1H FY13 results. New World Dept Store (“NWDS”) posted 19.7% y-o-y growth in operating revenue to HK$2.03bn and 0.5% increase in reported profit to HK$332m for Jul-Dec 2012. Stripping away other losses/gains and fair value changes of investment properties, core earnings rose 11.6% to HK$317m. During the period, same-store sales growth reached 9.2% on high-base (1H FY12: 17%). Core net margin dipped 1.1ppt to 15.6%, amid lower concessionaire commission rate (down 0.6ppt to 17.8%) and direct sales’ gross margin (down 0.9ppt to 15.6%). New store losses were HK$25m (1H FY12: HK$30m). Higher rentals (up 0.1ppt to 6% of sales) and promotional expenses (up 0.5ppt to 1.9% of sales) were offset by lower staff costs (down 0.3ppt to 3.4% of sales) and utility expenses (down 0.4ppt to 1.1%).
YTD performance stands firm. SSSG went up by a mid to high single-digit rate in 2M13, with the Chinese New Year holidays (first 7 days) seeing sound mid-teens growth on like-to-like comparison. NWDS’ store rebranding program should also complete within the year to likely beef up overall growth momentum. Currently, the company targets at >10% SSSG and an increase in total retail space by c.15% y-o-y to nearly 1.6m sm GFA for full-year FY13. Valuation stays attractive. We have raised our TP to HK$5.81 on 14x 12-mth rolling PE (previous: HK$5.63 based on 14x FY13 PE). Trading at 11x rolling PE, 3.9% yield and 17% discount to our target, it is a BUY.