International Housewares Retails take bite in overseas markets

Still growing solidly in HK.

IHR continues to enjoy steady growth in HK while its expansion into overseas markets offers huge potential, as it sells a wide range of household necessities that target domestic demand and are less sensitive to economic cycles.

According to a research note from Maybank Kim Eng, leveraging its 23 years of experience and highly established sourcing network, IHR is tapping into Singapore by working with its local JV partner.

IHR has the potential to become a ‘market consolidator’ in Singapore as it’s a less mature housewares retail market while the island shares similar characteristics with HK.

IHR is a long-term investment offering steady and visible growth with low cyclical risk.

Here’s more from Maybank Kim Eng:

22% core net earnings CAGR over FY14-17F. Earnings will mainly be driven by steady sales growth in HK.

Its network expansion in Singapore and higher contribution derived from direct sourcing will help improve margins.

‘A great deal’ - initiate at BUY. The stock’s recent pullback was due to non-structural issues, such as the rise in expenses in Singapore, one-off store manager wage hikes, and the weak sentiment towards HK’s retail market.

This creates an excellent entry point for investors, in our view. IHR is trading at 13.9x 12 months forward PER or a 51%/26% discount to regional/international peers. Initiate at BUY and TP of HKD4.0, derived from a target PER of 19x.

Key catalysts: 1) Singapore sales and margin improvement after the logistics problem is resolved; and 2) potential M&A.