In line ytd performance; maintaining Buy
We recently visited NWDS stores in Sichuan province and learnt that thecompany's rebranding strategy has been working out so far. Managementmaintains its FY13 SSS growth (SSSg) guidance and store opening plan forFY13-15, based on 2012 ytd performance. We maintain Buy on NWDS on itsundemanding valuations and sequential growth recovery.
NWDS store visit in Sichuan – company’s reverse roadshow
We visited NWDS stores in Chengdu and Mianyang in Sichuan province on22-23 November. Both stores have completed their rebranding program inFY12. We share management’s view that the rebranding effort is bearing fruitsas NWDS recorded higher SSSg than its peers in 2012 ytd and received a morepositive feedback from customers. Chengdu store achieved c. 20% SSSg inJanuary-October 2012, higher than the company average. Meanwhile,management expects Mianyang store to breakeven in two years, faster thanthe group average (about three years).
Maintaining FY13 SSSg guidance of 13-14% and store opening plan
Management maintained its SSSg guidance of 13-14% for FY13, based on2012 ytd performance. It also maintained its store opening plan for FY13-15.
Regarding concessionaire rate, NWDS targets 18.3%-18.5% in FY13 (FY12:
18.5%). It estimated that c. 95% of its rebranding work will be completed bythe end of this year, 75% of which has already been completed by end-FY12.
Valuation and risks
We maintain Buy and HKD5.5 target price on NWDS, as the company hasdelivered in line ytd performance and its valuation is undemanding. Our DCFvalue implies a target 18.3x core CY12E P/E. However, we discount our NWDSDCF value by 20% (i.e. 15x core CY12E P/E or 12.6x CY13E P/E) to factor in itssmaller market cap and lower stock liquidity, and arrive at our target price ofHKD5.5. Key downside risks: 1) intensifying competition; 2) deceleration inChina’s economy and consumption spending; and 3) growth execution risks.