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Yihua Lifestyle Technology:Pan-household strategy likely to create synergies given strong property market fundamentals

发布时间:2016-07-29    研究机构:瑞银证券

Export business likely to improve steadily

In 2015, Yihua's export business contributed 73% of total revenue, with the US itsmain export destination. Export revenue declined in H115 mainly due to the negativeimpact of the strike at ports along the west coast of the US, but picked up significantlyin H215 when the negative impact faded. In our view, against the backdrop of animproving US property market and RMB depreciation, the export business is likely toresume growth in 2016/17, with the company further expanding its product categoriesand customer channels.

Strong property sales; pan-household ecosystem mostly completed

The rapid YTD growth in property sales is likely to give furniture sales a boost. Yihua'sdomestic business has maintained rapid growth since it shifted its focus to the domesticmarket in 2014. In recent years, the company launched several capital operations toinvest in and acquire household industry chain-related businesses, including mutuallycomplementary product categories, online platforms, and channels to access largeproperty projects, with the objective of building an ecosystem to provide integratedsolutions for the home. We believe given the strong domestic property sales, thecompany will continue to consolidate the resources it acquired earlier to createsynergies. We expect the company's domestic business to improve its contribution tototal revenue to 40% in 2017.

Acquisition of Singapore-listed HTL is still in progress

Yihua recently announced a plan to acquire all the shares of Singapore-listed HTL forSG$400m. We believe the acquisition, which is currently in progress, will effectivelycomplement Yihua's products and channels: 1) Yihua's main business is solid woodfurniture, while HTL's focus over the past 40+ years has been upholstered furniture.2) Since Yihua's exports are focused on different regions than those of HTL, HTL cancapitalise on Yihua's channels in the US and China to increase its penetration in thesetwo markets. If Yihua incorporates HTL into its consolidated financial statements inSeptember, we expect it to be accretive to revenue by 30.0%/57.8% and earnings by10.8%/18.9% in 2016/17. We have not factored the consolidation into our earningsestimates, since the acquisition is not yet completed.

Valuation: Maintain PT of Rmb14.50, Buy rating

Our DCF-based PT is Rmb14.50 (WACC 7%). We maintain our Buy rating.

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