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Yihua Lifestyle Technology:Completion of overseas acquisition;domestic sales growth likely to rebound

发布时间:2016-09-19    研究机构:瑞银证券

Acquisition of HTL completed*Yihua recently announced a deal to acquire all the shares of Singapore-listed furniturecompany HTL for S$400m. HTL has been delisted from the Singapore Stock Exchangefollowing the full payment for the consideration of the acquisition on 8 September. Webelieve Yihua will incorporate HTL into its financial statements in September. HTL haspledged NPAT of not lower than US$25.00/27.50/30.25m for the three financialperiods from 1 August 2016 to 31 July 2019.

We are upbeat on HTL's profitability as it steps up expansion in Chinese market*We believe the improvement in HTL's profitability will be driven by: 1) improvement ingross margin as raw material costs decrease; and 2) closure of some overseas storesthat have been weighing on earnings, relocation of the HQ from Singapore to mainlandChina to save on administrative expenses, and full provision being made for therelevant one-time expenses prior to its consolidation into Yihua. In view of HTL'sexport-oriented business, we expect it to draw on the strengths of Yihua's channels inChina to expand its presence in the Chinese market after the consolidation, includingonline platforms and offline channels. We expect HTL to open nearly 500 new stores inChina in the next three years.

We expect earnings growth to accelerate in H2*Yihua's domestic revenue saw only single-digit growth in H1, mainly due to aslowdown in franchisee recruitment and delayed recognition of revenue from ordersreceived during the promotion period in June. We believe domestic sales growth willimprove significantly in H2, mainly because of: 1) gradual recognition of revenue onshipments against orders received earlier; 2) arrival of the high season for furnituresales; and 3) resumption of franchisee channel expansion, as we estimate the companysigned on about 50 franchisee stores in September, which will open for business in H2.

Valuation: Rmb15.45 price target; maintain Buy rating*Considering the impact of Yihua's product mix adjustments on the expansion of itsfranchise business and the increase in financial expenses due to the costs of acquisition,we lower our earnings estimates for its original business, but given the consolidation ofHTL, we raise our 2016-18E EPS to Rmb0.54/0.66/0.79. Our new DCF-based PT isRmb15.45 (WACC=7%). We maintain Buy.

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