Phillip Securities Group
Please note that the Day Light Saving of Europe and US will be effective on April 1st and March 11th respectively. The trading hours for those relevant contracts will be 1 hour earlier. Any questions, please contact us at 22776677.For details, please visit our foreign futures website or contact us at 22776677.Moreover,the spread of USD/JPY is low as one pip.Please click here for details
Research Report: Stock codeG
  28-02-2017 (�G)    La Chapelle (6116.HK) - Multi-brand Strategy with High Dividend Payout Ratio
  27-02-2017 (�@)    HN RENEWABLES (958 . HK) - Growth in Power Generation Better Than Industry Counterparts
  24-02-2017 (��)    Shanghai Pharma (2607.HK) - To Benefit from the Matthew Effect Enhanced by Policy
  23-02-2017 (�|)    Ajisen (China) Holdings (538.HK) - Attractive valuation
  22-02-2017 (�T)    Geely (175.HK) - Jan sales review
[1 / @593]
La Chapelle(6116)
28-02-17
  Share this articleG    
Recommendation on   28-02-17 
Recommendation Accumulate
Price on Recommendation Date $ 8.900
Suggested purchase price N/A
Target Price $ 9.800
Weekly Special - 1169 Haier Elec
Written by: Ocean Pan( Research Analyst )
Tel:
+852 2277 6515

Email:
oceanpan@phillip.com.hk

La Chapelle (6116.HK) - Multi-brand Strategy with High Dividend Payout Ratio

Investment Summary

- Low valuation. The stock is trading at 6.4x FY15 P/E. La Chapelle has already submitted IPO application to China's Securities Regulatory Commission. If it's successfully listed in A-share market, the company's valuation is expected to improve.

- Large number of retail points. As at 30 June 2016, there were 8,483 retail points in Mainland China. The retail points are operated directly. The growth in revenue in 1H2016 was mainly attributable to the expansion of retail network of the Group.

- The company carries out multi-brand strategy. The ratio to revenue of the top two brands was decreasing year by year. The company reduced the reliance on the top two brands and further spread the business risk.

- Development of the online business. In order to develop the online business, the company invested in the famous website ¡§Qigege¡¨ and Qigege operates the company's online business in order to enhance the online distribution channels.

- Stable and high dividend payout ratio. The dividend payout ratio remained high in past years. The company paid an interim dividend of RMB0.35 (tax inclusive) per share for the six months ended 30 June 2016.

Company Business

The revenue increased from RMB1,864 million in 2011 to RMB9,096 million in 2015 at a CAGR of 48.6%. The revenue was mainly from Tier 2 and Tier 3 cities.

The revenue of the Group in 1H2016 increased steadily from RMB4,225.7 million in 1H2015 to RMB4,809.3 million, representing an increase of 13.8%. The growth in revenue in 1H2016 was mainly attributable to the expansion of retail network of the Group. As at 30 June 2016, there were 8,483 retail points which were situated at approximately 2,665 physical locations in Mainland China, increasing from 7,893 as at 31 December 2015. The retail points are operated directly.

The profit for the period over 1H2016 amounted to RMB303.7 million, representing a YoY increase of 4.8%.

The company paid an interim dividend of RMB0.35 (tax inclusive) per share for the six months ended 30 June 2016. The dividend payout ratio remained high in the past years.

Multi-brand Strategy

The company carries out multi-brand strategy. In addition to the wide range of apparel products under the existing ten brands of the Group, namely La Chapelle, Puella, Candie's, Vougeek, 7m, La Babité, La Chapelle Kids, Pote, MARC ECKŌ and UlifeStyle and brands associated with the company (namely OTHERMIX, JACK WALK and O.T.R etc.), the Group continues to look for opportunities to invest in quality apparel brands and other retail consumer goods.

The following table shows the revenue breakdown by brand for 1H2016 and 1H2015:

The following table shows that the ratio to revenue of the top two brands was decreasing year by year. The company reduced the reliance on the top two brands and further spread the business risk.

The Company Focuses on Mass-market Ladies` Casualwear

The company focuses on mass-market ladies` casualwear. Female consumers become more independent, the influence by female consumers is expected to increase. Mass market of womenswear is expected to maintain steady growth in the future. As the quality of life increases and the women has higher requirements in terms of appearance, less developed regions` market potential is expected to be excavated.

The company believes that mass consumption continues to act as the key driver of the development of consumer market, and online shopping becomes the new normal trend for market development.

Online Business Development

The Group divides the online store into individual brand stores with more products selling at the same price online as the physical stores. Revenue from the online platform was RMB389.8m for 1H2016, accounting for 8.1% of total revenue for 1H2016 and representing an increase of 1.6% from the percentage of total revenue in FY2015.

In order to develop the online business, the company invested in the famous website ¡§Qigege¡¨ and Qigege operates the company's online business in order to enhance the online distribution channels.

The company's online sales volume was RMB317 million on the double 11th day, increasing by 11% YoY. Together with the offline sales volume of RMB194 million, the total sales exceeded RMB500 million. The brand ¡¨La Chapelle¡¨ ranked No.5 in Tmall ladies` wear with the sales volume of RMB161 million.

With the continuous development of e-commerce, the company's revenue from online platform is expected to increase fast.

The Company Launched the Partnership Incentive Programme

La Chapelle launched the Partnership Incentive Programme at the beginning of 2015 to let every clerk become partner of the store and share the company's profit according to the store performance. The payment changes from ¡§fixed wages +commission¡¨ to ¡§linked with sales performance¡¨. The wages are shared by the manager and the clerks of the store. It will enhance the employees` sense of belonging to the company, improve operational efficiency and increase customer satisfaction and is beneficial to the company's sales performance.

The Company Plans to Open Segafredo Cafés in the Retail Points

In June 2016 La Chapelle announced that its wholly-owned subsidiary LaCha Fashion acquired a 20.75 stake in TNPI for about US$3.75 million. In the future, the Group may work with TNPI to set up Segafredo cafés in the retail points of the Group, so that customers can enjoy quality life while shopping. By doing this the company may increase offline sales and increase consumer viscosity.

Price Reference of Raw Materials

The following chart shows the price reference of raw materials.

Same Store Sales and GPM

Due to the general slowdown of the economy in China and weak recovery in the consumer market, same store sales for physical stores of the Group decreased by 4.98% YoY in 1H2016. Same store sales decreased by 0.8% YoY in 1H2015 and decreased by 3.2% YoY in FY2015.

GPM decreased by 1.2% YoY to 67.0% in 1H2016, mainly due to the slight decrease in average effective unit selling price in 1H2016.

Inventory turnover days rose from 160 days in 1H2015 to 179 days in 1H2016, mainly as a result of higher precipitation and unstable temperature in spring.

The company has established large retail network. However, influenced by China's slowdown, SSSG seems to encounter bottlenecks. Whether the company can use its large retail network and its popularity and find ways to improve its same store sales performance and inventory turnover or not is still under observation.

Business Outlook

The future development plans include increasing the proportion of retail points with complementary lifestyle experience, allocating more resources to support new brands, enhancing the brands` influence on the market, increasing the proportion of online sales, continuing to invest in relevant brands related to apparels and so on.

In addition, La Chapelle has already submitted IPO application to China's Securities Regulatory Commission. If it's successfully listed in A-share market, the company's valuation is expected to improve.

Valuation

Accumulate Rating is given with TP of HK$9.80. We expect net profit growth of 2.8%/6.1%, driven by 8.5%/9.5% revenue growth. Our TP of HK$9.80 represents 6.8/6.4x FY16E/FY17E P/E.(Closing price as at 24 February 2017)

Risk

The weak consumer market environment due to China's slowdown;

The ladies-wear industry in China faces intense competition;

Change in fashion trend and consumer tastes.

Financials

Click Here for PDF format...

Back to Top


Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed to be reliable. However, we do not verify such information. We do not guarantee its accuracy or completeness, nor do we take responsibility for any loss occasioned by reliance placed upon the contents hereof. Any statements nonfactual in nature constitute only current opinions, which are subject to change. Phillip Securities (HK) Ltd (or one of its affiliates) or their officers, directors, analysts, or employees may have positions in securities or commodities referred to herein, and may, as principal or agent, buy and sell such securities or commodities. An employee, analyst, officer, or a director of Phillip Securities (HK) Ltd, or its affiliates, may serve as a director for companies mentioned in this report. Neither the information nor opinion expressed in this report shall constitute a solicitation to buy or sell any securities. There may be instances when fundamental, technical, and quantitative opinions may not be in concert. This firm (or one of its affiliates) may from time to time perform investment banking or other services for, or solicit investment banking or other business from, any company mentioned in this report.
There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange rate fluctuations, and limited availability of information on international securities. We recommend that you obtain the advice of your Financial Advisor regarding this or other investment in order to conform to your financial resources and risk preference

Copyright © 2011 Phillip Securities Group. All Rights Reserved [ Risk Disclosures Statement ] [ Terms and Conditions ] [ Personal Data Policy ]