Le saunda Holdings Limited (738 HK)

Le saunda Holdings Limited (738 HK)

Zhang Chunxin
 (852) 3900 0836
zhangchunxin@cmbi.com.hk



Sustainable profit growth
Sustainable revenue growth. Revenue and net profit grew by 17.6% yoy to
HK$874 mn and 22.5% to HK$76mn in 1HFY14 (Fiscal Year ended in Feb),
respectively. During 1HFY14, the retail revenue sharply increased by 21.7% yoy,
but the export revenue decreased by 76.7% yoy. The revenue growth of ladies’
footwear, Men’s footwear and handbags & accessories were 20.5%, 21.5% and
21.9% yoy and accounted for 78.1%, 12.1% and 9.8% of the retail revenue in
1HFY14, respectively. We believe the export business will continue to be scaled
down in the future.


The improvements of inventory days and gross profit margin. The Company
has recorded 234 inventory days in 1HFY14, down 9 days compared with 1HFY13.
We believe the inventory situation should be more optimistic and expect the
inventory days to improve to 228 in FY14. This was due to approximately 30% of
the stock by the end of 1HFY14 are prepared for 2HFY14. The gross profit margin
has slightly increased by 2.2 ppt to 66.1% yoy in 1HFY14 because of the increasing
average selling price (ASP) and sales volume. The ASP in mainland China and HK &
Macau has increased by 4.9% and 10.2% yoy in 1HFY14, respectively.


The slowing pace of the expansion plan. The Company has 827 self-operated
Points of sales (POS) and 170 franchised POS in 1HFY14, up 79 and 21 yoy
respectively. The expansion pace has been slowed down due to the sluggish
consumer sentiment and the increasing operating expenses. We do not expect any
aggressive expansion of the Company but the continuing consolidations of their
underperforming POS. However, the expansion pace slowing down has relieved
the operating pressure. The EBIT margin in 1HFY14 was 11.5%, up 0.7ppt yoy.
Consecutive positive same store sales growth (SSSG). The Company has
recorded the SSSG in 1HFY14 to be 16.1%. Under the condition that the expansion
pace slowed down, we believe the outperforming SSSG has strongly supported the
revenue growth in 1HFY14. The satisfied SSSG of the Company in 1HFY14 was
partly due to the lower base in 1HFY13, which is approximately 3% with our
estimation. However, we cautiously forecast the SSSG to be 10.5% in 2HFY14 due
to the relatively high base in 2HFY13.


Upgrade to BUY. We adjust net profit forecast upward by 15.4%, 15.8% and 17.1%
for FY14-16, respectively. The Company is currently trading at 10.1x FY14E and
8.6x FY15E PE. Our target price HK$4.06 is based on 12x PE which is equal to the
mean plus one standard deviation in the past 5 years. Upgrade to BUY.