China Retail Sales Mar 2016

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China Retail Sales Mar 2016
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Overall retail sales growth in Mar-16slightly picked up over Jan&Feb-15. China’s Mar-16retail salesrecorded 10.5% y/y growth (Bloomberg consensus: 10.4%), slightly improving from the 10.2% y/y growth inJan&Feb-16.

Jewelry sales sharply declined in Mar-16. After a slight decline in Jan+Feb-16, gold & jewelry sales furtherdeteriorated to c9% decline in Mar-16, compared to c2% decline in Jan+Feb-16, c11% growth in Dec-15andc5% growth in Nov-15. On a two year stack basis, gold & jewelry sales increased c8% y/y in Mar-16,compared to 4% decline in Jan+Feb-16. The deterioration in gold & jewelry sales is consistent with Chow TaiFook’s sequentially weaker China SSSG in the 3months to Mar-16. We note that gold price surged in thefirst quarter to over $1,250levels from c$1,060around December end. In addition, stablisation of RMB likelyreduced the demand for gold, in our view.

Cosmetics sales grew c9% in Mar-16. Cosmetics sales continued to be strong with c9% growth in Mar-16,compared to c11% in Jan+Feb-16, c6% y/y in Dec-15and c9% in Nov-15. On a two year stack basis,cosmetics sales growth was c21% y/y in Mar-16compared to c22% y/y in Jan+Feb-16.

Clothing and footwear sales growth slowest in years. Clothing and footwear sales growth slowed down toc4% in Mar-16from c8% y/y growth in Jan+Feb-16. This is the slowest headline sales growth in recent years.On a two year stack basis, clothing and footwear sales rose c19% in Mar-16in line with c18% in Jan+Feb-16.

Ecommerce accounts for c10.6% of overall retail sales in Mar-16. Ecommerce sales were up c28% y/y inMar-16. In terms of categories within e-commerce; food & beverage, apparel & footwear and others were upc36%, c16% and c30%, respectively.

Stocks implications: After the slowest Jan+Feb start in recent years, retail sales growth slightly improved inMarch. We believe the demand on the ground is still weak and we do not expect to see a meaningful recovery in2016. We expect the deflationary environment witnessed over the past 2years to persist. In staples, we expect tosee slight improvement aided by less channel inventory as well as accelerated pace in product innovation andupgrade but competition might be a drag on some subsectors. Commentaries by staples companies indicate that1Q16trend has slightly improved. Given the general weak trend expected to continue in 2016, however, wesuggest investors focus on bottom-up drivers and being selective in segments and stocks rather than having atop-down preference. We are pushing segments where we believe ongoing weakness is mostly cyclical andupside from structural factors remains, such as beer and home appliances. We also see opportunities in spiritswhere the gifting-related spending bubble seems to be out of the system and prices have stabilized. Our toppicks are CRB, Hengan and Haier Electronics. We suggest avoiding WW given weak product innovation.

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