Key takeaways
We visited several Red Star Macalline malls in Beijing. Ourtakeaways:
Robust sales growth maintained. Mall rental revenue isexpected to grow ~10% this year. Sales growth surpassed 30% for some leading home furnishing brands like Suofeiyaand Sleemon inside the mall. Strong operating figures showa very healthy organic growth trend for the home furnishingindustry and RSM.
Unparalleled competitive advantage over traditionalchannels. RSM provides a leading customer experience,with 1) attractive shopping environment with premium malldesign and decoration; 2) 300+ brands in one mall coveringvarious segments of home furnishings; 3) transparentpricing system which do not allow for discounts larger than30% off; 4) after-sale service permitting product returnwithin 30 days of purchase.
Good quality control over managed shopping malls.We visited RSM-managed shopping malls during this trip aswell. We believe they maintained high quality just likeportfolio malls since RSM’s management provides dailyoperation services. This gives us more confidence in RSM’sfuture growth and its asset-light model.
Recommendation
Maintain Conviction BUY rating. Recurrent profit is expectedto grow by 24.7% in 2015, 30.4% for 2016.
Currently, the stock trades at 12.3x 2015e & 9.5x 2016e P/E.Investment properties 70% higher than current market cap.
Risks
A slowdown in the home furnishing market; increased competition.