Monthly Archives: June 2016

Belle Update: Same Store Stomping Continues

belle logo

As detailed here, major China retailer Belle International, 1880 hk has been facing double-digit same store sales declines in its footwear division.  Historically, this division has had the most numbers in terms of outlets and profits. Meanwhile, its primarily licensed sports apparel business has helped take up the slack in revenues but not in profits.

The company just updated its same store sales for the first quarter ending May, 2016 and the bleeding continues.

belle q same store sales

Although footwear slightly improved from the last quarter, sportswear is sliding further.

belle same store spread

Despite the drop, Belle has maintained its high outlet count, now at 20,876 on the mainland. (Hong Kong Macao are excluded from quarterly updates – last reported at 144 on 5/24/2016, down from 186 in 2009). Year on year outlets have increased by 2.4% while the mix has favored an increase in apparel by 11.8% and a drop in footwear by 2%.

Belle store numbers upd.PNG

At its last annual ending Feb, 2016, as noted previously, Belle had a drop in earnings of 38.4% despite a 2% increase in revenues thanks to same store sales declines, particularly in footwear, and the lower margins of sportswear apparel.

Based on this current update, the first quarter performance should show another decline in gross margins, net earnings and eps, with its current p/e too high.

Belle stock

Disclosure: Data from HK filings except as indicated. I have no positions in the stock mentioned, and no plans to initiate any positions within the next 72 hours. I am not receiving any compensation for this article.

China May Auto Sales Jump; Hold the Champagne

3 China Auto companies reported a surprising jump in May auto sales.  Year to date unit sales, however, were less than stunning although on track for an annual increase. This increase would be much lower than  the China Passenger Car Association predicted growth of 10%.

AUTO JUNE 2016

Sequentially, the rise was less dramatic, actually decreasing for Great Wall.

June Auto Sequential

The stocks in these 3 companies has reacted relatively positively to the May sales figures released on June 6, 2016.

3 car stocks

Source: Bloomberg

Great Wall has had the biggest price change and also has the lowest p/e.  However, year to date sales have been in line with the others.

Great Wall has continued to rely on its best-selling SUV, the Haval H6 for sales growth and a percentage of sales.  Its sedan sales have been minimal and have continued to decline.  Besides the popularity of the Haval H6, featuring either a 1.6 or 2.0 liter engine and favorable comparison to the Honda CRV, it has most likely also benefited from the tax break on the engines less than 1.6 liters started in October of 2015 and running through December 2016.  It’s most recent arrival, the Haval H7 introduced at the end of April has a 2.0 Liter engine and sold only 4,465 units in May compared to the H6’s 37,435 units.

greatwall may types

Finally, while Great Wall sales are up it’s doubtful that profits will follow.  In its quarterly statement, Great Wall unit sales were up 5.7%.  This translated to an 8% sales revenue increase but an increase in gross profit of only 2.8% as the gross profit declined from 26.6% to 25.3%.  Operating Expenses also increased as a percent of revenue resulting in a profit before tax decline of 4.6%.  The biggest increase in costs was in “other expenses” which doubtless contained incentives. Net profit after tax declined by 5.4%.  Based on the first quarter’s performance, Great Wall will have a decline in net profit for the year despite a potential 5% unit increase which would continue to support the case for a lower p/e ratio.Great Wall Q1

The sales increase, thanks to its heavy reliance on the Haval H6, is in jeopardy as the trend for the H6 is slopes downward.

Greatwall h6 chart

Great Wall’s sedans have been declining and its exports have been plummeting, so these will not help bolster profit.  Great Wall had tried to enter the electric car segment with a planned non-public A-share issue but it cancelled the issue due to volatile market conditions.

Geely, the owner of Volvo, had a good month in May compared to 2015 with a 19.4%  year on year rise in units sold.  Geely offers limited sales information per type but has had its biggest growth in sedans: Emgrand unit sales rising 21% and Vision up 31% year on year for the month of May.  The Geely gc9 sedan, released in April, 2015. has had disappointing sales – just 4,024 in May 2016 versus the Emgrand and Vision at 16,101 and 10,885, respectively.

Geely doesn’t provide quarterly statements.  In 2015 it had a 22% increase in unit sales to 509,863 which translated to an annual revenue increase of 38.6%.  Gross profits were the same but, thanks to lower expenses as a percent of sales along with higher jv income, it had a net profit after tax increase of 58%.  However, included in the net profit of 2.28 Billion rmb was 847 Million rmb in government grants or about 37% of net profits.

Both Geely and Great Wall are considered home-grown, Chinese manufacturers and produce and sell primarily their own brands.  They are not majority-owned by the government but both founders, Geely’s Li Shufu and Greatwall’s Sei Jianjun have been reported to have government ties. Both benefit from government subsidies.  Geely’s annual at 847 Million rmb and Greatwall’s reported 341 Million rmb in 2015. Both have tried and failed to grow exports, an annual trend which is continuing.

greatwall geely exports

Greatwall Geely May Exp.PNG

The other company to report monthly unit sales, BAIC, is a majority government-owned entity which sells its own brands, including the Senova and Wevan as well as Hyundai as a 50%joint venture and Mercedes Benz as a 51%-owned subsidiary.  BAIC listed on the Hong Kong Exchange in 2014, raising 8.9 Billion Hong Kong Dollars, (equiv of 1.4 Billion $US), with 10 cornerstone investors buying 55% of the shares offered and closed at 8.9 HKD.   The Beijing brand, thanks to price drops and concessions has shown improvement in terms of numbers, Hyundai has been faltering while Mercedes has had impressive growth and is the primary driver of profits.

BAIC may sales

Despite the major growth of Benz and even Beijing Brand, Hyundai’s larger proportion of sales resulted in a year on year growth of just 5.3%, lower than both Greatwall and Geely.

Sequentially, however, it performed better than Geely and Great Wall.BAIC May Sequential

For the first quarter, BAIC showed a drop in year to date unit sales of 4.3%, brought down mainly by disappointing Hyundai unit sales.

baic 1st quarter

The Beijing Brand and Benz sales helped push revenue up by 30%.  However, since BAIC gets only 51% of Benz profits, Hyundai’s sales were lower and Beijing brand has been historically unprofitable, the net to shareholders actually decreased by 46.5%.

baic 1st quarter

As far as growth prospects, in March, 2016 BAIC entered into a further investment with Daimler via a 35% investment in Fujian Benz.  Details from both Daimler and BAIC have been extremely limited but last reported annual sales were only 11,208 in 2013. of mini van type vehicle. In conclusion, while May year on year unit sales showed a distinct uptick in sales for these 3 companies, it is too soon to tell if this is a blip or an upturn.  Year to date, sales are up only over 5%, far short of annual projections.  Finally, with the possible exception of Geely, unit sales increases have not led to profit increases.  The next semi-annual reports, based on historical reporting, will not come in until mid to late August. +

Disclosure: All data is from Hong Kong Filings.  Charts and spreadsheets were self-prepared.  I have no interests in any of the stocks presents.