1、March 2, 2010 China: Retail Goldman Sachs Global Investment Research 1 March 2, 2010 China: Retail Inflation vs. consumption Part II: Lessons from Japan/Korea; Refreshing Directors Cut Lessons from Japan/Korea: No need to be afraid of inflation when there is income growth In our Feb 11 note, we argu
2、ed that normalizing inflation does not necessarily hamper Chinas consumption as long as real wage growth is strong. While there is ample evidence from the US to support this thesis, we further the analysis in this report by looking at the history of Japan and Korea. Our findings are again consistent
3、 with our thesis. During the last three decades, both Japan and Korea experienced periods of strong real consumption growth despite rising CPI, thanks to wage growth that was rising even faster. In our view, the implication for China is that its consumer spending could remain healthy in 2010 under n
4、ormalized inflation, as wage growth reaccelerates after the slowdown in 2008/09. Our top picks Inthe retail space, we like 1) Dongxiang (on CL); 2) Maoye; 3) Belle; 4) Intime; 5) Bosideng. For staples, we prefer 1) Mengniu; 2) China Agri and 3) Huabao. Stockpicking on Directors Cut: Strong alpha fro
5、m DC in 09; refreshed for 10 Our Directors Cut (DC) valuation framework, whilst launched only in 2Q09, nevertheless has proved to be a good stock picking tool last year. DC signals were successful in predicting sector-relative returns for 9 out of our 13 covered retail stocks for 2009. Revisiting ou
6、r 2010 and 2011 stock-picking under this framework, our top buy ideas all screen favorably on our DC metric. Revisiting the valuation ratio: Retail still more attractive than staples Valuation ratio (EV/GCI over CROCI/WACC) is the core metric under DC and is essentially a multiple comparison of EV t
7、o Cash Earnings adjusted for gearing levels and WACC. While the Valuation Ratios for both China Retail and Staples have now exceeded historical average levels, we currently find China Retail more attractive given it is trading at a valratio of 1.7x, close to historical average compared to China Stap
8、les which is trading at 1.5x vs. average of 1x and peak of 1.9x. OUR TOP PICKS Company Ticker RatingPrice (HK$) 2/26/201012-m TP (HK$)Potential Upside to TP10E P/E09E P/BRetail:Dongxiang 3818.HK Buy* 5.20 7.20 38% 14.7x 3.4Maoye 0848.HK Buy 2.08 3.00 44% 16.7x 3.1Belle 1880.HK Buy 8.65 11.40 32% 19.
9、2x 4.2Intime 1833.HK Buy 6.58 8.20 25% 19.5x 2.9Bosideng 3998.HK Buy 1.65 2.10 27% 12.3x 1.7Staples:Mengniu 2319.HK Buy* 23.15 29.50 27% 20.4x 4.2China Agri 0606.HK Buy 11.14 12.60 13% 14.2x 2.8Huabao 0336.HK Buy 7.85 10.20 30% 16.1x 6.9* indicates stock is on our regional Conviction list. For impor
10、tant disclosures, please go to http:/ For methodology and risks associated with our price targets, please see our previously published research. Source: Datastream, Goldman Sachs Research estimates. RELATED RESEARCH China: Consumer Products: Generating alpha in the China consumer space: using “Direc
11、tors Cut” framework By Joshua Lu, Caroline Li, June 2, 2009 China: Retail: In an inflationary world, who are winners in China Consumer? By Joshua Lu, Yifan Deng, Caroline Li, February 11, 2010 Joshua Lu +852-2978-1024 | Goldman Sachs (Asia) L.L.C. Caroline Li, CFA +86(10)6627-3023 | Beijing Gao Hu
12、a Securities Company Limited Fiona Lau +852-2978-1230 | Goldman Sachs (Asia) L.L.C. The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
13、objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to Analysts employed by non-US affiliates are not regi
14、stered/qualified as research analysts with FINRA in the U.S. The Goldman Sachs Group, Inc. Global Investment Research March 2, 2010 China: Retail Goldman Sachs Global Investment Research 2 Lessons from Japan and Korea: real income growth is the key consumption driver We have shown that real income g
15、rowth is the key consumption driver in the US previously (please refer to our report “In an inflationary world, who are winners in China Consumer?” dated February 11, 2010). We repeated this analysis on Asian markets, in particularly Japan/Korea since the 1970s. We reached the same conclusion: in pe
16、riods of rising CPI, if nominal wage growth is stronger than inflation, real consumption growth stays robust. This further supports our view for China that under moderate inflation (CPI to peak in 3Q at 4%) and reaccelerating wage growth, consumption growth will remain healthy. Case study for Japan:
17、 1. Late 1980s: Nominal wage growth CPI = Consumption In the late 1980s before the collapse of the economic bubble at end of 1989, Japans economy was strong driven by strengthening domestic demand and development of tertiary industries. Nominal wage growth was robust, growing from 2% in the mid-1980
18、s to 5% in mid-1989. During the same period, CPI rose from -1% to 3%. Given real wage growth remained positive, real consumption expenditure averaged a healthy level of 8%. 2. 1996-1997: Nominal wage growth CPI = Consumption After a period of deflation for the bulk of the 1990s, Japans CPI rose from
19、 0% in May 1996 to 2.3% by Oct 1997 before the Asian financial crisis struck. Wage growth was also recovering, reaching close to 3%, allowing real consumption expenditure to expand to above 5% amidst growing real income. 3. 2007-2008: Nominal wage growth CPI = Consumption As Korea industrialized and
20、 focused on export-oriented industries in the 1960s/1970s, nominal income growth grew in the double digits on the back of rapid inflation (up 20-30%). From the period of 1977 to end 1978 when inflation was rising above 10%, strong wage growth initially still offset inflation and consumption still gr
21、ew in the high single digits. 2. Late 1980s: Nominal wage growth CPI = Consumption In the late 1980s Koreas economy began to recover from structural reforms and increasing domestic demand after the slump in the early 1980s from out-of-control inflation. Nominal wage was robust (+10-15% yoy) on the b
22、ack of rising, but still controllable, inflation (+1-9% yoy). As a result, real consumption growth grew from 7% in 1987 to 11% by 1989. 3. 2007-2008: Nominal wage growth CPI ConsumptionNominal wage CPI ConsumptionNominal wage CPI Consumption Source: CEIC, Goldman Sachs Research. March 2, 2010 China:
23、 Retail Goldman Sachs Global Investment Research 4 Exhibit 2: Chinas case is similar: we think consumption will remain healthy under reaccelerating wage growth and normalized inflation Relationship between inflation, income growth (using income tax as proxy) and same store sales growth in China 2.8%
24、3.5%-50%-30%-10%10%30%50%70%-2%0%2%4%6%8%10%China Income tax (LHS) China CPI (RHS)13.4%13.1%2%4%6%8%10%12%14%16%18%20%Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Ja
25、n-11Same-store-sales growth2010E2011E Inflation normalizing Wage growth reacceleratingHealthy consumption *Note: Dotted line represents GS forecasts. Source: CEIC, NBS, Company data, Goldman Sachs Research estimates, GS Global ECS Research estimates. March 2, 2010 China: Retail Goldman Sachs Global
26、Investment Research 5 2009 in review: Strong alpha from Directors Cut Our back testing suggests that signals generated by the EV/GCI vs. CROCI/WACC metric at the beginning of 2009 would have delivered consistent sector-relative returns for 2009. DC signals were successful in predicting 2009 sector-r
27、elative performance of 9 out of 13 retail stocks under our coverage. Exhibit 3: Directors Cut signals vs. returns for China Retail NWDSLifestyleIntimeGolden EagleParksonMaoyeAntaBellePortsLi NingNepstar0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0xCROCI/WACCEV/GCIEV/GCI over
28、 CROCI/WACC Valuation Ratio (sector average) = 0.83X (ex. Bosideng)Dongxiang* BosidengValuationratio=0.83xValuationRatio=1.0XDate: January 1, 2009NWDSLifestyleIntimeGolden EagleParksonMaoyeBelleBosidengPortsLi NingNepstar0.0x2.0x4.0x6.0x8.0x10.0x12.0x0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0xCROCI/WACCEV/
29、GCIEV/GCI over CROCI/WACC Valuation Ratio = 1.89XDongxiangValuationRatio=1.0XDate: December 31, 2009Relative attractiveness rank* as of Jan 1, 2009chg % Rank3998.HK Bosideng 1 138% 93818.HK Dongxiang 2 219% 32020.HK Anta 3 226% 21880.HK Belle 4 166% 60848.HK Maoye 5 182% 50589.HK Ports 6 156% 73308.
30、HK Golden Eagle 7 191% 40825.HK NWDS 8 68% 112331.HK Li Ning 9 144% 81833.HK Intime 10 244% 1NPD Nepstar 11 44% 131212.HK Lifestyle 12 85% 103368.HK Parkson 13 55% 12Price performance for 2009Directors Cut signals were successful in predicting 2009 sector-relative performance of 9 out of our 13 reta
31、il stocks.*As measured by Directors Cut valuation ratio (1= lowest val ratio, most attractive relative to sector; 13= highest, least attractive relative to sector); Price performance rank (best =1 to worst = 13). *We define “successful” as price performance rank matching the relative attractiveness
32、rank within +/- 2 ranks. Source: Datastream, Company data, Goldman Sachs Research estimates. March 2, 2010 China: Retail Goldman Sachs Global Investment Research 6 Refreshing Directors Cut for 10/11; our top picks screen favorably on the DC framework We refresh our Directors Cut screen for 2010 and
33、2011, and find that stock picks suggested under the DC framework are consistent with our current stock recommendations. The top Buy picks are 1) Dongxiang, 2) Maoye, 3) Bosideng. Intime and Belle also look attractive on our DC cross plot: for China Retail. Exhibit 4: Directors cut cross-plot for Chi
34、na Retail 2010 and 2011 2010E 2011ENWDSLifestyleIntimeGolden EagleParksonMaoyeAntaBelleBosidengPortsLi NingNepstar0.0x2.0x4.0x6.0x8.0x10.0x12.0x0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0xCROCI/WACCEV/GCIEV/GCI over CROCI/WACC Valuation Ratio = 1.70XDongxiangValuationRatio=1.0XDate: Feb 26, 2010NWDSLifestyl
35、eIntimeGolden EagleParksonMaoyeAntaBelleBosidengPortsLi NingNepstar0.0x2.0x4.0x6.0x8.0x10.0x12.0x0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0xCROCI/WACCEV/GCIEV/GCI over CROCI/WACC Valuation Ratio = 1.42XDongxiangValuationRatio=1.0XDate: Feb 26, 2010Source: Datastream, Company data, Goldman Sachs Research es
36、timates. March 2, 2010 China: Retail Goldman Sachs Global Investment Research 7 Tracking the valuation ratio: China retail appears more attractive than staples Valuation ratio (EV/GCI over CROCI/WACC) is the core metric under DC and is essentially a multiple comparison of EV to cash earnings adjuste
37、d for gearing levels and WACC. Valuation ratios for both China Retail and Staples have exceeded historical average levels in 2009. On this metric, we currently find China Retail more attractive given it is trading at a valratio of 1.7x, close to historical average compared to China Staples which is
38、trading at 1.5x vs. average of 1x and peak of 1.9x. Exhibit 5: Valuation ratio (EV/GCI over CROCI/WACC) is a multiple of EV to cash earnings adjusted for gearing levels and WACC Mathematical breakdown of Directors Cut valuation ratio EV GCICROCI WACCEVCROCI *GCIEVCash earningsNote: Cash earnings are
39、 debt-adjusted=xWAC=Valuation RatioCROCI/WACCEV/GCIslope=valuationratioEV/GCICROCI/WACCSource: Goldman Sachs Research. Exhibit 6: Directors Cut valuation ratio trend: Retail stocks still more attractive China - Retail China - Staples0.7x2.1x3.0x1.6x1.7xAverage, 1.6x0.0x0.5x1.0x1.5x2.0x2.5x3.0x3.5xJa
40、n-04May-04Sep-04Jan-05May-05Sep-05Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10Val Ratio(X)1.5X0.8X1.7X1.9XAverage = 1.0X0.0x0.5x1.0x1.5x2.0x2.5xJan-04May-04Sep-04Jan-05May-05Sep-05Jan-06May-06Sep-06Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10ValRatio
41、(X)Source: Company data, Goldman Sachs Research estimates, Gao Hua Securities Research estimates. March 2, 2010 China: Retail Goldman Sachs Global Investment Research 8 Reg AC We, Joshua Lu and Caroline Li, CFA, hereby certify that all of the views expressed in this report accurately reflect our per
42、sonal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Investment Profile The Goldman Sachs Investment Prof
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45、Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volat
46、ility adjusted for dividends. Quantum Quantum is Goldman Sachs proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. G
47、oldman Sachs Disclosures Coverage group(s) of stocks by primary analyst(s) Compendium report: please see disclosures at http:/ Disclosures applicable to the companies included in this compendium can be found in the latest relevant published research. Company-specific regulatory disclosures Compendiu
48、m report: please see disclosures at http:/ Disclosures applicable to the companies included in this compendium can be found in the latest relevant published research. Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distributi
49、on Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 31% 53% 16% 53% 47% 40% As of January 1, 2010, Goldman Sachs Global Investment Research had investment ratings on 2,763 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equ
