among peers that have reported. Due to lower non-operating net gains in 1HFY13, reported net profit was flat yoy. Recurring net profit grew 12% yoy to RMB312m.
Rebranding bears fruit: NWDS started to rebrand in 2009 when it had only 24 stores by: (1) revamping existing stores into "Living Galleries" and "Fashion Gallery", via adjustments to merchandise mix, remodelling and re-positioning; (2) closing small, inefficient stores; and (3) enlarging the operating areas at its major stores. These efforts have paid off, improving the growth profile of the store portfolio. 83% of the store area scheduled for re-branding was completed by December 2012. 89% of its total floor space is either rebranded or newly opened stores. Rebranded stores delivered higher SSSG than the group's average.
Expect outperformance to continue in 2H: We believe NWDS will continue to outperform in 2H despite macro challenges such as anti-corruption measures because: (1) rental cost reductions in its major Beijing Chongwen stores and (2) it is more immune from anti-corruption measures: only 12% of sales are from prepaid cards and group sales are a small percentage of total sales; these two categories are perceived to be most affected by the anti-corruption campaign in China. On a calendar year basis, we expect its GSP to grow 22% for CY13, and its core net profit to grow by 23% to HKD719m.
We reiterate our Overweight rating on NWDS and target price of HKD6.3. We use a Gordon Growth model to set our target PE multiple of 14.7x based on CY 2013 EPS with a beta of 0.95. Catalyst: better SSSG. Risks: faster-than-expected rising in Advertising & Promotion costs due to more promotion. More details about the company are available in our 11 January 2013 China Department Stores report.
Click here to read the full report including important disclosures and disclaimers: https://www.research.hsbc.com/midas/Res/RDV?ao=20&key=npNDqLGAg6&n=362141.PDF