Carter Venkat presented his in-depth investment thesis on Sun Art Retail (HKSE: 6808) at Asian Investing Summit 2015.
Sun Art Retail is a leading operator of hypermarkets in mainland China with 14% market share. The company trades at a FCF yield of 5.9% and is growing its store count in the relatively underpenetrated Chinese market by approximately 15% per year. While pre-tax ROIC has been declining, it is still a relatively healthy 32%. The company has been hurt by flat same-store-sales and investors are fearful about Chinese consumer spending as well as competition from online players. As a result, the stock has more than halved from its November 2014 high of HK$12.64 to the current price of HK$6.08 and the P/E ratio has decreased from 37.7x in March 2013 to the current 16.6x. However, unlike many Chinese retailers, the company has maintained its margins and has managed inventory levels well. They have a clean balance sheet with a net cash position and are funding expansion from internally generated cash. There remains significant scope for expansion especially in the lower-tier cities that Sun Art is currently focusing on. While these stores take longer to ramp up and have lower productivity levels, returns on investment are still compelling. Although we think retailers in China will face a more challenging future, due to slowing economic growth, increased capacity, and various other factors, Sun Art’s shares offer a compelling valuation for a leading, well-operated Chinese retailer.
About the instructor:
Carter Venkat has 15+ years of experience conducting complex financial analysis and corporate valuation. Carter worked in the London office of Mirae Asset Investment Management where he ran a global value fund. He was also an analyst for the firm’s flagship global emerging markets fund and covered companies in a wide variety of industries across emerging markets. Before moving into asset management, Carter was an M&A banker at Bear Stearns and Citigroup and a leveraged finance banker at ABN Amro where he developed his analytical skills. He also worked as Director of Finance and Strategy at Eyetech Pharmaceuticals where he helped to manage the company’s IPO and eventual sale to a strategic buyer. Carter has an MBA from Columbia Business School, where he studied value investing strategies, and a BA in Economics from Colgate University.
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