footwear consumption per capita growth. UBS believes that China's economic growth and urbanization will continue to bring disposable income and purchasing power growth. This is the basis for the forecast of UBS, UBS is expected to Chinese residents in 2012 to purchase an annual average of 2.3 pairs of shoes, in 2006 to 1.8 pairs.
footwear random survey conducted by low brand loyalty. UBS in Shanghai and Beijing residents to take 56 of China's mid-and high-end footwear brands random survey. Only 14% of the respondents said that the decision was based on the purchase of the brand, while 44% of the respondents were concerned about the style of shoes, 22% concerned about the quality. Belle
its growth and stability in a good position; in the 2007 list of top 10 brands occupy six brands. According to Datamonitor data, the value of footwear sales growth will be from 2003 to 2006 the average annual compound growth rate of 7.2 percent to stability from 2007 to 2010 of 5.3 percent, from 2009 to 2012 to 5.1 percent. UBS is that the Chinese footwear market by the rapid growth into a steady growth, and Belle, with its broad sales network and a huge business, as well as in the 2007 list of top 10 brands occupy six brands (China General Chamber of Commerce data), Will continue to enhance its economies of scale and to maintain steady growth. UBS reiterated
Belle (01,880), buy rating; down Daphne (00,210) rating to neutral. UBS believe Belle's multi-brand strategy and market leading position to help them become a long-term winners; UBS reiterated its buy rating and target price of 9.89 by the Hong Kong dollar down to 7.38 Hong Kong dollar, which implies expected earnings in 2009 18 times. UBS will be Daphne's rating cut to neutral from buy, and the target price of 5.36 Hong Kong dollar from 3.66 down to the Hong Kong dollar, which hinted that in 2009 for 10 times expected earnings, as a result of UBS that the Daphne New business and existing business currently faces many uncertainties.
Title: Chinese shoes into the steady growth in units
report: Union Bank of Switzerland
Author: DavidLau
the body:
one. Brbrbr summary of the case and investment despite the recent slowdown in Chinese GDP growth and higher inflation, but UBS is still on the Chinese footwear industry to maintain a positive perspective, based on its relatively low per capita consumption. Belle led the footwear market value, and that UBS to enhance its economies of scale and multi-brand strategy will help create long-term, stable growth. Therefore, UBS reiterated that the Belle buy rating. UBS will be Daphne (previously the most successful companies) rating cut to neutral from buy, which in 2008 authorized the use of multi-brand and the lack of agreement about the uncertainty.
1. The actual growth of the space
according to Datamonitor, China's footwear market by value in 2003 of 7,000,000,000 U.S. dollars increased in 2006 to 86 billion U.S. dollars, the average annual compound growth rate of 7.2 percent. China's urbanization has brought about have to identify the tastes of middle-income group, as well as the emergence of free disposable income growth. UBS believe that the Group's growth in China will have positive impact on the footwear market. Footwear sales in 2006 of approximately 2,400,000,000 pairs, and if UBS to China's 1.3 billion people divided, each person would only buy 1.8 pairs of shoes. Compared to 3.5 pairs of Korea, Japan and the United States of 5.3 pairs of 7.8 pairs, the base is very low; therefore that the Chinese footwear market, UBS has great growth potential. UBS is expected to Chinese footwear in 2012 the per capita consumption will rise to 2.3 pairs, even though compared to other developed countries and emerging markets remains low.
2. Footwear random survey conducted by
low brand loyalty in order to better understand China's mid-and high-end footwear buyers spending habits, UBS in Shanghai and Beijing to 56 Chinese residents had a small-scale random survey. The UBS survey showed growth in revenue and expenditure of goods and the freedom to decide the total wage a positive correlation. The decision to buy shoes in a few of the most important criteria, 44% of the respondents to choose style, the quality of the choice of 22%, 16% of the option price, only 14% of brand choice.
in Chinese footwear companies, UBS that Belle's multi-brand strategy to help Belle by providing a wide range of styles, quality and price of low-end brands to achieve brand loyalty.
3. Belle reiterated that the buy rating; lowered the target price to 7.38 Hong Kong dollar
according to the China General Chamber of Commerce, Belle, with its top 10 brands in 2007 to occupy seats in the 6 months, women become the footwear market leader in value . UBS is expected from 2008 to 2010 compound annual sales growth rate of 32% of the net income of the average annual compound growth rate of 28%. UBS target price of 7.38 Hong Kong dollar in 2009 and hinted that the expected earnings in 2010 were 18.0 times and 15.2 times. In the valuation, may appear more attractive Daphne, but UBS will be better than Belle Daphne comes down to the following points: 1) significantly greater market capitalization; 2) greater economies of scale; 3) greater retail network; 4) multi-brand strategy; 5) greater ability to do so; 6), as well as higher net cash 7) the ability of potential consolidation.
4. Daphne rating cut to neutral; lowered the target price to 3.66 Hong Kong dollar
Daphne has been reached with the two international brand exclusive license agreement, permit the sale of Nike's products, and a startup called Shoeshop new store模式. Despite these developments could potentially become a driving force for profit, but UBS will remain cautiously optimistic until the discovery of these new investments from the profitability and further clear. Daphne despite the current share price seems more attractive than the Belle, but is expected to peer UBS discount will be expanded, and Daphne rating cut to neutral from buy, for the following reasons: 1) a smaller market capitalization ; 2) low economic scale; 3) a smaller retail network; 4) lower net cash; 5) the lack of multi-brand strategy. UBS Daphne will be the target price by 5.36 Hong Kong dollar down from 3.66 Hong Kong dollar, which hinted that in 2009 and 2010 earnings expectations were 9.8 times and 8.4 times expected 2008 to 2010 the average annual compound growth rate of earnings 18%.
II. Industry risk
1. Chinese inflation and economic slowdown
Chinese footwear industry of China's economic growth prospects and a high degree of correlation. High inflation and economic slowdown will result in a weak retail confidence and the erosion of consumer disposable income. This will slow down growth in the industry. If you can not in the daily operations to take effective means to control costs or increase sales growth, rising raw material and labor costs will also have a negative impact on corporate profits.
2. Changes in consumer tastes and fashion
because of the risk of consumer exposure to international fashion trends more and more of their buying has become more and more recognition ability. If companies can not compete with footwear fashion trends consistent and consumer preferences change, sales will decline and the brand will be at risk.
3. Brbrbr increasing competition in the footwear industry, competition has intensified as more and more international brands to enter the market. Domestic footwear retailer in the international side and the right to distribute high-end brand competition, and through acquisitions to increase the portfolio of brands for market share increase competitiveness. Footwear retailer is not concerned about the level of cities, their goals also include 23 Chinese cities. They have developed a different marketing strategy to acquire strong growth momentum.
4. Inventory and brand management
increasing competition in the footwear company request to increase inventory and brand management capabilities. From the high inventory levels caused by the slow movement of inventory will be the company's working capital pressure. In addition sportswear and other apparel business will bring other pluralism challenges and risks as a result of the management of multi-brand product line and limited experience.
5. Borrowing costs and foreign exchange rate
rising interest rates drive up borrowing costs. This strain of the footwear retailer financing sources. The continuing appreciation of the renminbi may also be related to an increase in foreign currency and import and export business enterprise with more financial risk.
three. Daphne
valuation of UBS's valuation based on discounted cash flow model. UBS on the Belle of the discounted cash flow valuation model classification be changed to increase the total discounted cash flow valuation method, the distinction between the Belle of footwear and sportswear businesses, to show the fair value of the sector.
1. UBS reiterated buy ratings Belle; lowered the target price to 7.38 Hong Kong dollar as a result of
from May 2007 to acquire many times since, Belle has more than 20 brands of shoes, of which 6 are located in the brand in 2007 the top 10 brands list In (according to the China General Chamber of Commerce). UBS Belle that by virtue of multi-brand strategy and a strong ability to counter-offer, will be able to maintain the leading position in the market. UBS therefore believe that Belle is the footwear industry's long-term winners, and reiterated the company's rating to buy. UBS
in the discounted cash flow model assumptions in a more conservative approach, to reduce from 2011 to 2020 pre-tax profit forecast of interest rates, which would lead to UBS Belle target price by 9.89 Hong Kong dollar down to 7.38 Hong Kong dollar. UBS's new goal in 2009 is expected to imply that the price-earnings ratio is 18 times higher than in 2009 Daphne 10 times expected earnings, 84% premium. Taking into account its historical trading patterns and Belle's leading position in the market, UBS that the premium rate is reasonable.
2. Daphne rating cut to neutral from buy; target price down to 3.66 Hong Kong dollar
in the first half of 2008 despite the good results of the annual report, UBS Daphne that the industry is facing more risks, because of the lack of multi-brand, and Its new business uncertainty. UBS will in 2009 earnings per share down 3%, its rating cut to neutral from buy, and its 12-month target price by 5.36 Hong Kong dollar down to 3.66 Hong Kong dollar, which implies expected earnings in 2009 10 times.
3. Belle and Daphne's valuation gap will expand
since May 2007 and since Belle Daphne monthly average expected earnings of 29.9 times and 16.2 times, indicating that the average price-earnings ratio Daphne Belle has a 46% discount.
According to the Oct. 3 shares, Belle and Daphne in 2009 were expected to-earnings ratio of 14.9 times and 8.6 times, indicating that the Daphne Belle-earnings ratio than 41% of discount. Belle taking into account the market leader in multi-brand strategy and strong ability to counter-offer. UBS expects a slight valuation discount will be expanded to 46%, based on Daphne Belle in 2009 and is expected to imply that the earnings ratio of 18 times and 10 times.