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汇丰银行-全球-奢侈品行业-软着陆仍然是豪华型飞机的一个明显可能性-18-25页.pdf
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汇丰银行-全球-奢侈品行业-软着陆仍然是豪华型飞机的一个明显可能性-18-25页.pdf
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Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: HSBC Bank plc, Paris branch
View HSBC Global Research at:
https://www.research.hsbc.com
The sector has de-rated significantly, but our base case is still
a normalisation/soft landing, not a sharp slowdown
We look at four key investment themes for 2019
Five high-conviction Buys (LVMH, Kering, Moncler, Richemont
and Hugo Boss); two stocks rated Reduce (Ferragamo; Tod’s)
Look beyond the ‘second derivative’ theme which has now played out
We find the H2 18 share price correction of most luxury stocks disconnected from what
we believe will be their earnings trajectories. The ongoing global equity market weakness
and trade tensions are likely to have a negative impact on luxury consumers’ ‘feel good’
factor in some regions. However, we believe that our normalisation/soft landing base case
for 2019 remains intact: we expect sector growth to slow from 9% in 2018 to 6% in 2019
and 2020. This is still robust and should allow most luxury companies to increase margins
further. We believe the ‘second derivative’ theme (ie, sector multiples de-rating when
organic growth decelerates from cycle peaks) has now played out and current valuations
(15.6x 12M fwd PE, 17% discount to historical average) are attractive.
Four key themes that could impact the sector in 2019 and beyond
1. China’s Red Bull: Favourable generational shift as the ‘selfie generation’ shows high
propensity to buy
2. Big outpaces small: Counter-intuitively, bigger brands still outgrow small ones
(positive for Kering and LVMH)
3. Digital/online 2.0: Any further implications stemming from new technologies?
4. M&A: As in 2018, investors should look beyond the ‘usual suspects’ in 2019
Five high-conviction Buys, 2 Reduce ratings: LVMH (Buy) has historically proven
resilient in all types of industry downturns. At Kering (Buy), concerns about Gucci’s
higher fashion content seem over-discounted. Moncler (Buy) still has potential to open
new stores and offers best-in-class execution. Richemont (Buy) is strongly positioned in
jewellery and less vulnerable in watches than in the past. Hugo Boss (Buy) is a value
stock with a recovery story with limited exposure to China. Tod’s and Ferragamo (both
Reduce) are trading at hefty valuations disconnected from weak fundamentals.
Ratings and target prices
Company
Ticker
Rating
Currency
Price
Target
Upside/
________ PE ___
3 Jan 2019
price
downside
2019e
2020e
Richemont*
CFR SW
Buy
CHF
61.26
91.00
49%
16.8
14.6
Hugo Boss
BOSS GR
Buy
EUR
53.86
78.00
45%
13.1
11.4
Kering
KER FP
Buy
EUR
380.70
540.00
42%
15.2
13.6
LVMH
MC FP
Buy
EUR
243.65
325.00
33%
17.7
15.9
Moncler
MONC IM
Buy
EUR
27.81
37.00
33%
19.6
18.7
Salvatore Ferragamo
SFER IM
Reduce
EUR
17.16
16.00
-7%
26.1
21.9
Tod's
TOD IM
Reduce
EUR
42.74
37.00
-13%
25.3
21.4
*based on calendar data including intangible amortisation - Source: Refinitiv Datastream, HSBC. Priced as of close at 3 Jan 2019
8 January 2019
Antoine Belge*
Global Co-Head of Consumer and Retail Research
HSBC Bank plc, Paris branch
antoine.belge@hsbc.com
+33 1 56 52 43 47
Erwan Rambourg
Global Co-Head of Consumer and Retail Research
HSBC Securities (USA) Inc.
erwanrambourg@us.hsbc.com
+1 212 525 8393
Anne-Laure Bismuth*
Analyst, Global Consumer and Retail
HSBC Bank plc
annelaure.bismu[email protected]
+44 20 7991 6587
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
not registered/ qualified pursuant to FINRA regulations
Expecting the unexpected
EQUITIES
GLOBAL LUXURY GOODS
Global
Yes, soft landing remains a distinct possibility in luxury
EQUITIES
●
GLOBAL LUXURY GOODS
8 January 2019
2
2019 Outlook
We find the H2 18 share price correction of most luxury stocks disconnected from what we
believe will be their earnings trajectories. Signs of a luxury industry slowdown have started to
materialise and the ongoing global equity market weakness and trade tensions are likely to
have a negative impact on the ‘feel good’ factor of luxury consumers in some regions. However,
we believe that our normalisation/soft landing scenario - outlined in our 4 Sept 2018 Back-to-
school luxury sector report - is intact. The main reason why we believe sector growth has to
slow is that the industry has been operating in a quasi-blue sky scenario for more than 12
months with all consumer nationalities contributing positively to growth, which is not sustainable.
We expect organic sector growth of 9% in 2018, with 8% in H2 18, following 10% in H1 18. For
2019, we forecast organic sector growth to normalise to 6%, which corresponds to what we
always estimated is the long-term sustainable average growth rate for the sector. Normalisation
should be broad-based across regions/nationalities. Whilst most investors seem to be (overly in
our view) focusing on macro-concerns potentially resulting in a severe reduction in Chinese
demand, our soft landing scenario is predicated on all key nationalities spending less than in
2018. As highlighted in our 12 December 2018 Postcard from Asia report, we believe the risk
has shifted from Asia ex-Japan to Europe and Japan.
Expecting the unexpected
Our base case is still a normalisation/soft landing rather than a sharp
slowdown, whilst the sector has significantly de-rated
We look at four key investment themes for 2019
Five high-conviction Buys (LVMH, Kering, Moncler, Richemont and
Hugo Boss); two Reduce ratings (Ferragamo and Tod's)
Our base case is still a
normalisation/soft landing
rather than a sharp slowdown
2019 to see organic sales
growth (+6%) normalising to
the industry’s medium-term
sustainable growth rate
HSBC Luxury Goods: Contribution of each geographic region to organic sales growth
2007a
2008a
2009a
2010a
2011a
2012a
2013a
2014a
2015a
2016e
H1
2017a
H2
2017a
2017a
H1
2018a
H2
2018e
2018e
2019e
2020e
Geographic breakdown
Europe
42%
42%
39%
36%
34%
32%
33%
33%
34%
34%
33%
33%
33%
31%
31%
31%
30%
29%
Japan
12%
12%
11%
9%
8%
8%
7%
7%
8%
8%
8%
8%
8%
8%
8%
8%
7%
7%
US
20%
19%
18%
18%
18%
18%
19%
19%
20%
20%
19%
19%
19%
19%
19%
19%
19%
19%
China
3%
5%
6%
8%
10%
10%
10%
10%
10%
11%
11%
11%
11%
12%
12%
12%
13%
13%
Rest of Asia & other
22%
23%
25%
28%
29%
31%
31%
31%
28%
28%
29%
29%
29%
30%
30%
30%
31%
31%
Total
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Organic sales growth rate
Europe
13%
5%
-7%
9%
12%
7%
4%
4%
10%
0%
6%
4%
5%
5%
3%
4%
2%
2%
Japan
6%
-9%
-15%
-4%
4%
3%
10%
7%
19%
0%
3%
5%
4%
12%
8%
10%
2%
2%
US
16%
2%
-14%
14%
24%
14%
12%
8%
2%
-2%
5%
6%
6%
10%
9%
10%
7%
7%
China
40%
45%
30%
45%
47%
19%
11%
5%
1%
6%
15%
21%
18%
15%
15%
15%
12%
12%
Rest of Asia & other
22%
13%
8%
23%
27%
14%
10%
5%
-8%
1%
11%
13%
12%
14%
10%
12%
9%
9%
Total
15%
6%
-4%
15%
20%
11%
8%
5%
3%
0%
8%
9%
9%
10%
8%
9%
6%
6%
Source: Company data, HSBC estimates
3
EQUITIES
●
GLOBAL LUXURY GOODS
8 January 2019
Since September 2018, signs of a luxury industry slowdown have started to materialise:
Bases of comparison are tougher as Q3 16 marked the start of the recovery from the
previous sector slowdown (H2 15-H1 16).
The ongoing global equity market weakness is likely to have a negative impact on the
‘feel good’ factor of luxury consumers in some regions (notably the US and China) where
the correlation between the two has historically been high.
The RMB is weaker, notably against the USD and the HKD, which is reducing the
purchasing power of Chinese consumers spending abroad; this is usually not fully offset by
more spending at home, as we recently saw with Tiffany (TIF US, USD79, Buy, TP
USD130) in Q3 18 for instance.
For wholesale categories like watches, the fact that companies are ‘selling-in’ to retailers who
are then ‘selling-out’ to the final consumer make things worse as retailers tend to de-stock which
historically has led to sell-in deteriorating earlier and more significantly than sell-out.
However, as outlined on page 6 (theme #2 for 2019), in this slower, yet robust environment, we
expect companies like Kering, LVMH and Moncler (and to a lesser extent Hermès, Richemont)
to continue to outperform peers. Specifically, we believe:
Chinese demand should slow as the ‘feel good’ factor – at a historically high level for most
of 2018 – may be impacted by macro-concerns; but trends should continue to be supported
by long-term demographic and social factors (see theme #1 page 5)
Japanese and European demand – which is more mature – unlikely to stay at the high
levels seen in 2017 and 2018; the US market remains under-penetrated for luxury, but the
“Trump bump” effect boosting luxury sales since early-2017 may start to wane, notably in
H2 after tax refunds paid between January and April 2019 are behind us.
The strength of their brands (notably Gucci for Kering, Louis Vuitton for LVMH,
Moncler) will create a “flight to quality” phenomenon, i.e. the magnitude of the scale down
in consumer purchases will be less than for weaker brands; in addition, these groups will
benefit from their greater ability to invest (both online and in-store).
From a margin standpoint, the key factors should be the following:
Most of the above-mentioned ‘out-performers’ should be able to post further margin gains
at constant FX as their top-line will be strong enough to fund the necessary significant
investments and they will benefit from size effects.
Companies under-performing and attempting a turnaround – notably Tod’s, Ferragamo, and
Burberry (BRBY LN, GBP1,624p, Hold, TP GBP1,950p) – are likely to see margin pressure.
Based on current spot rates – notably EUR-USD=1.14 and EUR-RMB=7.80 – FX should be
a c50-100bp margin headwind over FY19 – H1 weighed - for companies hedging
themselves mostly via forwards as their hedging rates on the EUR-USD will be c1.18
(based on our estimates).
Some tangible evidence of
slowdown since Sept 2018
Margins in 2019: moderate FX
headwind and divergence
between ‘out-performers’ and
‘under-performers’
EQUITIES
●
GLOBAL LUXURY GOODS
8 January 2019
4
Valuation
Luxury stocks under coverage have on average lost 37% since their 2018 year-highs, a sector
rotation mostly triggered by macro concerns about China which we believe are overdone. As a
consequence, the sector is now trading at 15.6x 12-month forward consensus PE, a 17% discount to
the 18.9x historical average (see charts below). In previous reports, we had outlined that the ‘second
derivative’ theme (i.e. sector multiples de-rating when organic growth decelerates from cycle peaks)
could be an issue and that was the reason behind our Hold ratings on LVMH, Swatch and Moncler.
But more recently we have argued that there appears to be a disconnect between macro fears and
solid luxury demand, and our central case for luxury remains one of a soft landing, rather than steep
declines (one of the reasons for upgrading these stocks in our 25 October 2018 sector report
Markets say “bye-bye”, we just say “buy”). We now also believe that the ‘second derivative’ theme
has played out and current valuations are attractive in light of our ‘soft landing’ scenario: we forecast
sector growth to slow from 9% in 2018 to 6% in 2019 and 2020, still robust top line growth which
should enable most luxury companies to increase margins further, thus allowing for low to mid-teens
EPS growth in that period.
Sector valuation history (forward PE)*
* Non-weighted average of LVMH, Richemont, Swatch (UHR SW, CHF276, Buy, TP CHF390), Tiffany (other companies do not have the necessary history, own non-luxury
assets or their valuations have been distorted by speculation)
Source:Factset, HSBC
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Asian financial
crisis
2000 bubble
09/11 attacks
SARS
epidemic
China starts
to matter
2007 market peak
Post-Lehman collapse
Average since 01/01/2003: 18.9x
PE as of 04/01/19: 15.6x
Anti-corruption measures
in China
Chinese equity
market correction
5
EQUITIES
●
GLOBAL LUXURY GOODS
8 January 2019
Four key themes could impact the sector in 2019 and beyond
China’s Red Bull: favourable generational shift as ‘selfie generation’ shows high
propensity to buy
For the luxury sector in general, HSBC estimates that demand from Mainland China already
accounts for close to 40% of global consumption (c34% for a ‘soft luxury’ brand like Louis
Vuitton, closer to 50% for a ‘hard luxury’ group such as Swatch). We have been looking at the
Chinese consumer’s journey in luxury for a long time and on 7 March 2018, we published two
reports on that theme: Return of the Red Bull, a sector thematic, and China Deluxe, a consumer
survey. More recently, we published a Postcard from Asia (12 Dec 2018) following a 10-day visit
to Hong Kong which included meetings with more than 30 corporate contacts.
For 2019, our base case is a soft landing/normalisation in the overall Chinese demand from
hyper-growth in 2017 and 2018. 2017 benefited from a favourable basis of comparison at least
in H1 (H1 2016 was dogged by terrorist attacks, depressed equity markets and low consumer
confidence) as well as a move by the luxury sector to a less complacent consumer approach
with better product creativity, in-store experiences and enhanced CRM/consumer targeting.
Besides, 2017 marked a 25-year high in terms of consumer confidence in China which only
weakened slightly in 2018, and a real acceleration in purchases by female consumers (China’s
luxury market having been driven until 2014 mostly by male consumers). HK specifically
benefited from a strong return of overnight visitation (correlated with luxury purchases) due to a
weaker HKD and an easing of tensions with the Mainland.
In 2019, in terms of overall Chinese demand, we believe the key factors to watch should be:
A step further towards a 50/50 balance between Chinese spending in China vs
abroad, compared to 25/75 four years ago, and c35/65 today. Leaving aside the short-term
factor which is the RMB weakness, the repatriation of growth from abroad to the Mainland
should continue, linked to a narrowing of the price premium in the mainland (now less than
20% on average vs Continental Europe), clampdown on ‘daigou’ (people buying abroad on
behalf of others), improvement of omni-channel capabilities in the Mainland and greater
confidence in local retail. This repatriation of growth should also lead to bigger stores in
China but also likely more stores for some brands. Separately, we believe the
administration will look to develop a downtown duty free concept to incrementally retain
consumption at home.
The acceleration in the number of affluent urban households, key in luxury industry
where first time buyers matter more than repeat purchases from existing customers
The Chinese consumers’ propensity to spend on luxury goods remaining very high,
at a time when the ‘1998 generation’ or the ‘selfie generation’ starts to impact numbers.
Theme #1
Louis Vuitton brand sales by nationality of customer
%
2003e
2007e
2010e
2013e
2017e
2022e
CAGR
2017e-2022e
Western European
22
19
16
14
11
8
1%
North American
13
15
17
19
20
21
7%
Japanese
51
36
21
15
11
8
1%
Chinese mainland
4
13
23
28
33
36
9%
Other Asian
6
8
10
11
13
13
8%
Other
4
9
13
13
14
13
6%
Total
100
100
100
100
100
100
6%
Source: HSBC estimates
Urban households in China
Millions
2010
2015
2020e
2025e
Affluent*
6
10
18
38
Middle Class**
15
76
141
182
*annual earnings in excess of USD35,000, ** annual earnings of USD15,000-USD35,000
Source: McKinsey
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