Zhongmin Baihui Retail

Fully Valued
Current Price

S$1.55

Fair Value
Up / (downside)

S$1.30
(16%)

Lets go window shopping

Initiate coverage with a fair value of S$1.30, based on 19x FY13 PER, in
line with its regional peer comparison. Though we like its' business model
with good cash flow generation, low capex and working capital requirement,
the near to mid-term valuation is not compelling and we initiate coverage
with Fully Valued recommendation. We see that its true value will only be
unlocked in FY14 when its road map is successfully launched next year.
Given the group is still focusing on expansion, no dividend projected for the
time being.

Build it and they will come. Zhongmin Baihui owns and operates two
department stores in Xiamen City and one in Nanjing as well as manages
six other department stores owned by Quanzhou ZMBH under the groups
brand name. It plans to open three more stores in 2013 in Fujian province.

Good location of first self-owned store. The first Xiamen store is located
in the commercial centre of Xiamen City and situated at a transportation hub
servicing bus terminals and high speed train terminals, making it easily
accessible to customers. This successful store is expected to provide a
steady free cash flow of approximately Rmb20m per year for the group.

Something for everyone. The groups stores aim to offer customers a wide
range of products and services to allow convenience, all in one place. The
Xiamen store targets consumers in the middle to high level income
brackets.

Favourable government support to boost local private consumption.

As external demand from US and the Eurozone falls, the Chinese
governments five year plan starting from 2011 outlines the shift in priorities
from growth to welfare improvement and socioeconomic sustainability. This
will in effect free up the high savings rate by providing residents a basic
social safety net, thus increasing private consumption.

Chinese spending power set to grow in the long-term but might face
challenges in the coming years. Chinas shift to boost local consumption
amidst falling exports to the troubled Eurozone and slow recovery in the US
bodes well for the local retail industry. According to Business Monitor
International (BMI), Chinas retail sales are set to reach US$3.8bn in 2016,
which would translate into a CAGR of 10% beginning 2009 to 2016.

Stock Statistics
Market cap
52-low
52-high
Avg daily vol
No of share
Free float

S$301.9m
S$1.40
S$1.57
75,082
196.32m
15%

Key Indicators
ROE 12F
ROA 12F
P/BK
Net gearing

42%
19%
19.4
Net Cash

Major Shareholders
Lee Swee Keng
Chen Kaitong
Su Caiye
Low Chui Heng
Lim Kok Tong

Historical Chart

Source: Bloomberg

Jacky Lee
(+65) 6236-6887
jacky.lee@nracapital.com
www.nracapital.com

25.4%
23.7%
11.9%
11.1%
9.7%

Initiating Coverage
07 November 2012

Key Financial Data

(Rmb m, FYE Dec)
Sales
Gross Profit
Net Profit
EPS (cents)
EPS growth (%)
PER (x)
NTA/share (cents)
DPS (cents)
Div Yield (%)
Source: Company, NRA Capital estimates

2010
80.9
45.2
(7.1)
(4.3)
(94.6)
nm
5.0
0.0
0.0

2011
217.5
95.2
16.2
8.3
295.5
94.9
34.9
0.0
0.0

2012F
304.3
143.0
25.5
13.0
56.1
60.8
47.5
0.0
0.0

2013F
550.8
258.9
68.7
35.0
169.4
22.6
82.5
0.0
0.0

2014F
726.9
341.6
84.3
42.9
22.6
18.4
125.5
0.0
0.0

Zhongmin Baihui Retail Group

Company Background
Zhongmin Baihui Retail Group is principally engaged in the ownership, operation and
management of department stores in the PRC under the name of . The
first store was established in October 1997 and incorporated in
Singapore on 17 September 2004. The group became the first company with pure
exposure to the retail business in the PRC to be publicly listed in Singapore 20
January 2011. The group is majority-owned by Singaporeans and its Executive
Chairman, Mr. Lee Swee Keng, is also the single largest shareholder.
The group currently has three self-owned stores and six managed stores with an
aggregate gross floor area of 1,563,000 sf. These six managed stores have an
aggregate estimated built-in area of 642,000 sf. In return for its management services
and the use of the brand name, the group collects management fees.
These current six managed stores, Anxi Store, Tumen Store, Quangang Store,
Zhangzhou Store, Quanxiu Store and Huian Store are owned and operated by its
sister private company, Quanzhou ZMBH.

Source: Company

page 2

Zhongmin Baihui Retail Group

The stores location
Sq ft

Operation
started /
expected to
start

Location

Self-owned stores
Xiamen Wucun Store
()

309,000

Dec-09

It is located in the commercial centre of Xiamen City, in the heart of a

transportation hub that is a nexus linked by walkways and underground
pedestrian crossings to bus terminals.

Xiamen Jiahe Store

()

251,000

Oct-11

Jiahe Store is strategically located in the heart of a residential area in

Xiamen City with heavy human traffic.

Nanjing Nanzhan Store

()

361,000

Sep-12

Nanjing Nanzhan Store is near to the Nanjing Railway Station which is the
biggest train station in Asia.

Quanzhou Qiaonan Store

()

68,000

1Q/2013*

Quanzhou Qiaonan Store is located at an intersection to several city areas

such as Jinjiang District, Quanzhou Development District, and South District
of Quanzhou Bridge.

Zhangzhou Longwen Store

()

471,000

2Q/2013*

Zhangzhou Longwen Store is next to the CBD area and the municipal
government of Zhangzhou City, surrounded by residential buildings and
schools.

Xiamen Zhongshan Store

()

172,000

4Q/2013*

The Building is strategically located at along the Zhongshan Road, being

one of the busiest commercial walking streets in Xiamen City.

Total space sq ft

1,632,000

Managed stores

69,000

1997

Anxi Store spans across five floors of a shopping mall on Jiefang Road, the
commercial centre of Anxi County with high and constant pedestrian flow
and high visibility.

178,000

1999

Tumen Store spans across four floors and a basement, at Tumen Street,
one of the busy shopping belts in the city centre of Quanzhou City.

Quanzhou Quangang Store

()

43,000

2003

Centre of Quangang District, an industrial area for petrochemicals.

Zhangzhou Zhongshan Store

()

120,000

2003

Zhangzhou Store spans across five floors and a basement of a building in

the city centre of Zhangzhou City with high and constant pedestrian flow and
high visibility.

Quanzhou Quanxiu Store

()

115,000

2006

Quanxiu Store spans across three floors of a building at Quanxiu Street,

situated at the city centre of Quanzhou City with high pedestrian flow and
high visibility.

Quanzhou Huian Store

()

117,000

2009

Huian Store spans across three floors of a building at the heart of Huian
county with high and constant pedestrian flow and high visibility, and within
the residential areas.

Total space sq ft

642,000

Quanzhou Anxi Store

()

Quanzhou Tumen Store

()

Source: Company

* expected to be operating

page 3

Zhongmin Baihui Retail Group

Business Segment
Its major operations are direct sales, concessionaire sales, rental income and
managed rental. As of FY11, Direct sales made up 63% of total revenue while
concessionaire sales and rental income contributed most of the rest.
FY11 revenue by segment
6%
14%

Direct Sales
Concessionaire Sales

17%

Rental Income
63%

Managed Rental

Source: Company

Direct sales is the sourcing and selling of its own products. These products mostly
include products sold in the supermarket and electrical appliances sections of its
department store. Direct sales gives the group better control over the range of
products being offered at its stores.
Concessionaire sales involve entering into agreements with a third party to occupy
designated areas in the groups department. The third party will establish their own
sales counters and products are mostly for jewellery, cosmetics, apparel, garments,
footwear, suitcases and small electrical appliances. A commission of between 18%
and 35% of revenue is charged to the concessionaires.
Rental is basically entering into a lease agreement for certain areas in the
department store at a fixed rental rate for a period of one to five years. Most of these
leases are F & B outlets, cafes, telecommunication companies and certain apparel
stores.
Managed rental is essentially leasing of designated areas in the department store
mostly to apparel stores, with the addition of management fee, which include cash
collection, staff management and payroll service. The group has managed to attract
international and local brands to its Xiamen store such Adidas, Nike, Bossini, Baleno
for apparel and Sony Digital, Panasonic, Phillips, Toshiba, Haier, Midea for
household and electrical goods. Some F&B outlets include Breadtalk, Dicos, Bee
Cheng Hiang and Kang Shi Fu.
In additional, the group collects RMB1m per annum for managing each of Quanzhou
ZMBHs stores as well as earns advertising and promotion fees through charging
organisers and sponsors of promotional programmers advertising and promotion fees
for activities held in its department store.

page 4

Zhongmin Baihui Retail Group

Group Structure

Source: Company

page 5

Zhongmin Baihui Retail Group

Industry Outlook
China is the worlds second largest economy. Market researchers believe that by
2020 there will be a major shift in the global balance of economic power compared to
2010. Consumer markets in emerging economies will present enormous
opportunities. Early this year Japan confirmed that Chinas economy surpassed its
own as the worlds second largest in 2010. In additional, according to A.T. Kearneys
Global Retail Development Index (GRDI), China has risen to third place, just after
Brazil and Chile, in terms of the top 30 developing countries for retail investment. The
index takes into account the market attractiveness, country risk, market saturation
and time pressure in calculating the overall GRDI score. In its report, Chinas future
retail growth remains positive, with double-digit rise in annual sales expected.
The growth in Chinas high income earners has already seen China become the
worlds largest luxury goods market, with US$12bn in sales. Louis Vuitton Moet
Hennessy (LVMH) plans to open 20 to 30 stores in 2012 while Inditex, the Spain
based company whose brands include Massimo Dutti and Zara, opened 132 stores in
2011 and expects to open the same amount this year. China is already Apples
second biggest market after the US with six stores and plans to open more this year.
Hukou reform could boost rural-urban migration and with it the consumer
spending China needs. As the export driven model that has driven much of growth
in the past decades slows down, the Chinese government has acknowledged the
need to switch to a different source of sustainable growth. In its five-year plan begun
in 2011, it outlined the shift in priorities from growth to welfare improvement and
socioeconomic sustainability. Chinas National Population and Family Planning
Commission, in its latest annual report, suggested some changes to the current
Hukou system (the registration system was originally intended to stop rural migrants
flowing into the cities) that would give migrant workers permanent status and equal
access to public services such as education and healthcare. These would in effect
free up the high savings that could go into private consumption.
Urbanization in the People's Republic of China. Another driving factor for private
consumption is the urbanization taking place as people in the rural areas seek
opportunities in the cities. We have already seen a massive jump in urbanization from
36% to 45% of the total population in the ten year period from 2000 to 2010. Global
Demographics data shows that more than 30% of all urban households in China had
annual incomes exceeding Rmb40,000 in 2007 and accounted for 47% of
expenditure. It has also estimated that China will add 28,000 urban dwellers per day
for the next decade.
Urbanization

Source: CEIC; UN Population Division; The Economist

page 6

Zhongmin Baihui Retail Group

China September consumer prices rise 1.9% yoy while the producer-price index
dropped 3.6%, according to the National Bureau of Statistics. Gains in consumer
prices have moderated from a three-year high of 6.5% in July 2011 as food and fuel
costs eased. The data indicates that inflation has significantly weakened in China,
implying Chinas economy is facing downward pressure or slowing down. However,
we believe the slowdown was mainly driven from the first tier cities. As Zhongmin
Baihuis stores are mainly located in second and third tier cities, especially in Fujian
province, impact should be minimal.
China retail sales (%)
YoY Chg

2010

2011

Jul-12

Aug-12

Sep-12

Communication appliances

22%

28%

26%

28%

25%

Furniture

37%

33%

26%

26%

31%

Construction & decoration materials

32%

30%

26%

24%

27%

Garments, footwears etc.

25%

24%

18%

21%

20%

Cosmetics

17%

19%

15%

18%

16%

Daily necessities, non-food

25%

24%

18%

18%

16%

Food related - grain & edible oil

25%

25%

17%

17%

19%

Jewellery

46%

42%

14%

15%

13%

Home appliances and AV products

28%

28%

9%

12%

14%

Auto

35%

15%

5%

2%

2%

Source: National Bureau of Statistics of China

Fujian province ranked 9th richest province in terms of GDP per capita according
to data compiled by Global Demographics, with Beijing, Shanghai and Tianjin taking
top spots. In line with most major coastal cities who have benefited from the countrys
rapid growth due to their proximity to international trade, the rise in discretionary
spending in these cities have attracted both local and international retailers wishing to
cater to the growing middle and higher income bracket consumers. In 2011, Fujian's
nominal GDP was Rmb1.74 trillion (US$276.3bn), a rise of 13% from the previous
year. It's GDP per capita was Rmb46,802 (US$7,246). By 2015 Fujian expects to
have at least 50 enterprises that have over Rmb10bn in annual revenues. The
government also expects 55% of GDP growth to come from the industrial sector.
Map

Name

Administrative Seat

Population (2010)

Sub-provincial city
2

Xiamen

Siming District

3,531,347

Prefecture-level city
1

Fuzhou

Gulou District

7,115,370

Longyan

Xinluo District

2,559,545

Nanping

Yanping District

2,645,549

Ningde

Jiaocheng District

2,821,996

Putian

Chengxiang District

2,778,508

Quanzhou

Fengze District

8,128,530

Sanming

Sanyuan District

2,503,388

Zhangzhou

Xiangcheng District

4,809,983

Total

36,894,216

Source: National Bureau of Statistics of China

page 7

Zhongmin Baihui Retail Group

China governments efforts in boosting domestic consumption. The current
structure of Chinas GDP growth is largely dependent on foreign demand of goods.
While it was facing a spending crunch in Europe and the US, this threatened its
economy with a possible hard landing. China is clear that it wants to stimulate
domestic consumption, which currently stands at around one third of its GDP
compared to around 70% in the US. In its 12th Five-Year Plan for 2011-2015, China
calls for a shift in the countrys economic model from export-led growth toward
greater reliance on domestic demand, particularly household consumption.
Chinas wage levels are rising rapidly. According to the 12th Five-Year Plan, the
minimum wage should grow by 13% per year. Together with real appreciation, the
increase in labour costs will weaken the competitiveness of Chinas labour-intensive
export sector, and the trade balance will come to reflect this more clearly in years to
come. The Ministry of Commerce recently announced plans to grow the domestic
market to reach annual sales of Rmb32 trillian by 2015, a rise of 77% compared to
2011. Meanwhile, official statistics provided by the National Bureau of Statistics show
that domestic retail sales hit Rmb18.2 trillian in 2011, an increase of 11.6% yoy after
taking into account inflation.
Still a positive outlook despite Chinas economy showing signs of slowing
down. All these point to a rosy picture for Chinas retail industry. Chinas retail sales
are expected to reach US$3.8bn in 2016, as forecasted by Business Monitor
International (BMI). That would mean a compounded annual growth rate (CAGR) of
10% from 2009 to 2016.
China Retail Sales (US$bn)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2009

2010

2011e

2012f

2013f

2014f

2015f

2016f

Source: BMI

page 8

Zhongmin Baihui Retail Group

Company Outlook
Business strategic. To meet its second and third tier cities requirement, the groups
strategy is to focus on middle to high level income brackets, aiming to offer its
customers with a wide range of quality merchandise and customer-oriented services,
as well as a convenient and comfortable one-stop shopping environment. The group
is led by an experienced and committed management team with more than 18 years
of retail experience. The management has extensive knowledge of the retail industry
and established relationships with relevant industry contacts. In addition, the group
has established corporate culture and spirit which creates a comfortable working
environment for its employees and instills loyalty to its employees, thereby increasing
productivity.
Well-established relationships with suppliers and customers. Zhongmin Baihui
has established itself as a well-known brand in Fujian province over the years, one of
the important reasons is the quality assurance. Under the terms of its standard supply
contracts with suppliers, all its suppliers are requested to give product quality
assurance. In addition, the group adheres to the one-third policy, which is that for
merchandise that have expiry dates, the products will be removed from the displays
when its reach approximately two-third of the usable period.
Expand business through acquisitions or strategic partnerships. Management
plans to continue expanding its business through acquisitions, joint ventures or
strategic alliances to strengthen market position, expand customer network and
expand into new complementary businesses. The group will continue its strategy of
opening its department stores in prime locations that enjoy high and constant
pedestrian flow and high visibility.
To establish a logistics centre in Fujian Province. Early last year, Zhongmin
Baihui entered into a joint venture agreement with Citi-Base Holdings Ltd to jointly
establish a logistics centre in Xiamen, in the proportion of 30:70. The JVCo is
intended to have an initial registered capital of Rmb40m, which Zhongmin Baihui shall
provide a sum of Rmb12m. At the same time, the JVCo entered into a transfer of land
use rights agreement with Haicang Sub-Bureau of Land Resources and Housing
Management of Xiamen for a piece of land measuring approximately 20,150 sqm
(217,000 sf) for a lease period of 50 years. The lease premium payable is
approximately Rmb9.67m. Given the size, the lease payable for its location within a
high density residential area is reasonable. This site could be even more exciting if
the group is able to convert some of the space for retail purpose.

page 9

Zhongmin Baihui Retail Group

Key Risks
Loss of management fees from the six managed stores. Quanzhou ZMBH pays
the group RMB1m per annum for managing each of Quanzhou ZMBHs stores (which
accounted 24% of our FY12f net profit estimates). Should Quanzhou ZMBH
experience cash flow difficulties or deterioration in their business performance and
result in delayed payments or default, the group will have to make provisions for
doubtful debts or incur write-offs.
Leased property for the Xiamen Store. The groups Xiamen store operates on
leased premises for 10 years from 26 April 2010. Should the group be unable to
renew the lease, it will have to relocate and such alternative sites might not prove to
be comparable in terms of accessibility and leasing terms.
Intense competition from both domestic and international operators of
department stores, hypermarkets, convenience stores, specialty retailers and
discount stores. Domestic and international retailers with wider network of stores
across regions have advantages with better supply chain integration, thus having
more flexibility in pricing their products. Global operators such as Wal-Mart China and
local retail department store, Seashine Department Store are located in the same
area as the its Xiamen Store. Recently, overseas names from Britain's Tesco Plc to
Germany's Metro AG are slowing their Chinese expansion, while Hong Kong-listed
Sun Art Retail Group Ltd has overtaken Wal-Mart as the country's top hypermarket
chain.
Competition from online retailers. Online retail sales in China is projected to triple
to more than US$360bn by 2015, and expected to surpass the US as the worlds
largest market according to a report by Boston Consultancy Group. Major players
such as Alibabas Taobao and Tmall, which accounts for most of the online sales in
China, can sell products cheaper online and thus eat into its profit margins.
Foreign exchange fluctuation. As all of the groups revenues are generated from
the PRC, unfavorable exchange rates will affect dividend payments to shareholders.
Rising labour costs and staff benefits in China. Chinas five year plan outlines the
shift from growth to welfare improvement and socioeconomic sustainability. Plans
include raising the income of low-income earners and providing a social security
system and better healthcare system to cover all urban and rural residents. All these
will raise business costs as companies will have to contribute towards benefits
announced by the local government.

page 10

Zhongmin Baihui Retail Group

Management
Lee Swee Keng Executive Chairman. Mr. Lee is one of the founders of the group.
He is responsible for charting and steering the groups business direction and overall
management, strategic planning and business development. He has more than 29
years experience as an entrepreneur.
Chen Kaitong CEO and Executive Director. He is responsible for strategic
corporate planning and business development, as well as formulating business
workflow and organizational structure of the group. Mr. Chen has more than 28
years experience in Chinas retail industry and has received awards for his
contributions to the retail industry in China. He was elected chairman of Quanzhou
City China Store & Franchise Association in 2010. He has also been a member of the
National Peoples Congress representing Quanzhou City since 2007.
Su Jianli Deputy CEO (Marketing and Operations) and Executive Director. His
roles include assisting the CEO in performing the daily operations of the group, with
emphasis on strategic corporate planning and development of group operations,
implementation of quality management policies and marketing and sales. Mr Su has
16 years of experience at the management level in the power and apparel industries.
Wang Liyu Deputy CEO (Administration and Human Resources). She joined
the group in 2010 and is responsible for administration and human resources matter,
which include recruitment, training, relations and welfare. She was an accountant at
the Fujian Motor Industry Group Co Ltd and also worked as financial controller of
Quanzhou Zhongmin Baihui from 2000 to 2010. Ms. Wang holds a diploma in
Finance and Accounting from Fujian Commercial College.
Jeffrey Kan Kai Hi CFO. Mr. Kan joined the group in 2010 and is in charge of
overseeing matters relating to accounting, financial administration and the
compliance and reporting obligations of the group. He was previously financial
controller at Asia Water Technology Ltd, chief financial controller of Econat Fiber Ltd,
regional financial controller of Breadtalk Group Limited and financial controller and
controlling accountant of Ghim Li Group. Before joining these companies, he was last
audit senior with KPMG (Singapore). Mr. Kan has a Bachelor of Commerce
(Accounting) from Curtin University of Technology, Australia and has been a Certified
Practicing Accountant with CPA Australia since 2004.

page 11

Zhongmin Baihui Retail Group

Financial Highlights
FYE Dec (Rmb m)
Revenue
Operating costs
EBITDA
EBITDA margin (%)
Depn & amort.
EBIT
Interest expense
Interest & invt inc
Associates' contrib
Exceptionals
Pretax profit
Tax
Tax rate (%)
Minority interests
Net profit
EPS (cts)

1H12

1H11

130.4
(114.8)
15.6
11.9
(1.1)
14.5
(0.1)
3.2
(0.2)
0.0
17.4
(5.1)
29.5
0.0
12.3
6.3

94.3
(84.3)
10.0
10.6
(0.8)
9.2
(0.3)
4.3
0.0
0.0
13.2
(4.7)
35.7
0.0
8.5
4.4

yoy %
chg
38
36
56
37
57
(75)
(24)
nm
0
32
9
0
45
42

2H11
123.2
(113.3)
9.9
8.0
(0.8)
9.0
(0.3)
2.9
(0.2)
0.0
11.5
(3.8)
32.6
0.0
7.7
4.0

qoq %
chg
6
1
57
25
60
(70)
13
53
0
52
37
0
59
57

Source: Company, NRA Capital

Expect record-breaking year in revenue for FY12. The groups sales jumped 38%
yoy to Rmb130.4m in 1H12 as growth came from all business segments, especially
continuous improvement from its flagship Wucun Store and contributions from its
newly opened Jiahe Store. Given it successfully opened its Nanjing Nanzhan store in
September this year, coupled with riding on the expansion of China domestic
consumption and 3 more new stores expects to open in FY13, we project CAGR
revenue growth of 49.5% over the next three years.
Segmental breakdown revenue by assumption

Self-owned stores

Start

Sq ft

Xiamen Wucun Store

Dec-09

309,000

Xiamen Jiahe Store

Oct-11

251,000

Nanjing Nanzhan Store

2010

2011

2012F

2013F

2014F

154,500

309,000

309,000

309,000

309,000

62,750

251,000

251,000

251,000

90,250

361,000

361,000

Sep-12

361,000

Quanzhou Qiaonan Store

1Q/2013

68,000

51,000

68,000

Zhangzhou Longwen Store

2Q/2013

471,000

235,500

471,000

Xiamen Zhongshan Store

4Q/2013

172,000

Total space sq ft

154,500

YoY Growth (%)

43,000

172,000

371,750

650,250

1,250,500

1,632,000

141%

75%

92%

31%

Assumption
Direct sale per sf (Rmb)

253

366

274

247

252

Net concessionaire sales per sf (Rmb)

115

99

82

82

82

Rental income per sf (Rmb)

49

82

73

73

73

Managed rental per sf (Rmb)

107

38

38

38

38

Rental expenses per sf (Rmb)

(19)

(11)

(9)

(8)

(8)

Source: Company, NRA Capital estimates

page 12

Zhongmin Baihui Retail Group

Segmental breakdown revenue (Rmb m)
800
700

Managed rental

Rental income

Net concessionaire sales

Direct sales

62
120

600
47

500
400

103

300

25
48
53

14
31
37

200
100
0

134

92

0
2009

411
309

17
8
18
39

136

178

2010

2011

2012F

2013F

2014F

Source: Company, NRA Capital estimates

EBITDA margins should continue expanding as greater economies of scale.

The groups EBITDA margins for 1H12 expanded by 1.3% pts to 11.9% after
improving its Wucun store efficiency. We expected its 2H12 EBITDA margins will
decline slightly to 10.8% due to higher startup costs from its Nanjing store, however
margins are expected to recover when its Nanjing store is fully operational in FY13.
Whereas its flagship Wucun store is also in progress to convert more space to rental
division due to stronger F&B demand, we believe margins will continue to improve
with better efficiency and higher rental yield.
EBITDA profit and EBITDA margin (%)
140

50%

120

EBITDA

40%

EBITDA margin (%)

100

30%

80

20%

60

10%

40

0%

20

-10%

-20%

(20)

-30%
2010

2011

2012F

2013F

2014F

Source: Company, NRA Capital estimates

Good cash flow business model. Zhongmin Baihui generated positive free cash
flow in 2010 and 2011 despite making losses in 2010. The group has an aggressive
road map to open another 3 to 4 stores in FY13. As we estimate each store to cost an
average of Rmb20m, this should not be a problem with the group's zero gearing and
Rmb98.6m net cash position as at end Jun-2012. Management is proud to share that
the six managed stores and two self-owned stores managed to achieve a return on
investment within 1 to 2 years.

page 13

Zhongmin Baihui Retail Group

Valuation and Recommendation
Non-competition undertakings given in the service agreements of exiting major
shareholders. Quanzhou ZMBH and its shareholders, which including Chen Kai
Tong (CEO and Executive Director) and Su Jianli (Deputy CEO and Executive
Director), and their present or future subsidiaries or associated companies, shall not
solely or jointly with or on behalf of any other person or entity, directly or indirectly,
carry on or be engaged in any business or activity which is the same as, similar,
connected to, competing with or in conflict with the business of the group. We believe
the success of Zhongmin Baihuis business model is largely driven by the experience
of its management team and their relationship with the landlord, government related
parties and their suppliers. As such, the irrevocable undertaking is important to
protect the minority shareholders.
The right person in the right place at the right time ( ), these three
factors are important to manage a department store business. With over 1.3bn
population in China and a middle-class of around 300-400 million, the governments
strategy to boost domestic consumption makes a lot of sense, especially in the
second and third tier cities (boosted by the Chinese stimulus package that provided
better highways and faster trains to increase access to these areas). Last but not
least, location of stores, accessibility, a savvy management team with local
knowledge will allow retailers to develop rapidly and capture market share of this
growing group of consumers. We believe the experienced and committed
management team has proven themselves through the 9 self-owned and managed
stores over the 18 years.
Initiate coverage with a fair value of S$1.30. While we do expect the long term
growth of consumer spending to occupy a bigger portion of GDP due to governments
policies, the rebalancing of the current export-driven model will be a gradual and long
drawn out process faced with many challenges such as rising foreign competition.
Wal-Mart announced plans to open 100 more outlet in China over the next three
years, which is now heading to second and third tier cities (with prior development
focusing on first tier cities). Our fair value is based on 19x FY13 PER, in line with its
regional peers.
Though we like its business model with good cash flow generation, low capex and
working capital requirement, given the near to mid-term valuation is not compelling,
we initiate coverage with a Fully Valued recommendation. We see that its true value
will only be unlocked in FY14 when its road map is successfully launched next year.

page 14

Zhongmin Baihui Retail Group

Comparison
Code
Name
ZHONGMIN BAIHUI
SUN ART RETAIL
BIG C SUPERCENTE
GOLDEN EAGLE RET
SIAM MAKRO PUB
YONGHUI SUPERS-A
PARKSON RETAIL
INTIME DEPARTMEN
WUMART STORES
SHANG FRIEND S-B
ROBINSON DEPT ST
PARKSON HOLDINGS
DASHANG GROUP -A
RAINBOW DEPART-A
CHONGQING DEPT-A
SPRINGLAND INTER
MAOYE INTL HLDGS
MITRA ADIPERKASA
WENFENG GREAT-A
WUHAN DEPT STORE
LIANHUA SUPERM-H
HEFEI DEPT ST0-A
HUNAN FRIENDSH-A
BEIJING CAPTL-A
RAMAYANA LESTARI
NANJING CENTRA-A
GUANGZHOU FRIE-A
SHANGHAI XUJIA-A
XINJIANG YOUHAO
XIAN KAIYUAN-A
BEIJING HUALI-A
EW HUADU SUPER-A
YINCHUAN XINHU-A
NANJING XINJIE-A
CHENGSHANG GRO-A
PCD STORES GROUP
GUANGZHOU GRAN-A
BEIJING CUIWEI-A
XI'AN MINSHENG-A
DALIAN FRIENDS-A
QINHUANGDAO BO-A
ZHONGXING SHEN-A
WUHAN ZHONGNAN-A
Average

ZBR SP
6808 HK
BIGC TB
3308 HK
MAKRO TB
601933 CH
3368 HK
1833 HK
1025 HK
900923 CH
ROBINS TB
PKS MK
600694 CH
002419 CH
600729 CH
1700 HK
848 HK
MAPI IJ
601010 CH
000501 CH
980 HK
000417 CH
002277 CH
600723 CH
RALS IJ
600280 CH
000987 CH
002561 CH
600778 CH
000516 CH
600361 CH
002264 CH
600785 CH
600682 CH
600828 CH
331 HK
002187 CH
603123 CH
000564 CH
000679 CH
000889 CH
000715 CH
000785 CH

Price
(Local)
1.55
10.84
186.50
18.72
472.00
25.52
6.94
9.56
14.02
1.12
61.75
5.26
35.20
11.53
24.68
3.99
1.60
6200.00
13.10
11.79
6.41
6.80
9.49
7.99
1120.00
33.17
11.50
8.73
11.18
4.84
5.02
5.86
14.67
8.38
4.81
0.78
7.65
8.40
4.97
6.45
5.63
5.95
6.34

MktCap
(S$ m)
304.3
16329.2
6115.5
5713.3
4502.5
3840.2
3079.9
3022.0
2836.5
2795.0
2726.0
2299.2
2026.0
1808.0
1804.4
1575.1
1356.8
1308.3
1265.1
1171.9
1133.2
1039.2
1039.0
1030.9
1010.3
933.0
808.9
711.3
682.4
676.6
655.0
621.8
596.3
588.4
537.7
518.6
513.3
507.0
461.0
450.5
373.7
325.3
312.1
1893.1

Actual
PER
(x)
94.9
38.5
22.6
24.1
38.0
50.4
14.9
17.3
24.9
6.3
39.8
15.2
13.1
17.5
13.8
12.7
8.7
25.4
14.8
16.7
10.1
11.7
14.6
13.7
18.9
76.0
11.5
13.9
16.7
28.1
75.2
20.6
11.5
17.3
17.2
12.0
13.6
12.2
25.9
19.5
22.4
15.4
31.0
23.7

Y1
PER
(x)
60.8
34.7
24.8
23.5
31.8
38.8
14.7
17.3
22.5
9.6
31.9
13.6
11.2
14.7
12.9
12.6
9.3
23.0
13.2
15.9
10.1
11.6
12.7
13.0
17.6
28.2
10.0
14.7
16.4
20.9
38.6
17.3
10.4
16.7
14.0
7.9
10.5
na
26.2
10.6
23.5
13.3
27.6
19.2

Y2
PER
(x)
22.6
29.0
20.8
19.9
26.7
29.4
13.3
14.5
18.8
8.4
24.7
11.4
8.9
12.0
10.4
10.7
8.5
18.1
9.4
13.2
9.3
9.7
9.9
10.9
15.5
15.8
8.5
13.9
14.2
15.9
24.7
13.9
8.8
15.9
11.2
5.7
8.6
16.8
20.7
8.8
19.4
11.0
23.5
15.0

Total
Equity
(S$m)
14.0
3193.0
965.5
940.3
397.4
838.1
1098.9
1495.7
688.3
2805.4
372.3
1695.3
784.6
750.1
565.8
856.0
1388.0
254.4
681.3
459.7
745.2
551.7
411.5
571.1
402.9
134.9
362.3
335.0
290.4
230.1
628.5
238.3
263.9
229.6
169.9
498.8
406.6
62.7
174.8
340.7
151.3
227.3
163.4
647.3

PBR
(x)
22.9
5.3
5.1
6.2
11.3
4.8
2.9
2.2
4.9
1.0
7.6
2.1
2.4
2.5
3.0
1.9
1.3
5.1
1.9
2.6
1.7
2.0
2.4
2.0
2.9
7.0
2.2
2.3
2.8
2.9
1.1
2.5
2.2
2.3
3.1
1.1
1.3
4.0
1.3
1.6
2.4
1.5
2.1
3.5

ROE
(%)
42.6
19.6
26.1
28.0
30.5
9.6
20.6
13.9
21.1
16.8
20.1
15.3
20.1
15.0
23.5
15.0
14.8
21.9
13.6
16.6
17.0
18.6
17.9
16.1
15.5
9.5
20.6
na
17.8
10.4
1.4
15.3
20.7
14.4
19.7
9.1
9.7
33.6
4.9
8.7
11.5
9.9
7.0
17.0

Yield
(%)
0.0
0.9
1.1
1.2
2.3
0.8
3.2
2.2
1.7
3.5
1.1
3.0
0.9
2.9
1.8
3.5
5.7
0.6
3.2
na
3.8
1.2
1.0
na
2.7
0.5
4.3
4.1
0.4
1.0
1.6
1.8
2.0
1.2
0.6
4.6
2.2
1.0
na
1.2
0.4
1.2
na
2.0

Source: Bloomberg, NRA Capital estimates

page 15

Zhongmin Baihui Retail Group

Profit & Loss (Rmb m, FYE Dec)
Revenue
Operating expenses
EBITDA
Depreciation & amortisation
EBIT
Net interest & invt income
Associates' contribution
Exceptional items
Pretax profit
Tax
Minority interests
Net profit
Wt. shares (m)
Shares at year-end (m)

2010
80.9
(90.5)
(9.6)
(1.4)
(11.0)
2.2
0.0
0.0
(8.9)
1.8
0.0
(7.1)
166.3
166.3

2011
217.5
(197.6)
19.9
(1.6)
18.3
6.6
(0.2)
0.0
24.7
(8.5)
0.0
16.2
194.8
194.8

2012F
304.3
(274.6)
29.6
(2.3)
27.4
9.6
(0.5)
0.0
36.5
(10.9)
0.0
25.5
196.3
196.3

2013F
550.8
(460.5)
90.3
(2.6)
87.7
10.0
0.5
0.0
98.2
(29.5)
0.0
68.7
196.3
196.3

2014F
726.9
(615.6)
111.3
(2.7)
108.6
11.2
0.5
0.0
120.4
(36.1)
0.0
84.3
196.3
196.3

Balance Sheet (Rmb m, as at Dec)

Fixed assets
Intangible assets
Other long-term assets
Total non-current assets
Cash and equivalents
Stocks
Trade debtors
Other current assets
Total current assets
Trade creditors
Short-term borrowings
Other current liabilities
Total current liabilities
Long-term borrowings
Other long-term liabilities
Total long-term liabilities
Shareholders' funds
Minority interests
NTA/share (Rmb)
Total Assets
Total Liabilities + Sholders' funds

2010
10.9
0.0
3.5
14.4
32.7
11.4
9.0
9.3
62.4
20.0
6.4
6.2
32.6
19.9
16.1
36.0
8.2
0.0
0.05
76.8
76.8

2011
13.3
0.0
10.5
23.7
87.7
22.5
20.1
16.6
147.0
50.4
5.9
11.7
68.1
13.8
20.9
34.8
67.9
0.0
0.35
170.7
170.7

2012F
31.0
0.0
5.9
37.0
133.1
24.2
30.4
0.0
187.7
77.4
3.0
9.2
89.7
0.0
41.7
41.7
93.3
0.0
0.48
224.7
224.7

2013F
58.6
0.0
5.9
64.5
200.7
43.8
55.1
0.0
299.6
140.1
5.5
14.8
160.4
0.0
41.7
41.7
162.0
0.0
0.83
364.1
364.1

2014F
65.3
0.0
5.9
71.2
295.2
57.8
72.7
0.0
425.7
184.9
7.3
16.8
209.0
0.0
41.7
41.7
246.3
0.0
1.25
496.9
496.9

Cash Flow (Rmb m, FYE Dec)

Pretax profit
Depreciation & non-cash adjustments
Working capital changes
Cash tax paid
Others
Cash flow from operations
Capex
Net investments & sale of FA
Others
Cash flow from investing
Debt raised/(repaid)
Equity raised/(repaid)
Dividends paid
Cash interest & others
Cash flow from financing
Change in cash
Change in net cash/(debt)
Ending net cash/(debt)

2010
(8.9)
15.9
21.9
(0.4)
0.0
28.5
(9.7)
0.0
0.0
(9.7)
7.6
10.9
0.0
(8.9)
9.6
28.5
20.9
6.4

2011
24.7
7.3
3.4
(8.8)
0.0
26.5
(4.0)
0.0
(4.7)
(8.6)
(6.5)
43.4
0.0
0.3
37.2
55.1
61.6
68.0

2012F
36.5
41.2
15.4
(11.1)
0.0
82.1
(20.0)
0.0
0.0
(20.0)
(16.7)
0.0
0.0
0.0
(16.7)
45.3
62.1
130.0

2013F
98.2
1.6
19.4
(23.9)
0.0
95.3
(30.2)
0.0
0.0
(30.2)
2.5
0.0
0.0
0.0
2.5
67.6
65.2
195.2

2014F
120.4
1.0
14.9
(34.1)
0.0
102.1
(9.4)
0.0
0.0
(9.4)
1.8
0.0
0.0
0.0
1.8
94.5
92.7
288.0

2010
24,185.3
62.4
(10.9)
(8.8)
(17.0)
20.0
0.0
40.7
116.1
204.7

2011
168.8
(306.8)
11.3
7.5
44.0
34.3
0.0
33.8
67.2
150.4

2012F
39.9
49.0
12.0
8.4
240.6
30.0
0.0
36.5
54.8
175.2

2013F
81.0
204.5
17.8
12.5
446.7
30.0
0.0
36.5
54.8
175.2

2014F
32.0
23.3
16.6
11.6
415.0
30.0
0.0
36.5
54.8
175.2

KEY RATIOS (FYE Dec)

Revenue growth (%)
EBITDA growth (%)
Pretax margins (%)
Net profit margins (%)
Interest cover (x)
Effective tax rates (%)
Net dividend payout (%)
Debtors turnover (days)
Stock turnover (days)
Creditors turnover (days)
Source: Company, NRA Capital estimates

page 16

Zhongmin Baihui Retail Group

NRA Capital Pte. Ltd (NRA Capital) has received compensation for this valuation report. This
publication is confidential and general in nature. It was prepared from data which NRA Capital
believes to be reliable, and does not have regard to the specific investment objectives, financial
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page 17