Hong Kong Strategy

类型：投资策略机构：瑞银证券有限责任公司研究员：Spencer Leung 日期：2015-08-21

Mongkok has become quiet.

    Conversations with sales managers of retailers located in Mongkok, one of the primeretail districts in Hong Kong, revealed that a material drop in foot traffic—specificallythe traffic ratio between mainland tourists and local shoppers—has shifted from 80/20in 2013 to 50/50 recently. We noticed a slight pick-up in local spending as prime retaildistricts have become less crowded, though the overall downward trend in salescontinues. We expect the recent Rmb depreciation to further dampen short trips toHong Kong in Q415.

    Negative perception of Hong Kong could take years to change.

    In the past two years, Guangdong has been a growth driver for Hong Kong overnightvisits, offsetting weakness in other regions. We believe recent anti-tourism movementshave been effective in turning away mainland tourists. Conversations with tourists fromGuangdong who had frequently visited Hong Kong for business and leisure suggestedthat increasingly more tourists feel uncomfortable about visiting Hong Kong. While theHong Kong Tourism Board has taken a more active role in promoting Hong Kong,negative perception, once established, could take years to change. We had previouslyexpected overnight traffic to decline in 2016, but YTD data (-4% YoY) suggests that adecline will most likely start this year.

    Further rental cuts anticipated before retailers return.

    We expect more store closures in Hong Kong, even though it has been reported thatrentals in prime districts have fallen strongly by 30% from their peak. Our previousanalysis on per square meter profitability of Hong Kong retailers shows that the rentalrates of ground-level shops in prime districts will have to drop by 70% from their peakfor non-jewellery retailers to cover their expenses.

    Our most and least preferred stocks.

    Our end-2015E HSI grey-sky and black-sky scenarios of 23,622 and 19,775,respectively, (previously highlighted in our report Assessing grey sky and black skyscenarios) now seems more achievable. Our most preferred list comprises Cheung KongProperty, CK Hutchison, MTR, Orient Overseas (International), Shun Tak, Sun Hung Kai,and Swire Pacific. Our least preferred list includes Bank of East Asia, Cathay Pacific,Chow Tai Fook Jewellery, Sa Sa International, Hysan Development, Li & Fung, GalaxyEntertainment Group, and Wharf Holdings.