)(10),
12、16(6),14,be 21.0%/21.7%/22.2%in 2012-2014E.On the other hand,Sun Art,introduced an effective employee incentive scheme which promoted SunArts sales per sqm and sales per employee to 132%/51%higher than thepeers average.In terms of profitability,companys net profit margin alsooutpaced peers average b
13、y 0.20.5 ppt in 2009-2012H1,and we forecast the,Main Shareholders(%)A-RT Retail Holdings LimitedGroupe Auchan SAConcord Greater China Ltd.,margin will remain stable at 3.1%in 2012-2014E given the rising labor andrental cost in the future.,Yin,Chuang YaoAuditor,7.84,KPMGIMPORTANT DISCLOSURE AT THE EN
14、D OF THIS REPORT,Sun Art Retail Group Ltd.(06808.HK)Potential risks:A sharp economic slowdown;unsustained lease contracts or rapidincrease of rental cost;impact of online business on the profitability of tenants.Earnings forecast,valuation and investment rating:We project Sun Arts basic EPS toreach
15、RMB0.25/0.29/0.34 in 2012-2014E,respectively,with a 3-year CAGR of 26.4%.Wederived Sun Arts target price of HK$11.93 based on our DCF method,implying a2012/2013E PER of 39x/33x.We initiate the coverage with an“OVERWEIGHT”rating.Investment Summary,2010,2011,2012E,2013E,2014E,Turnover(RMB million)Chan
16、ge(%)Profit attributable to Shareholders(RMB million)Change(%)EPS(RMB)EPS(HKD)Change(%)PEOCF per share(RMB)P/OCFEV/EBITDA(x)DPS(RMB)Yield(%),5616823.71031.027.130.190.23n.a.480.8910230.131.5,6808421.21600.055.190.200.255.26460.7412180.080.9,8035018.02374.648.410.250.3124.46370.5716160.121.4,9531118.
17、62780.217.080.290.3617.08310.5816140.151.6,11156917.13233.316.300.340.4216.30270.6913120.171.9,Source:Company announcement,forecast by CSI,Note:dividend yield not include the special dividend 1128,mn,in 2012,Closing price as of 16 Jan 2013,(HKD:CNY=0.81),IMPORTANT DISCLOSURE AT THE END OF THIS REPOR
18、T,1,Sun Art Retail Group Ltd.(06808.HK),Contents,A leading hypermarket chain in China.1Rapid growth of hypermarket sector amid industry concentration trend.3“One-stop”complex operator,penetrating in lower tier cities for great growing potential.7Lower tier cities show great trading up potential.7“On
19、e-Stop”shopping experience,with rental income setting off operation expense.8Strong bargaining power aided by rapid nationwide expansion.9Scale advantage with 12.8%market share,to open about 50 stores per year in 2013-15E.9Strong bargain power results in higher gross margin.10Effective employee ince
20、ntive and supply chain management,profitability outpacing sector.10Leading sales per employee,and sales per sqm aided by efficient employee incentive scheme.10Excellent supply chain management,and logistic support in RT-Mart.11Net profit margin higher than peers,expected to be stable in future.12Pot
21、ential risks.13Earnings forecast,valuation and investment rating.14Appendix:Sun Art Management Profile.2,Figures,Fig.1:Equity Structure of Sun Art Retail Holdings.1Fig.2:Sun Arts total turnover(2008-2012H1).2Fig.3:Sun Arts net income(2008-2012H1).2Fig.4:Sun Art store expansion steps.2Fig.5:Property
22、ownership by GFA(2012H1).2Fig.6:71%of stores lie in third-fifth tier cities(2012H1).3Fig.7:76%of potential sites lie in thirdfifth tier cities.3Fig.8:China hypermarket number per capita at a low level(2011).4Fig.9:China hypermarket floor area per capita at a low level(2011).4Fig.10:China hypermarket
23、 floor area per capita was behind of the U.S.for more than 12 years.4Fig.11:China hypermarket floor area per capita equals South Korea in 2002.4Fig.12:Chinas sales efficiency per floor area(1999-2011).4Fig.13:Chinas sales efficiency per floor area at a low level(2011).4Fig.14:Geographic distribution
24、 of local supermarkets(as of 12/31/2011).5Fig.15:CR10 of China Supermarket Industry(2004-2011).6Fig.16:Top10 in Chinas hypermarket sector(2011).6Fig.17:Supply Chain integration in Supermarkets.6Fig.18:Demonstration of margin improvement method.6,IMPORTANT DISCLOSURE AT THE END OF THIS REPORT,2,Sun A
25、rt Retail Group Ltd.(06808.HK),Fig.19:Social retail goods nominal CAGR between different tier cities(2006-2011):,third and lower tier cities highest.7Fig.20:Resident income CAGR between different tier cities:lower tiers are expected to have higher growth rate.7Fig.21:70%stores lie in third or lower
26、tier cities while 76%potential sites lie in these areas,as of 12/31/2011.7Fig.22:Geographic distribution of Sun Art(2012H1).7Fig.23:Geographic distribution of Hypermarket complexes(as of 05/2011).8Fig.24:GFA distribution of a typical hypermarket of Sun Art.8Fig.25:Rental income covers all lease expe
27、nse.8Fig.26:Operating lease rental:08-11 3-yr CAGR 25.7%.9Fig.27:Rental income:08-11 3-yr CAGR 28.0%.9Fig.28:Scale comparison of Top 10 Hypermarkets.9Fig.29:Sales per store comparison(2011A).9Fig.30:Adjusted gross margin comparison of hypermarket peers(2012H1).10Fig.31:Sun Arts gross margin was 1.0
28、ppt higher in average than peers.10Fig.32:Sales per employee comparison(2010-2012H1).11Fig.33:Revenue per saleable area comparison(2011).11Fig.34:Stable operation days of Sun Art(2010-2012H1).11Fig.35:Inventory turnover days(2012H1).11Fig.36:Inventory turnover days comparison(2008-2012H1).12Fig.37:A
29、ccounts payable days comparison(2008-2012H1).12Fig.38:Net profit margin for peers(2008-2012H1).12Fig.39:Net profit margin for peer players(2012H1).12Fig.40:Labor cost of Sun Art roughly the same as peers.13Fig.41:Operation lease cost plus Depreciation&Amortization comparison(2008A-2011A).13Fig.42:Ot
30、her cost ratio higher than peers(2008-2012H1).13Fig.43:SG&A ratio in line with peers(2008-2012H1).13,Tables,Table 1:Milestones of Sun Art.1Table 2:Regions and hypermarkets distribution of dual banners in the group.3Table 3:Market size estimation of hypermarket in China(2009-2016E).5Table 4:Distribut
31、ion center of RT-mart.11Table 5:Turnover and expense forecast for Sun Art.14Table 6:Result of DCF Valuation(Rmb mn,except for the intrinsic value per share).14Table 7:Comparable H-share&A-share supermarket valuation.15,IMPORTANT DISCLOSURE AT THE END OF THIS REPORT,1998,1999,2010,1,Sun Art Retail Gr
32、oup Ltd.(06808.HK)A LEADING HYPERMARKET CHAIN IN CHINASun Art has two ultimate controlling shareholders,Ruentex and Groupe Auchan.A-RT is the biggest shareholder of the listed company while Auchan and Ruentex have51%/49%interests in A-RT respectively.Auchan has the right to appoint the majority of t
33、heboards of director of A-RT and RT is entitled to nominate two(six members in total).Toreflect the highly consensual strategic cooperation,important operation decisions requirethe unanimous approval of the board of A-RT.Auchan is headquartered in France and has five core businesses,namelyhypermarke
34、ts/supermarkets operations,real estate operations/management,banking ande-commerce.Its hypermarkets business,spread across 12 countries and regions,including France,Spain,Italy,Russia,Chinese Mainland and Taiwan,representedapproximately 80%of its group revenue in 2010.Ruentex is headquartered in Tai
35、wan and is a diversified conglomerate with businessoperations in industries including textiles,real estate development,construction,realestate management and security and cement manufacturing.Fig.1:Equity Structure of Sun Art Retail HoldingsSource:Company website,CSITable 1:Milestones of Sun Art,Dat
36、e20 Dec 20002001200413rd May 201127th July 2011,MilestonesRT-mart opened 1st hypermarket complex in Zhabei District,ShanghaiAuchan opened 1st hypermarket in Yangpu district,ShanghaiSun Art was set up by Ruentex and Auchan to run business in mainland Chinausing dual banner modelExpanding aggressively
37、 nationwide through joint venture with local enterprisesRanking 1st hypermarket chain instead of Carrefour ChinaReorganization finished,Sun Art acquired minor shareholders interests to 100%holding key subsidiariesListed in HK Stock Exchange.Market cap reached 67.5 bn HK dollar on thelisted date,Sour
38、ce:Company Announcement,CSIIMPORTANT DISCLOSURE AT THE END OF THIS REPORT,0,2,Sun Art Retail Group Ltd.(06808.HK)The largest hypermarket chain in China with 13%market share,expandingaggressively nationwide.As at end-2011,Sun Arts sales accounted for 12.8%of theoverall hypermarket chain sales in Chin
39、a,ranking first among the hypermarket operatorsin the country.Currently Sun Art is proactively developing markets nationwide,and isexpected to open approximately 50 stores per year in the future.As of 30th June 2012,theCompany had 240 stores(including 12 contracted stores).The total GFA of Sun Artre
40、ached 6.7 million square meters by then.,Fig.2:Sun Arts total turnover(2008-2012H1),Fig.3:Sun Arts net income(2008-2012H1),Turnover(Rmb mn),YoY(%),Net Profit Attributed to Shareholders(Rmb mn),YoY(%),80,00070,00060,00050,000,23.7%19.9%56,16845,394,21.2%68,084,14.4%,25%20%15%,1,8001,6001,4001,200,1,0
41、31,1,60055.2%,80%75.1%70%60%1,37350%,40,00030,000,37,852,39,416,10%,1,000800600,680,811,27.1%,40%30%,20,00010,0000,5%0%,4002000,19.3%,20%10%0%,2008A,2009A,2010A,2011A,2012H1,2008A,2009A,2010A,2011A,2012H1,Source:Company announcement,CSIFig.4:Sun Art store expansion steps,Source:Company announcement,
42、CSIFig.5:Property ownership by GFA(2012H1),260240,#of Existed store in the beginning of year,230,24010,Self-owned,Leased,220,Store opened in year,200180,Total store#,156,18428,46,160,140,132,24,33%,120,106,26,230,100806040200,1111,211011,371621,46937,581246,721458,831172,2383,106,132,156,184,67%,200
43、0A 2001A 2002A 2003A 2004A 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012H1,Source:Company announcement,CSI,Source:Company announcement,CSI,Operating under two banners Auchan and RT-mart,71%of Sun Arts stores arelocated in thirdfifth tier cities.Sun Art operates hypermarket business in China undertw
44、o well-recognized banners.As of 30th June,2012,of its entire 240 hypermarkets,45were under the“Auchan”banner,accounting for 27%GFA of the total.While the“RT-mart”banner had the rest 195 stores,with 73%of GFA.Although Sun Art first started itshypermarket business in first tier cities such as Shanghai
45、 and Beijing,it has graduallypenetrated into lower tier cities and attached strategic importance to these areas.Currently,71%of Sun Arts hypermarkets are located in thirdfifth tier cities and 76%of theiridentified potential sites are also in such regions.IMPORTANT DISCLOSURE AT THE END OF THIS REPOR
46、T,-,-,-,-,6%,3,Sun Art Retail Group Ltd.(06808.HK)Table 2:Regions and hypermarkets distribution of dual banners in the group,Number of hypermarkets complexes(2012H1),GFA(2012H1),RegionEastern ChinaNorthern ChinaNorth-Eastern ChinaSouthern ChinaCentral ChinaWestern ChinaTotal,Auchan3543345,RT-Mart832
47、72133238195,Total1183121332611240,Auchan1,451,679124,99096,219115,1961,788,084,RT-Mart2,101,978658,962556,550842,087580,801198,6434,939,021,Total3,553,657783,952556,550842,087677,020313,8396,727,105,GFA per store,39,735,25,328,28,030,Source:Company announcement,CSI.Eastern China:Shanghai,Zhejiang,Ji
48、angsu;Northern China:Beijing,Tianjin,Shandong,Hebei,Shanxi;North-Eastern:Jilin,Liaoning,Heilongjiang,Inner Mongolia(north);Southern China:Guangdong,Guangxi,Fujian,Hainan;Central China:Anhui,Hunan,Hubei,Henan,Jiangxi;Western China:Yunnan,Guizhou,Sichuan,Gansu,Shaanxi,Chongqing.,Fig.6:71%of stores lie
49、 in third-fifth tier cities(2012H1),Fig.7:76%of potential sites lie in thirdfifth tiercities,First tier,Second tier,Third tier,Fourth tier,Fifth tier,First tier,Second tier,Thirdfifth Tiers,Fifth tier,First tier,12%,First tier,4%,Fourthtier,20%,Secondtier,17%,Thirdfift,Secondtier,20%,Third tier,45%S
50、ource:Company announcement,CSI,first tier cities:Municipalities and Guangzhou;second tier:Capitalcities,vice-provincial cities;Third tier:Prefecture-levelcities;fourth tier:country-level cities;fifth tier cities:township and towns.,h Tiers,76%Source:Company announcement,CSI,first tier cities:Municip
