OCBC on 11 June 2012
China's May retail sales grew 13.8% YoY, lower than economists' expectation of a 14.2% rise but still reasonably strong. We believe that domestic demand could show improvement starting in 3Q12. On another note, China’s online retail sales grew 54% in 2011 to RMB783b, accounting for 4.3% of total retail sales of consumer goods. Signaling the growing importance of online retail, Walmart, Neiman Marcus and Macy’s have made acquisitions this year into Chinese online retail sites. However, even if online retail sales continue to grow at 50% p.a. through till 2015 and total retail sales grow at a conservative 10%-15% p.a., we calculate that physical retail sales can still grow at a healthy 7-12% p.a. Quality of execution is key as competition intensifies and we believe that CRCT has the operational capability. We maintain our BUY rating on CRCT and S$1.44 fair value.
Reasonable May retail sales
Data released on Saturday shows that China's retail sales grew 13.8% YoY in May to RMB1.67t, slightly down from the 14.1% growth in April and lower than economists' expectation of a 14.2% rise but still acceptable. Adjusted for inflation, May's figure was up 11% YoY. For the first five months of this year, retail sales totaled RMB8.16t, up 14.5% YoY (10.9% YoY in real terms). China's rate cut last Thursday had already caused many to anticipate disappointing economic data over the weekend. Inflation slowed to 3.0% in May from 3.4% in April, which should give the central bank more leeway to enact further interest rate cuts. We believe that domestic demand could be boosted starting in 3Q12.
Growth in online retail...
According to the Ministry of Commerce, China recorded 194 million online shoppers and RMB782.56b in online retail trade last year. The sales were 53.7% higher YoY and accounted for 4.3% of China's total consumer goods retail volume in 2011. The importance of the online channel is increasingly recognized by retailers. In Feb, Walmart increased its stake in Yihaodian, the biggest online grocery retailer in China, to 51%. Department store retailer Neiman Marcus invested in the Glamour Sales site in March. In May, Macy’s invested in online retailer VIPStore, which operates jiapin.com.
...but physical retail will do well
Even if online retail sales continue to grow at 50% p.a. through till 2015 and total retail sales grow at a conservative 10%-15% p.a., physical retail sales can grow at a healthy 7-12% p.a. Among real estate investments, retail is quite heterogeneous, whereby differentiation and strong execution are key. We have confidence in CRCT's operational capability given its manager is a wholly-owned subsidiary of CapitaMalls Asia.
Maintain BUY
We maintain our BUY rating on CRCT and S$1.44 fair value. CRCT is trading at an attractive FY12F dividend yield of 7.4%.
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