NewsPou Sheng reported disappointing 4Q16 results, driven by lower GPM, higher opex,and impairment losses. 4Q16 NI of RMB4,072mn/US$599mn, down 87%/91% yoy,below GSe of RMB4,114mn/US$605mn, despite strong pre-announced sales. Ourpreliminary conversation with management suggested the lower than expectedmargin is a result of 1) aggressive store opening in 4Q16 (304 stores vs. 233 in 3Q16and 268 in 4Q15), mostly directly-operated large format stores with higher opex, 2)more promotions at the new stores (leading to lower GPM), 3) consolidation of PCGBros (sports marketing company), which leads to higher opex, and 4) rising salaries.
Pou Sheng also announced a final dividend of HK$0.02/share. Together with theinterim dividend of HK$0.02/share, this implies 32% payout ratio.
Key 2016/4Q16 metrics as follows:1) Sales (pre-announced): 2016/4Q16 +6%/+8% yoy (US$), +12%/+14% (Rmb).
2) SSSG: 5.6% in 2016, in-line with GSe vs 4.6% in 9M16, implying 4Q16 SSSG of6.5% yoy.
3) PoS: 5,560/3,199 direct/wholesale stores, +12% yoy (GSe: 5,393/3,243).
4) GP margins: 35.5%/34.7% in 2016/4Q16, +2.2/-1.0ppt yoy (GSe: 37.2%/37.2%).
5) OP margin: 5.7%/3.5% in 2016/4Q16, below GSe of 6.6%/6.5%.
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