Last Friday, along with the announcement of China’s gross domestic product (GDP) which rose 6.1% year-on-year (YoY), in-line with analysts’ estimates, China’s retail sales data also met Bloomberg’s consensus, rising 8% YoY. Macquarie Equities Research (MQ Research) summarized the data, highlighting sales performance on key sectors including food and beverage (F&B), gold and jewellery, and others. MQ Research predicts stronger sales this month due to the earlier Chinese New Year (CNY), while expecting healthy growth to remain this year.

Event

• China retail sales grew by 8% YoY to Rmb3,877.7bn in Dec 2019, meeting Bloomberg consensus estimates of 7.9% and retaining the trend from Nov. Retail sales excl. auto grew by 8.9% YoY, slightly contracting from the 9.1% growth in Nov. For full-year 2019, retail sales picked up by 8% YoY, slowing down from the 9% growth in 2018.

Impact

• Gold & jewellery sales restored to growth; cosmetics retained double-digit growth. Sales of gold, silver and jewellery finally returned to +3.7% YoY growth in Dec 2019, after five consecutive months of sales decline since July. The recovery echoes the results of Chow Tai Fook, which witnessed progressive same-store sales growth (SSSg) improvement into Dec; Luk Fook also recorded narrowed SSS decline for Mainland China in 3QFY20 (Oct-Dec) vs. 2QFY20 (Jul-Sep), and restoration of growth in the first two weeks of Jan 2020. In Dec, Cosmetics sales maintained double-digit growth at 11.9% YoY, down from the 16.8% rise in Nov which was fueled by online promotional sales. Cosmetics was one of the best-performing sectors in 2019, with retail sales up by 12.6% YoY, accelerating by 3ppt as compared to 2018.

• F&B sales growth showed acceleration; restaurant sales growth slightly moderated. In Dec 2019, food and beverage sales grew by 9.7% and 13.9% YoY, improving from 8.9% and 13% in Nov; sales growth of tobacco & liquor showed progressive acceleration to +12.5% in Dec from +8.3% in Nov and +4.4% in Oct. China’s Dec restaurant sector sales were up 9.1% YoY, slightly moderating from 9.7% YoY in Nov. On a full-year basis, restaurant sector sales increased 9.4% YoY in 2019 and continued to maintain high single digit growth momentum. Looking ahead, MQ Research expects stronger sales this January due to earlier Chinese New Year and 2020 still seeing healthy growth supported by structural tailwinds. MQ Research is positive on the hot pot and fast casual segments, as they’re best positioned to capture the changing lifestyles and rising demand for variety. In view of elevated raw material costs, market leaders should see less margin pressure thanks to economies of scale and pricing power.

• December home appliance sales momentum moderated after a strong November. Home appliance sales grew 2.7% YoY, moderating from 9.7% YoY in November. MQ Research believes the strong promotion in both online and offline in November likely extracted some home appliances in advance. Based on All View Cloud (AVC)’s weekly home appliances offline retail sales data, for the 4 weeks ended 29th December 2019, refrigerator sales grew 3.4% YoY vs 4 weeks ending 1st December 2019 at 6.0%, Washing machines were down 3% vs +2.2% YoY 4 week prior while air conditioners were down 29% YoY vs a 21% YoY growth 4 week prior. Range hoods retail sales declined by 4.1% YoY, a similar trend vs 4 weeks prior. Based on its industry checks last Friday, MQ Research still expects price competition within air conditioners remaining fierce the next few months as Gree’s elevated inventory will likely take time to be digested. Within the sector, MQ Research still prefers Haier Smart Home in the Home appliances sector.

• Online contribution to retail sales of goods rose by 2.3ppt YoY for 2019. Online retail sales of goods rose by 17.9% YoY to Rmb921bn in Dec 2019, decelerating from the 19.1% rise in Nov. For the 2019 full year, online retail sales of goods picked up by 19.5% YoY, and its contribution to total retail sales of goods rose by 2.3ppt YoY to 20.7%. In 2019, food (吃), clothing (穿), and other commodities (用) sold online increased by 30.9%, 15.4%, and 19.8% YoY, respectively, decelerating from the 33.8%, 22.0%, and 25.9% growth in 2018.

• Hainan duty-free sales picked up by 35% YoY in 2019. According to a news report, Hainan dutyfree sales increased by 35% YoY to RMB13.6bn in 2019, while the number of shopping customers grew by 34% YoY to 3.84mn. Meanwhile on 2020 New Year’s Day, Hainan duty-free sales and shopping customers picked up by 20% and 47% YoY, respectively. China Int'l Travel Service, the operator of Sanya Duty-free Mall in Hainan, just reported preliminary financial results for FY19, implying 4Q19 revenue down by 4% YoY, beating MQ Research’s estimate by 11%. MQ Research believes this confirms MQ Research’s view that the preliminary NP miss was due to one-off factors in 4Q19 which are unlikely to recur in 2020.

Source: Macquarie Research - 20 Jan 2020