汇丰银行-韩国消费-korea consumer：three stocks to own in the current environment-20170721-hsbc

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1、21July2017KoreaConsumerEQUITIESCONSUMERThreestockstoowninthecurrentenvironmentKorea2Qearningsexpectedtobeweak–notasurprisegivenKarenChoi*China’srestrictionoftourismtoKoreafrommid-MarchHeadofConsumerandRetailResearch,Asia-PacificTheHongkongandShanghaiBankingCorporationLimited,SeoulSecurit

2、iesBranchThefocusnowshouldbeonrecoveryandmarketsharegainskaren.choi@kr.hsbc.com+82237068781inmainlandChina*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisWecontinuetolikeAmorePacific,LGH&HandHotelShilla,notregistered/qualifiedpursuanttoFINRAregulationsallratedBuyWhat’snew?GivenChin

3、a’srestrictionofgrouptourstoKoreafrom15March2017,Chineseinboundtourismcontinuestobeweak,withApril/Maydown66.6%and64.1%y-o-y,respectively.Thiswillinevitablyweighon2Qearnings,especiallyforcosmeticcompaniesandduty-freeoperators.However,whenearningsarereleased,weexpectsharestorecovergiven1)2Qises

4、timatedtobetheweakestquarterfor2017andweexpectagradualrecoveryin2H;and2)continuousmarketsharegaininmainlandChina.GrowingimportanceofChina:WebelievethekeytosuccessisbuildingasignificantpresenceinChinaonshoreandbeinglessdependentontourismflows.WehighlightthatAmorePacifichasmorethantripleditscol

5、ourcosmeticsmarketshareinChinato6%in2016(vs1.7%in2011).LGH&H’splantocontinuouslyintroducewell-establishedKoreanbrandsinChina(inparticular,cosmeticsandhaircareproducts)shouldproveasuccess,inourview,andweestimateanother20-30%y-o-yChinasalesgrowthforbothfirmsin2017e-18e.Valuationandrisks:Withthi

6、sreport,werollforwardourvaluationto2018e(from2017e)aswegointo2HandwebelievemarketshouldseeearningsnormalizationbeyondTHAAD.Wenowexpect5.8mChineseinboundvisitstoKoreain2017(down28%y-o-yvsourpreviousestimateof6.9m,anddown15%y-o-y)and7min2018.Assuch,wecut2018eEPSforAmorePacific,LGH&HandHotelShil

7、laby7.2%/1.2%/7.3%,respectively.Ourtargetpricesareadjustedtoreflecttherollingforwardofour✔VoteinAsiamoneyBrokersPoll2017valuationperiodandournewforecasts.WeretainourBuyratingsonallthreestocks.Keydownsiderisksinclude:1)weaker-than-anticipatedr