Morningstar | Operationally, Sun Art Is on Track to Improve Efficiency With Help of Alibaba
We maintain our HKD 7.80 fair value estimate for no-moat Sun Art and believe the shares are fairly valued at the moment. We continue to see progress resulting from Sun Art’s partnership with Alibaba and do not expect a major financial uplift this year. We expect revenue growth to accelerate to midsingle digits starting next year with a five-year revenue compound annual growth rate of 5% while net income should see a high-single-digit increase starting next year with a five-year net income CAGR of 9%.Sun Art entered into several agreements to source products from Alibaba, expected to diversify and optimise product variety in Sun Art’s offline stores. These products include fast-moving consumer goods, household products, 3C electrical appliances, packaged and fresh food, and groceries. They include popular products on Alibaba’s e-commerce platform, products imported by Tmall, products sourced by Hema, and differentiated products such as Taobao Xinxuan products. Taobao Xinxuan is a platform that provides Big Data and retail experiences to assist designers, manufacturers, and retailers in introducing their own brands with a positioning of high value for money and more modern designs.
The online portal Taobao Xinxuan has entered the physical market through RT Mart and Auchan. According to 36kr, the choice of location, products, and display in the offline stores are made by Xinxuan to meet the needs of the customers of RT Mart and Auchan. Xinxuan analyzes the distribution of customer traffic in the stores and provides information such as the change in traffic, percentage of female customers, and recommendations on how to attract more traffic. The introduction of Xinxuan is expected to increase traffic from young customers and enrich stock-keeping units for older customers. Xinxuan will roll out its offline stores in other RT Mart and Auchan location if the trial stores are successful.
With the help of Alibaba’s customer data, Sun Art’s stores can source products based on consumer preference, purchase frequency, and so on in the neighbourhood. This has greatly reduced the time for evaluation of products sourced from several days or months to several hours.
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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