Introduction to Goldlion Holdings (48.1% upside)

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Goldlion Holdings Company Overview

Goldlion Holdings Limited distributes and manufactures mid-market garments and accessories. The company also invests in properties in China and Hong Kong for rental income.

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The bulk of the Group’s earnings is attributed to its property investment segment and apparel sales in mainland China and Hong Kong SAR.

Apparel Value Chain

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Goldlion Holdings

Goldlion manufactures apparels and sells them via 3 sales channels – 1) wholesale to distributors/distributor outlets, 2) self-operated retail stores (including factory outlets) and 3) an e-commerce platform which was recently launched in 3Q14. As of 2014, the Group has 1,030 distributor outlets and 90 self-operated retail stores. To avoid cannibalization, the Group sells mainly off-season stock on its e-commerce platform.

Goldlion Holdings Property Investment Value Chain

Goldlion’s property investment arm functions as a property developer. It acquires land and develops properties either for sale or for rental. Rental income and building management fees form the main source of recurring income for the segment. The Group also transfers investment properties to its own use.

Industry Overview

Slowdown in retailing due to slower macro economy

The Chinese economy slowed down in 2014, with real GDP growth of 7%, which was much lower than the 9% in 2009 and 11% in 2010. The decelerating domestic economy had a negative impact on retailing in China, which also experienced decelerating growth momentum in the review period, to reach value growth of 7% in 2014 at constant 2014 prices. Accordingly, growth in retailing is also forecasted to slow down, to arrive at a CAGR of 7% from 2014 to 2019. With regards to clothing market demand, total value has increased from USD50.9m in 2011 to USD71.2m. According to the Economist Intelligence Unit, CAGR for 2015F to 2018F is expected to be 10.0%.

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Goldlion Holdings Internet retailing to threaten store-based retailing

In 2014, the base of internet users continued to expand rapidly in China. According to China Internet Network Information Centre (CNNIC), the number of internet users in China amounted to 649 million by the end of 2014, rising from 617 million in 2013 and the internet penetration reached 48% in 2014, up by 2% over 2013. Meanwhile, 56% of the internet users were engaged in online shopping in 2014.

The boom in internet retailing and the rapid rise of online shoppers had a negative impact on store-based retail channels, particularly department stores.

Seeing the great potential in internet retailing over the forecast period, more players including both domestic and international manufacturers, may place more efforts into internet retailing and even in mobile retailing to gain share under the intensified competition. Between 2009 and 2014, non-store based retailing grew at a 69.3% CAGR against a 10.0% CAGR for store-based retailing.

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Goldlion Holdings Mixed property outlook in China

In Hong Kong, industrial rents are expected to increase by 4% in 2015 according to Collier’s 1Q15 report. Supply remains tight while demand is underpinned by logistics operators, resulting in a supply shortage in the warehouse sector which will continue to support industrial rents. Industrial property prices are expected to be stable; increasing by less than 2% in 2015.

The average rent of Guangzhou’s Grade A office edged down by 0.3% q-o-q though increased by 1.8% y-o-y to RMB154.3 psm per month in 3Q15. This was due to discounts at the new supply in order to attract high-profile tenants or to secure precommitments. Excluding the impact of new supply, the average rent was unchanged on a quarterly basis.

In Shenyang’s prime office property market, average rent continued to edge down and the vacancy rate increased due to continued competition among landlords. The average rent decreased by 2.0% q-o-q to RMB91.5 psm per month in 3Q15, with declines in most submarkets.

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