Greater China may represent a significant portion of sales for leading luxury brands Louis Vuitton,Gucci and Bulgari, but Aaron Fischer, regional head of consumer research at CLSA Asia Pacific Markets, believes Hong Kong-listed retailers are better positioned to capture the mainland’s demand for high-end merchandise.
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Fischer identifies Emperor Watch & Jewellery , Sa Sa International , Parkson Retail and L’Occitane as attractive investment opportunities. He highlights that a greater percentage of their earnings are derived from Chinese customers and their mid to high-end product mix offers accessibility to a wider range of consumers, including the country’s burgeoning middle class.
Rising wages and the growing availability of consumer credit is encouraging middle-income Chinese to purchase goods that were previously out-of-reach.
A recent CLSA survey illustrated this growing trend. Out of the 340 consumers and 31 luxury store managers interviewed in China’s tier 1-3 cities, over 50 percent of the respondents have or are planning to purchase luxury apparel.
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Emperor Watch & Jewellery is a dealer of 23 luxury watch brands in Hong Kong. Over three quarters of the company’s customers are visitors from the mainland. CLSA believes it is a good time to pick up the stock as it is trading at a discount to its peers at around 15 x 2011 consensus PE.
SaSa International is a leading cosmetics retailer in Greater China, with mainland tourists contributing to 50 percent of its sales. The company is looking to increase its store network in China fivefold to 100 stores by 2013. SaSa plans to capitalize on the country’s emerging online shopping culture through launching its own website.
Parkson Retail is the largest listed department-store operator in China, with 41 outlets in 26 cities. The retailer focuses on middle to high-end discretionary items and enjoys high brand recognition in the mainland. CLSA has a 10-month target price of HK$15.87 for the stock, from the current HK$12.38.
French skin care product retailer L’Occitane recently listed in Hong Kong in response to the growing demand for its products in the region. The beauty company derives half of its sales in Asia, with an increasing share from mainland consumers. CLSA believes the stock will benefit from recent marketing investments and store expansion in Greater China and forecasts 27 percent upside for the stock over the next 10 months.