Morningstar | Increasing Sun Art’s FVE to HKD 8.0 Per Share; Earnings Expected to Accelerate This Year. See Updated Analyst Note from 12 Feb 2019
We have increased the fair value estimate of Sun Art Retail to HKD 8.0 per share from HKD 7.8 per share purely on time value of money. After being overvalued for most of 2018, the recent share price decline now leaves the shares fairly valued, in our view. We forecast operating income to begin to accelerate in 2019 to 7% on benefits from its cooperation with Alibaba. We expect average operating income growth of 11% over our five-year forecast period due mainly to Alibaba, compared with a 3% per annum decline over the past three years.By the end of December, approximately 470 Sun Art stores were digitized with Alibaba’s new retail technology and know-how (versus a total number of 472 stores operated by Sun Art, with 56 new stores in the pipeline as of June 2018). Consumers are now able to place orders on Taobao. This is expected to equip Sun Art’s stores with consumer insight, on-demand delivery, inventory tracking, supply chain management, and mobile payment solutions. We expect to see accelerated revenue growth to 5% and 10-basis-point improvement in operating margin in 2019 as digitalization now covers most stores of Sun Art.
Sun Art Retail Group is an investment holding company, engaged in the operation of hypermarkets in the People's Republic of China (PRC), under two banners of Auchan and RT-Mart. As of Dec 31 2014, Co. had a total of 372 hypermarket complexes in China, with a total gross floor area of approximately 10,277,525 sq. m.
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