What's new
We held a home furnishing forum in Shenzhen at which Red StarMacalline (RSM) presented.
RSM accounted for ~20% of sales for many famousfurnishing brands. Exhibition and experience are crucialin the value chain as home furnishing products arenon-standardized, with low purchasing frequency(customers unfamiliar) and high ticket prices (prudentpurchasing decisions). RSM provides the most importantoffline showrooms to connect customers and brands.Unparalleled competitive advantage over traditional
channels. RSM’s advantages over traditional furnishingmarketplaces include an attractive shopping environment,one-stop shopping and leading after-sales service. RSMquickly gained the #1 market position in 98 cities in China.Currently the top five players only account for 6% of themarket, suggesting huge consolidation potential.
Robust retail sales growth driven by consumptionupgrading and old house refurbishment. During thenational day holiday, RSM recorded 15% sales growth,outperforming the traditional retail market in China.
Valuation and recommendation
Maintain Conviction BUY rating. We expect recurrent profitto grow by 24.7% in 2015, 30.4% in 2016.
Current valuation very attractive. The stock trades at 11.9x2015e P/E and the PEG is 0.4x. Value of investment properties is78% higher than current market cap. Dividend yield 4.2%.
Risks
Increased competition, low SSSG.