Wijaya Karya New Look, New Capabilities, Enlarged Group Positioned for Growth

Trinity announced its FY12 results yesterday
Earnings increased 5.3% y-o-y to HKD540m, below and market consensus by 6.3% and 2.0% respectively. If we exclude the one-off gain from the disposal of the Ferragamo JV, its net profit would have dipped by about 0.5% y-o-y to HKD511m. The miss was mainly due to a lower-than-expected revenue increase of 7.4% to HKD2,801m (7.8%/5.5%).

We have cut our TP to HKD4.37 (from HKD5.24), pegged to a lower target PE of 13.0x from 15.0x as we now forecast even slower growth relative to the past. As its current share price is close to our revised TP, we keep our NEUTRAL rating, supported by a 5.5% FY13F dividend yield.
Worst may be over but still no turnaround in sight.

The Group saw 2H12 overall SSSG declining to -5.0%, compared with a 6.5% overall SSSG in 1H12. In FY12, China/Hong Kong/Taiwan reported SSSG of -1.6%/+6.6%/-11.9%. Management guided that although it does not see the situation to worsen in Jan-Feb 2013, it expects sales growth to remain weak with no signs of turnaround as of yet. In FY13, we forecast that the company’s SSSG in China/HK to rebound slightly to 4%/5%.

Store expansion to remain conservative
The Group will focus on consolidation and store expansion for the time being, while remaining conservative in its point of sales (POS) network growth. Currently, the Group plans to open airport shops but expects the higher sales to be offset by higher rental and staff costs. Overseas licensing business, which accounts for <5% of sales, has outperformed but management guided that it will take another two years before the segment could reap any significant growths.