20180704-广发证券_香港_-2H18_Consumer_Discretionary_Outlook__Riding_the_consumption_upgrade_wave_5页_714kb

2H18 Consumer Discretionary Outlook Summary

Core Content

This report provides an outlook on the Consumer Discretionary sector for the second half of 2018, focusing on four key sub-sectors: Luxury Autos, Education, Sportswear, and Jewelry. It highlights growth opportunities, market dynamics, and investment recommendations based on economic trends, policy changes, and consumer behavior.

Main Points

1. Luxury Autos

• The luxury car market is expected to continue its strong growth in 2018, driven by rising per capita disposable income and declining luxury car prices.
• Auto financing has increased accessibility, leading to a higher penetration rate.
• Tariff cuts are anticipated to be a key factor in boosting dealers' earnings.
• The benefits of reduced import tariffs will mainly go to German luxury brands, improving new car sales gross margins.
• After-sales service gross margins will also improve from 2019 due to lower component tariffs.
• Recommendation: Zhongsheng Group (881 HK) is highlighted as a Buy due to its potential to benefit from new products from Mercedes-Benz and Lexus.

2. Education

• Education demand is stable and less cyclical, with spending as a percentage of household expenditure increasing alongside GDP per capita.
• The K12 education sector is expected to grow faster than higher education.
• Market concentration is rising, creating opportunities for growth.
• Recommendation: Maple Leaf Education (1317 HK) and Wisdom Education International (6068 HK) are recommended as Buy options.
• Individual income tax reform could lead to increased demand for education services.

3. Sportswear

• The sportswear industry benefits from rising health awareness and favorable policy support in China.
• China's marathon participation is still significantly lower than in the US, indicating room for growth.
• Tax reforms have reduced the tax burden on lower/middle-income groups, favoring domestic sportswear brands.
• Recommendation: Xtep (1368 HK) and ANTA Sports (2020 HK) are highlighted as Buy options.

4. Jewelry

• Operating profit margins in the jewelry sector in Hong Kong and Macau have limited room for improvement.
• SSSG (Selling, Service, and Supply Chain) growth has been largely priced in, with expected slower growth in the second half of 2018 due to a weakening renminbi and a higher SSSG base.
• Chow Tai Fook (1929 HK) is expected to see a flat to single-digit decline in rental renewal for FY19, a significant improvement from the $29%$ decline in FY18.
• Recommendation: Chow Tai Fook is given a Hold rating.

Key Information

• Rating Definitions:

  • Buy: Expected to outperform the benchmark (Hong Kong Hang Seng Index) by more than 15%.

  • Accumulate: Expected to outperform by more than 5% but not more than 15%.

  • Hold: Expected relative performance ranges between -5% and 5%.

  • Underperform: Expected to underperform by more than 5%.

  • Sector Ratings:

    • Positive: Expected to outperform benchmark by more than 10%.
    • Neutral: Expected relative performance ranges between -10% and 10%.
    • Cautious: Expected to underperform benchmark by more than 10%.

• Risks:

  • Policy risks
  • Exchange rate risks
  • New auto sales falling short of expectations
  • Lower-than-expected growth in the luxury car market
  • Lower-than-expected student numbers and tuition fees
  • Disappointment in SSSG and retail price growth
  • Profit margin disappointment

• Data Sources:

  • Figures are sourced from OECD, Economic Planning Agency, NBS, UNESCO, Chinese Athletic Association, and Xinhua News Agency.

Investment Recommendations

Conclusion

The Consumer Discretionary sector in 2018 is expected to benefit from consumption upgrades, policy support, and economic trends. While some sub-sectors like jewelry face challenges due to limited margin improvement, others like luxury autos, education, and sportswear show strong growth potential. Investors are advised to watch for tariff changes, tax reforms, and demographic trends that could influence sector performance.