A leading privately-owned supermarket operating mainly in Beijing with vigorous nationwide expansion. Wumart’s revenue totalled Rmb14.6 billion in 2011. Both its revenue and store number ranked first among all supermarket chains in Beijing. Net profit grew by -10.7%, 21.0% and 10.6% respectively in 2009-2011. The company has also gained a foothold in Tianjin and Zhejiang. From 2009 to 2011, Wumart newly opened 35, 23 and 27 stores respectively. So far, 397 of its existing 519 stores are directly-ow ned while others are franchised or managed stores.
Rapid growth of the supermarket sector amid the trend of industry concentration. In China there are 5.5 s uperstores for every million urban residents, implying substantial insufficiency compared to developed countries (eg.15.1 in US, 25.7 in Britain, and 32.1 in France). The superstore floor area per capita is just 1/3 of that in developed countries. Driven by urbanization and ascending sales efficiency, we forecast the market size of superstore will increase at a CAGR of 21.1% in the next 5 years. Currently, CR10 is 17.2% for the supermarket sector, lower than developed countries (CR10 = ~60%), it is to be improved in the future. Supply chain integration and cross-regional expansion ability are crucial for future competition.
Strong bargaining power aided by rapid scaling; superior profitability supported by efficient supply chain management. Taking up 30% share of Beijing’s supermarket business, Wumart maintains its leading position and presents incomparable scale advantages than its peers. In 2011 Wumart also started consolidation of its subsidiaries, which is expected to increase its bargaining power with the suppliers. We project the gross margin will rise to 19.7%/19.9%/20.1% in 2012-2014E, re spectively. Moreover, compared to the peers average, advanced IT syst em reduced Wumart’s labor cost by 28.5% and modern equipped logistic center lifted inventory turnover by 38.8%. Wumart’s net profit margin reached 3.5% in 2011, higher than the sector average of 2.3%.
GFA expands at a CAGR of 14.9%, securing future revenue growth; lower operation expense remains while net profit margin uplifts. We expect Wumart will open 53/50/45 stores in 2012-2014E respectively with a 3-year GFA CAGR of 14.9%. T he cultivating period is less than 9 months. We forecast total revenue will grow at 15.9%/20.0%/19.1% in 2012-2014E respectively under steady GFA expansion. Wumart’s operating cost is also expected to dr op via the efficient IT system and logistics supports. We project the total expense ratio will be 15.2%/15.1%/15.0% in 20 12-2014E respectively and net profit margin will rise to 3.6%/3.8%/4.0%.
Potential risks：A sharp economic slowdown; unsustained lease contracts or rapid increase of rental cost.