• Retail operator in Fujian and Jiangsu
• Offering a mix of mature and new stores
• Targeting mid to upper class

Department store operator

We visited Xiamen and Zhangzhou department stores of Zhongmin Baihui Retail Group Ltd (ZMBH) recently. ZMBH is primarily engaged in the ownership, operation and management of department stores in the People’s Republic of China under the name “中闽百汇”. Though ZMBH was only listed on SGX in Jan-11, its first store began in 1997 in Fujian under its non-listed sister company in China, Quanzhou Zhongmin Baihui (Quanzhou ZMBH). In Sep-13, ZMBH was transferred to the Mainboard in SGX.

Still in expansion mode

As of Dec-13, ZMBH operates 11 retail department stores with a total aggregate Gross Floor Area (GFA) of approximately 178k sqm in Fujian and Jiangsu. Four of the 11 are managed stores held by Quanzhou ZMBH whereby ZMBH collects a lump sum management fee annually. According to management, ZMBH targets the mid to upper class. Management also guided that the gestation period for new stores is about two years, thus the two stores opened in FY13 are expected provide additional growth till FY15. The Nanjing Nanzhan Store, though opened in FY12, is not expected to deliver aboveaverage growth yet as the surrounding estate is still being built. ZMBH has four new stores slated to open between FY14-FY15, thereby increasing GFA by 51.5% to 270k sqm.

Higher net cash position, but declining margins

ZMBH’s net cash position has a CAGR of 187% between FY10-FY13, reaching RMB150m in FY13. On the other hand, revenue ballooned from RMB81.0m to RMB879.2m with a CAGR of 121%. However, PATMI declined after FY11 with a CAGR of -21.5%. The disparity can be explained by the increase in direct sales, slow sales activities in Nanjing Nanzhan Store and new store in Xiamen City undergoing a gestation period. Nevertheless, we think the PATMI decline has to be addressed to ensure sustainable expansion and operations. We currently have NO RATING for ZMBH.

Source: OCBC Research - 7 Mar 2014