Beijing Jingkelong (814.HK): ACC - "1~3Q08 Results in Line; Continued G research, business, account, company, revenue

yangh

Pls see attached the full PDF research report, below is a highlight:
Key points:
◆Results in line. JKL’s revenue increased by 23.3% to Rmb1,852mn and net profit rose 41.1% YoY to Rmb45mn in 3Q08, in line with our estimate. 1~3Q revenue and net profit account for around 72% and 74% of our full year targets, and the company has a good opportunity to outperform.
◆Retail business: Revenue growth surged due to hypermarket renovation in 3Q07; gross margin up 0.8ppt. SSS growth declined slightly, from 9.5% in 1H08 to 9.3% in 1~3Q08 but retail revenue growth increased 59% in 3Q08 on a low base arising from renovation of the Tianshuiyuan store last year. Excluding this effect, revenue growth of the retail business would have been around 25% YoY—growth remains strong.
◆Wholesale business: Revenue declined slightly due to the Olympics but gross margin improved noticeably. Wholesale revenue increased 24% in 1~3Q but declined slightly in 3Q due to the Olympics. However, gross margin improved significantly (+1.6ppt) on a better product mix and economies of scale.
◆Earnings forecast maintained. Due to 4Q07 initial losses from the Jiulong store (c. Rmb20mn), as long as the company’s original business can deliver 8% bottom line growth or greater in 4Q08, our full year forecast is secured. Our forecast assumptions are conservative due to concern about the high base of the original business in 4Q07 and possible new store openings in 4Q08. Looking forward, major sources of earnings growth over 2009~2010 are likely to be stable organic growth and gradual removal of losses from the Jiulong store.
◆Defensive player with lowest valuation among comparables. JKL’s valuations have consistently remained below those of its peers since its listing, which can be explained by its conservative way of communicating with investors, SOE background and small market cap. However, in our view, the company’s unique business model and stable earnings growth will make it a defensive player in the HK market. We maintian our ACCUMULATE rating, with a target price of HK$3.7 based on 8x 08E EPS (over 50% discount to current P/Es of comparables).

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