HK : Sun Art Retail Group - Margin under pressure with new business investment

Sun Art changed its fiscal year end from Dec to Mar and reported its financial results for the 15 months ended 31 March 2021 with revenue down 2% yoy and net profit down 15% yoy because of its weak 4Q FY3/21 performance, as the community group purchase business took market share from offline stores. Mr. LIN Xiaohai was appointed the new CEO and Mr. HUANG Ming-Tuan stepped down as CEO but still maintains the chairman position. Sun Art will integrate itself with Alibaba’s MMC business segment by providing supply chain support, which will become one of the major growth contributors in FY3/22F. Sun Art plans to open 5–10 hypermarkets and 30–50 mid-size stores in FY3/22F, 50–80 mid-size stores in FY3/23F, and 100 mid-size stores per year going forward. Downgrade to HOLD owing to significant challenges related to the community group purchase model, with a new DCF-based TP of HK$6.40.

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