16 January 2019

Belle falls out of fashion but offers value for money

Belle International (01880.HK) used to be a must-have for investors.

Those were the days when China’s consumption theme ran at full throttle on the stock market.

Listed at the end of 2009, the national retail chain was picked about a year later as a constituent stock of the benchmark Hang Seng Index that represents blue chips in different businesses. It was also in that year that Belle’s profit soared 35 percent.

Belle is still selling lots of shoes and making more than 4 billion yuan (US$655 million) a year, but the magic of growth that cast a spell on investors is no longer there. In 2012, earnings hardly grew. In the first half of 2013, profit slipped marginally, enough to kill the entire growth concept.

Belle shares crumbled from above HK$18 (US$2.32) apiece to less than half of that. They last changed hands at around HK$8.30. Investors who bought anytime in the past four years and didn’t get out are all suffering losses.

Those who rushed to buy Belle right after it gained the prestigious blue-chip status and are still keeping it now would be staring at a huge book loss.

As a growth stock, Belle was considered a good buy at 30 times earnings. But when growth started petering out, the PE more than halved.

Rising wages and operating expenses dragged Belle’s operating results in recent years. Some of the growth it managed to achieve was also of low quality. New stores were opened too quickly, managerial resources could not catch up, new markets also took time to develop. The result is a bigger overhead bill but inadequate additional income.

E-commerce didn’t help either. Relying heavily on department stores as a sales channel, Belle realized that cyber shopping was only taking traffic away from its traditional outlets.

Indeed, the company has had some tough times, and it has made a few wrong moves. But it is taking corrective measures. Store openings slowed substantially. The retailer is also saving whatever it can. Toning down its excessive optimism, Belle is no longer overly aggressive in stocking, thus paring the need to offer huge clearance discounts.

In a massive economy of 1.3 billion people that grows 7-8 percent a year, and with a growing proportion of the people living in urban areas, Belle is certainly just stalling but not fading out.

One investment theory says that when growth investors dump a stock, pushing its share price down to a certain extent, value investors will start looking at it.

Growth chasers are definitely falling out of love with Belle, but its 12 times PE may soon catch the attention of investors looking for steady returns.

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EJ Insight writer

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